something's really fishy about WhatsApp it's been 10 years since made up Facebook announced that it was buying the company for $22 billion he spending 19 billion dollars to buy it why did you do it and what does it mean and you would think that the reason behind this is obvious more data to their algorithm figuring out what you're discussing with your friends and serving you ads about it and then there's the Strategic value and what we can do together but to this day made a swears that all texts in WhatsApp are end to and encrypted that they don't use them for ads so is that true I'm going to get back to that don't worry according to Ma's public filings WhatsApp made $382 million in 2023 mostly from their business messaging platform so that's how WhatsApp makes money end the video no wait of course that's pennies compared to the 19 billion doar that zck paid to acquire WhatsApp where's the ROI ROI radio on internet it would literally take 49 years to recover the investment at this rate so why would he buy this not very profitable platform instead of using that money I don't know to buy either of these countries or fill 11,000 stadiums with 19 billion Rubber Chickens or making movers that people actually want to use so what was the real angle for buying WhatsApp let's go back to the infamous announcement because it did take Everyone by surprise this was and still is one of the largest tech Acquisitions in history just shy of a slack or LinkedIn but those companies had real business models at the time WhatsApp had around 450 million active users only Og app users ever paid anything their $1 yearly fee but beyond that most people have never paid a single dollar for WhatsApp now part of the reason for all this fuzz on WhatsApp being overvalued is that much of whatsapp's success their original product Market fit was mainly outside of the us cuz America didn't really need a WhatsApp blurry photos weird likes you know if your group has different phones just use WhatsApp the Americans have had decent unlimited SMS and MMS with all other 300 million Americans but that wasn't a thing for the rest of the world I'm Costa Rican and when you hail from a smaller country you have friends abroad you travel outside the country so you would need something back then you would need something like Skype to be able to be in touch with your friends or in even larger countries like India SMS kind of sucked back then but this was solved in the states so much so that the founder of WhatsApp didn't even build WhatsApp for texting WhatsApp started in 2009 founded 5 years earlier by Jan k a former Yahoo employee again replacing SMS was not a problem that needed solving in the US so Jan's idea was more of a status update platform so you would post public updates to your friends and you would only see your friends updates well if you open the app so that thing wasn't doing great by the way it was not it wasn't easy finding OG WhatsApp screens shots this version only really ran for a few months and only for a handful of people and it didn't do so well Jan had enlisted his Russian friend Alex Fishman and they were working with a freelancer called Igor solomnikov sorry if I buture your name man mid 2009 Apple started allowing push notifications with wait for it iOS 3 so now you could get status updates even when you weren't using WhatsApp and a handful of early users started posting updates that felt more like texts and the company could read them because they were designed as public updates and so the WhatsApp team figured that they'd chase that use case right the wave and then they released the WhatsApp messenger in August 2009 and it blew up it quickly grew to 250,000 users and people were loving it and this is when Brian Acton joined who was another Yahoo employee and he convinced a few friends to invest as well and as part of this deal he got co-founder status wait so why does he get to call himself a co-founder if he came in later with money kind of reminds me of another co-founder debacle we covered last week because WhatsApp was originally designed as a status update service encryption was not a concern at this point before 2011 WhatsApp just used a verification text to activate your phone number and text other people so if New York me wants to send something to Costa Rica me I'm basically writing a message on a piece of paper that travels the internet the server gets to the destination as a public message people on the internet can see it the router can see it and whatsapp's server can definitely see it so in this version of WhatsApp any texts you exchange were readable by the owner of the company by the servers right the servers could see the text and they could have potentially used that to Target ads also in 2011 this company called whatsap hack discovered an exploit that would allow them to intercept the verification SMS that you send to activate a device and potentially use that to hack into your account and read your text so WhatsApp figured they needed to do something about it and that something was encryption but to understand encryption we need an explainer time their first attempt at encryption was to create an encrypted connection with the server so that the message would travel encrypted through the internet and the problem with this was that many people figured out how to hijack accounts hackers or often security researchers and more crucially to our story the message in WhatsApp servers could have been visible cuz the server had the key to see it which means that the message in Facebook servers after the acquisition could also be visible Senator we run ads I'm oversimplifying here but bear with me the point is that even before the acquisition WhatsApp had gotten too popular too quickly and governments had started to raise Flags against using Whatsapp because of these security issues so they had to do something about it and so endtoend encryption became the only solution but before I talk about that I should talk about fresh sales the AI powered CRM product from freshman and the sponsor for today's video fresh sales is a super easy to use sales product that can get your team started from day one without any training with built-in email phone chat SMS and of course WhatsApp support salespeople can connect with their prospects right from the CRM and engage with context of what has been said before it lets you automate that boring repetitive task and set up automated sequences so prospects are engaged without any additional manual work sales tees can manage their deals across stages they can send signed contracts and track quotas to ensure their numbers are always on the rise and with the fair sales mobile app they can stay connected even when they're on the go what's more fair sales is powered by Freddy AI which is this AI powered assistance that helps sales teams identify High intent leads and craft personalized emails to boost conversions Freddy also spotlights promising deals and recommends actions so you're always a step ahead if you're a startup looking for a new CRM or simply to move away from your current setup you should check them out their basic plans starts at just $9 okay so in ENT an encryption I have created a key this is called a private key it's a much longer number than this one but the point is it's completely secret nobody should know what this is and then create two public keys and send them over the Internet everyone will be able to see them cuz they're live on the internet but that's okay the receiver gets these keys he has his own private key and he uses it to create a mush combination of numbers that include both the public keys and his private key so the receiver then sends all this gibberish back to the original sender who now puts his own key into it and sends a message back so anybody who intercepted any of these messages can see this but all they have is the public keys and they can't decrypt the message the origin