Behind WhatsApp's Slowing Growth

Behind WhatsApp's Slowing Growth

Phone messaging is one of the most competitive markets there is. That’s why WhatsApp’s growth for thirteen straight years has been so insane to watch. How has this one messaging app managed to add an average of 208 million new users every year since 2012?

The short answer: it’s free and super accessible to everyone, everywhere. (We’ll get more into WhatsApp’s merits soon.)

But this blog post isn’t about WhatsApp’s explosive growth. It’s about a privacy notification in the year 2021 that told users that their data was being shared with Facebook, and how that caused WhatsApp’s growth to slow to its slowest rate since 2012, and pushed Telegram to the #1 position as most downloaded app of January 2021. (As you can see below, WhatsApp added 80 million users in 2021, its slowest growth since 2012.)

Why didn’t WhatsApp’s growth slow in 2014, when Facebook acquired WhatsApp? Or in 2016 when WhatsApp started sharing user data with Facebook? Why was one privacy notification enough to send away hundreds of millions of users?

To answer those questions, let’s go back to 2014…

The $19 billion Acquisition

I still remember the day in 2014 that Facebook bought WhatsApp for $19 billion, 19 times the price it paid for Instagram. At the time, I was working as a junior web developer at a small startup and learned about the acquisition over lunch. “Can you believe it, $19 billion?” my teammate Arjun asked me. “They have only 55 employees. Those must be the richest employees in history.”

“Wait, what’s WhatsApp?” I replied, while chewing my sushi.

What’s WhatsApp?

WhatsApp, it turns out, is a cell phone app that allows you to send messages through a smartphone app, avoiding SMS fees. Usually, when someone with an Android phone texts someone using an iPhone, they pay an SMS fee. Those fees can be quite high in places like Europe and the developing world where telecommunications companies have monopolies.

Starting in 2009 with iMessage, messaging apps started to surge in popularity because they avoided SMS fees.

At the time of the Facebook acquisition, though, WhatsApp was much more than just a tool to avoid SMS fees. It was the only messaging app in the market that offered a truly global product, running on all major mobile operating systems from its inception: iPhones, Androids, Blackberrys, as well as the feature phones that are popular in developing countries. (This part will become important later.)

If you’re wondering what a feature phone is, imagine a 2000s-era Nokia or Razr phone that uses WiFi. (In other words, a smartphone with a smaller, cheaper operating system than an iPhone or Android phone.)

Plus, WhatsApp offered tons of languages since its founding, helping it to spread globally: “In the startup’s first year, they offered the service in German, Spanish, French, and Italian, among other languages,” Wired explained at the time.

It’s true that WhatsApp’s competitors, like iMessage and Telegram, offered features that WhatsApp didn’t, like encryption (more on that later). But iMessage only worked – and still only works – on iPhones, a limiting factor that means that only 30% of smartphone users can ever use it. And Telegram was brand new to the market.

AppLaunch DateFree MessagingEnd-to-End EncryptioniPhone compatibleAndroid compatibleFeature phone compatible
Facebook Messenger mobile app2011
Google+ Messenger mobile app2013

A Cinderella Story

The acquisition was a true Cinderella story. WhatsApp’s founders, Jan Koum and Brian Acton, had applied to be engineers at Facebook in 2007 (“We’re part of the Facebook reject club,” they told Forbes), only to be acquired by Facebook seven years later for the then-largest acquisition of a venture-capital-backed company in history.

The 19 billion dollar price tag seemed crazy at the time. It came out that Google had also sought to buy WhatsApp, which certainly drove up the price. Most significant, though, was how badly Facebook wanted to continue its breakneck speed of growth in developing countries, and how much it was willing to pay to gain entry to countries where WhatsApp was already quite popular. WhatsApp had 450 million monthly active users in countries that Facebook didn’t, and Facebook wanted to understand these users: specifically their behavior, cell phone characteristics, and feature requests.

From an ethos standpoint, you may be wondering what exactly the WhatsApp founders gained from being owned by Facebook – besides the obvious 19 billion things – since Facebook’s business strategy was always surveillance-at-all-costs, and WhatsApp doesn’t even store your name. Koum, who grew up in the USSR during the 1980s, famously wrote during the acquisition, “Respect for your privacy is coded into our DNA, and we built WhatsApp around the goal of knowing as little about you as possible: You don’t have to give us your name and we don’t ask for your email address. We don’t know your birthday.” (To this day, you don’t need a name to sign up for WhatsApp.)

But Koum and Acton seemingly chose to ignore the obvious: that Facebook was going to get these users’ data eventually.

Enter: WhatsApp’s Encrypted conversations

When Facebook bought WhatsApp, WhatsApp was in the middle of a multi-year effort to build end-to-end encryption, something its users frequently requested, and something the founders cared deeply about. (Plus, as we’ve discussed, competitor apps like iMessage and Telegram already offered end-to-end encryption.) Finally, in 2016, WhatsApp launched end-to-end encryption, which meant that all WhatsApp conversations were disguised into machine-readable text that people like the NSA wouldn’t be able to read (without a warrant). Acton told Wired at the time, “I don’t really want to be in the business of observing conversations.”

