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WhatsApp's disdain for advertising will test Mark Zuckerberg's revenue ambitions

Key Points
  • Facebook unit WhatsApp has remained ad-free for eight years and its founders once referred to advertising as "disruption" and "insults."
  • Now Mark Zuckerberg wants the company's messaging products to "move faster" in generating revenue.
  • WhatsApp's nascent steps to commercialize the site could take years to bear fruit, which makes a conflict seem likely.
Mark Zuckerberg, founder and CEO of Facebook
Bloomberg | Getty Images

WhatsApp has a long history of keeping advertising away from its users, and the co-founders of the messaging app once wrote a blog post that called ads disruptive and even insulting.

Facebook, which bought WhatsApp for $19 billion in 2014, has a long history of placing ads on its most popular products and services, including the main News Feed, Instagram and, more recently, Messenger.

The first has helped WhatsApp reach 1.3 billion monthly users, while the second is expected to help Facebook get to $39 billion in revenue this year.

Yet those competing strategies suggest an inevitable collision between WhatsApp's product vision and Mark Zuckerberg's revenue ambition.

WhatsApp getting ready for business

WhatsApp took the first steps toward becoming more business-friendly this week when it began testing a new feature that would let users communicate with businesses that have been "verified" as legitimate by WhatsApp.

The effort to connect WhatsApp users with businesses on the site is still in its testing phase, though, which means the messaging service has far to go before it starts generating any meaningful revenue.

It may not be able to get there fast enough to suit Facebook CEO Mark Zuckerberg, who expressed impatience on the matter on a conference call after the company's Q2 earnings report last week.

"I want to see us move faster" on Messenger and WhatsApp, Zuckerberg said when talking about new sources of revenue.

He also said, "the first thing we need to do on Messenger and WhatsApp is get a lot of businesses using it organically."

When Jan Koum and Brian Acton founded WhatsApp in 2009, it was never seen as a business app. Instead, WhatsApp has focused its software development on a simple user experience and secure messaging.

It made money by charging users 99 cents a year, while its founders developed a reputation as mavericks with their public disdain for an advertising-based business model.

In a June 2012 blog post, WhatsApp referred to advertising, among other things, as "the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought...Remember, when advertising is involved you the user are the product...When people ask us why we charge for WhatsApp, we say 'Have you considered the alternative?'"

But one former Facebook executive questions how long WhatsApp can hold to its no-ads credo.

"If you look at the past, News Feed started as just friends, no ads," says Paul Adams, a former product manager and head of global brand design at Facebook who left the company in 2013.

"Then Pages came along" for businesses and ultimately "you saw businesses placing sponsored posts (i.e., ads) -- in News Feed," says Adams, who's now a vice president of product at Intercom, a startup that provides messaging services to 20,000 businesses.

Adams says WhatsApp doesn't necessarily have to sell ads to generate revenue.

Other huge messaging services have been making money in other ways.

China's WeChat, for example, charges companies that want to interact with its users a set-up fee and in some cases another fee for each interaction. It also takes a portion of some financial transactions users conduct on the site.

Zuckerberg himself hinted at this approach when he said last week:

"We can look at messaging platforms in other parts of the world and use that as a floor."

How long will Jan Koum carry the torch?

The same day Zuckerberg expressed his desire for new sources of revenue -- July 26 -- Koum wrote a blog post announcing that WhatsApp had reached 1.3 billion monthly users.

In the post, Koum said WhatsApp was "reinventing" one of its first features, the ability for users to share photos and videos with friends via simple, secure status updates.

"Even your status updates are end-to-end encrypted," Koum wrote.

The post made no mention of any upcoming features for businesses.

Analyst Patrick Moorhead, from Moor Insights & Strategy, thinks WhatsApp will eventually capitulate on selling ads, but it might take a while.

"It will be the last thing they try," because it risks interfering with the user experience, he said.

Whatsapp CEO Jan Koum
David Ramos | Getty Images

Koum was richly compensated for selling his company, and he's still on Facebook's board.

When Facebook completed the acquisition of WhatsApp in October 2014, Koum received 76.357 million shares of Facebook stock and $1.97 billion in cash, according to the company's regulatory filing that detailed the transaction. In addition, as compensation for remaining as WhatsApp CEO, Koum received 24.85 million Facebook restricted stock units, which vest over a four-year period.

But he's been selling large amounts of that Facebook stock at regular intervals. In the last 20 months, he's sold or given away shares worth more than $6.5 billion, according to regulatory filings.

While such sales are a prudent way for a wealthy tech executive like Koum to diversify his financial holdings, they also mean he'll have less at stake if a showdown with Zuckerberg over WhatsApp's business model finally comes.

Facebook declined to comment on Koum's share sales.