for this key exchange mechanism is called the Diffy Helman key exchange protocol and this is old 70s old school 70s cryptography WhatsApp uses a newer version of this called the X3 DH which is the extended triple Diffy Helman mechanism which is even more secure but the point is that the only way the only way to decode this is to know one of the two private keys so now you can send these messages through any server public or private and the only device that can see the original message is your friend's device and this is the standard for most messaging apps these days one of the reasons why iMessage became so popular early on was because it was one of the first ones to do it and that actually got them in trouble with the police because there are no back doors with endtoend encryption so if the FBI wants to see someone's texts they can't Apple can't so now unless the Zuck has some reptile Al super computer hidden in his data centers I'm going to have to go with no I am not a lizard current computing power would take 3 * 10 to the power 59 to decrypt your message which is a lot more than the age of the universe 13.8 billion years the end toin encryption that I've just described to you is the same one that signal uses signal is of course whatsapp's rival it's a nonprofit organization mostly funded by Brian Acton one of the co-founders of WhatsApp which makes this whole thing kind of poetic if you think about it but that is really the last happy note in this video because Facebook has done everything it can to mine as much data as it can from WhatsApp and it has kind of succeeded at that privacy focused messaging platform has to be encrypted by all accounts things were pretty rushed when the acquisition was negotiated Facebook was desperate to buy WhatsApp in part because the founders had also visited Google in Mountain View around that time and they were worried that Google might beat them to the acquisition and that's in part what prompted the crazy number and some flexibility in the negotiations if we can do a pretty good job of helping um WhatsApp to grow that this is just going to be a huge business because as part of the sale WhatsApp Founders agreed to a few things with Mark some were kind of like verbal agreements some on paper there was an actual clause in the contract that said that they could collect all of their stock if Facebook started implementing monetization initiatives without their consent but soon after they joined Brian recalls overhearing Facebook's projections for WhatsApp Revenue $10 billion per year by 2019 I mean you have to recover that Roi and that $10 billion plan was by all means to put ads on WhatsApp starting with status updates businesses obviously need to make money and even Brian understood this but his proposal was a metered usage model for people who exceeded a certain number of messages in a month you build it once it runs everywhere in every country you don't need a sophisticated Salesforce it's a very simple business but Cheryl Sandberg threw away the idea her words were it won't scale I called her out one time I was like no you don't mean that it won't scale you mean it won't make as much money as and she kind of hemmed and hot a little after only a couple of years Brian and Jan understood that they were not going to win this battle as altruistic as their original vision for WhatsApp might have been they had given that away when they took Facebook's check and of course let's be real who wouldn't take the $19 million check but these disagreements escalated to them eventually leaving the company in case of Brian before his stock had fully vested which meant leaving being about $800 million behind he's still a billionaire so don't worry he was like okay well you want to do these things I don't want to do it's better if I get out of your way and I did Facebook's first broken promise was linking your WhatsApp profile to their servers and to your Facebook account and it did that just 2 years after the buy after actually promising that they wouldn't it was an easy case for the EU Trade Commission that slapped them with a measly 110 million EUR fine they've made a bunch of privacy updates over their years yes keeping is encrypted but now with access to your phone number your contacts logs of how much and how often you use WhatsApp information about how you interact with other users device identifiers and other device details like IP address operating system browser details battery health information app version mobile network language and time zone and this may feel harmless but combine that with Facebook or maa's already huge library of data your Facebook profile your Instagram profile your friends profiles your photos the friends that you stalk and most crucially your online activity most people don't know this but the Facebook pixel is key to this I as a website business I am encouraged to put a Facebook pixel on my page so that when you visit I can then serve you retargeting ads back on Facebook but with that Facebook now knows which websites you visited and at least 177% of all websites in the world have a Facebook pixel installed so even if an ad suddenly feels strangely related to what you were just texting about chances are the Zuck knows what you're talking about without even having to read that text but that isn't whatsapp's endgame Americans don't generally know this one but WhatsApp has become the operating system for business communication in many countries around the world from talking to your bank to ordering food to booking appointments to customer support and sales entire economies in the developing World operate on WhatsApp genuinely and honestly quite sadly even governments for large businesses online shopping has moved well online for large department store the way to maximize sales beyond the physical location is to build an e-commerce platform hire a shipping company establish call center chat support and all the stuff that you need with a decent e-commerce but for a small Mom and Pop Shop the way to talk to their customers is WhatsApp they have no budget for websites or fancy chat support tools they operate not only on what they know how to use but also on where their customers are and where it's easier for them to get in touch and in part because of the ease of use for customers larger and larger companies have now moved to Whatsapp from Banks to car dealerships as a business you can even set up your own Facebook and Instagram ads from your WhatsApp profile unlocking this batch of millions of advertisers who are probably not very experienced at maintaining paid advertising campaigns on the usual platforms and and they're probably going to overspend you also have WhatsApp shops and WhatsApp payments which does require some information to leave the safe pathway of end to endend encryption so that they can actually put a charge on your card and this is is not the only exception to the rule because businesses can choose to store messages you send to them in Facebook servers remember encryption protects your messages through their Journey but after that it's really up to the recipient so you know kids you're if you're sending eggplant pictures well you know the risks I absolutely hate this WhatsApp super app approach by the way I threw out two drafts of this strip that were mostly just rants against WhatsApp because I like my app separate one for texting with friends and one for browsing store content I think it's a lazy and terrible use your experience just put everything on the same place that's just me but I generally don't know if anyone foresaw this concept of WhatsApp becoming the operating system for small businesses but you have to give it to them they are adapting to what people are using the platform for so to mark this is the next chapter in his company so well I guess so long for the metaverse but enough with the fun in games it's time for everyone's favorite work oh