Wait, doesn’t total freedom of speech online often breed extremist, criminal, or outright gross thought spaces?

Well, yes… good point… but we’re talking about 2016, back when popular opinion was SUPER on the side of encryption. This was right after the Edward Snowden leaks, and people associated encryption with journalists and whistleblowers (like Snowden), not yet drug lords and arms dealers.

Zuckerburg, unsurprisingly, was supportive of end-to-end encryption throughout the acquisition. He even added a feature called “secret conversations” to Facebook Messenger that used the same encryption protocol as WhatsApp. And of course he was supportive: encryption kept Facebook free of responsibility for illegal activity conducted on their apps. If Facebook couldn’t read the messages that were sent by users, they couldn’t be held liable. (Even back then, Facebook struggled with ferreting out revenge porn and other illegal content.)

End-to-end encryption for messages is still used in WhatsApp to this day, and has certainly helped WhatsApp continue to grow. But that doesn’t mean that all of your WhatsApp data is safe, as we’ll soon see…

The new privacy policy

In late 2016, the inevitable happened. WhatsApp changed its terms and privacy policy so that Facebook could make ads more personalized. As the founders explained in their blog:

…by coordinating more with Facebook, we’ll be able to do things like track basic metrics about how often people use our services and better fight spam on WhatsApp. And by connecting your phone number with Facebook’s systems, Facebook can offer better friend suggestions and show you more relevant ads if you have an account with them.

From this point onwards, WhatsApp data would be an input to Facebook’s ad targeting.

Koum and Acton fought this change tooth and nail, but eventually conceded defeat. After the privacy policy was announced, they left Facebook, famously leaving behind $400 and $180 million, respectively, in unvested stock. To his credit, Acton admitted that he’d chosen money over his privacy ethos, saying “I am a sellout. I acknowledge that.”

Enter: Telegram

Telegram has been around since 2013, and in many ways it’s a clone of WhatsApp if WhatsApp had never been acquired by Facebook. Telegram’s founders, like WhatsApp’s, were born in the Soviet Union and built the app to protect people’s data from authoritarian governments. Telegram even uses a green color scheme that looks like WhatsApp, including green double-check-mark read receipts.

But Telegram is a not-for-profit company. It is based in the British Virgin Islands. It doesn’t want to get acquired by anybody, and it even stores all its data in offshore servers to avoid government data requests.

Because Telegram was founded four years after WhatsApp, it was always second fiddle. Then 2021 happened.

The Privacy Policy Notification

In January 2021, Facebook’s parent company, Meta, launched WhatsApp Business, a new service that allowed users to message directly with businesses through WhatsApp. Meta sent out an official announcement that laid out WhatsApp’s existing privacy policy – which had been in effect since 2016 – along with a caveat that businesses would now be able to see “what you’re saying” and use it for their own “marketing purposes”:

Some large businesses need to use hosting services to manage their communication. Which is why we’re giving businesses the option to use secure hosting services from Meta to manage WhatsApp chats with their customers, answer questions, and send helpful information like purchase receipts. But whether you communicate with a business by phone, email, or WhatsApp, it can see what you’re saying and may use that information for its own marketing purposes, which may include advertising on Meta.

In addition to the confusing wording about businesses having access to your message contents, the announcement didn’t explicitly explain what was changing. It only explained what Meta wouldn’t collect, and didn’t explain what Meta would collect, so users probably assumed that anything not mentioned in the policy would be collected. (Events like Cambridge Analytica hadn’t exactly built trust).

After the announcement, users flocked to competitor apps like Telegram. A week after WhatsApp sent out the privacy change notification, Telegram added more than 25 million users over the previous three days, pushing it to over 500 million users.

Telegram officially became the most downloaded app in the world for January 2021, officially dethroning WhatsApp.

Can Telegram maintain its hold over WhatsApp?

But not everyone cares about security. People are turning 13 and getting new phones, and they’re installing the apps that their parents use. While Telegram was the most popular Android messaging app of 2021, WhatsApp regained first place in 2022, according to Meltwater’s 2023 Digital Report:

Looks like 2021’s privacy changes are a distant memory, with WhatsApp back in the #1 spot on the "Favorite social media platforms" list.

WhatsApp might very well keep its #1 spot for the foreseeable future (until TikTok adds better messaging, hah). But we saw something interesting happen in 2021: that WhatsApp sacrificed a significant corner of its market by revealing its lenient stance on privacy. To this day, Telegram is still the most popular messaging app in ten countries, including Cambodia and Iraq, the majority of which have authoritarian governments. So Telegram hasn’t completely lost its market hold.

It will be interesting to see if WhatsApp and Telegram diverge further in their privacy feature set over time, and how users respond to these changes.