21 feb 2014: This week Jan Koum just sold his 4 year old company, WhatsApp, to Facebook for $19 Billion(!) He drove to the North County Social Services office to sign the deal. That’s where he used to stand in line to collect food stamps not so long ago.
Jan has gone from having no money to $19 Billion in four years (That works out at at every day in retrospect being worth over $13 million, day after day for four years).
How did he do that and what can we learn behind the crazy-big numbers?
Back in 2009 the idea was hatched in the kitchen of Jan’s friend, Alex Fishman. Alex recalls “Jan was showing me his address book, His thinking was it would be really cool to have statuses next to individual names of the people.”
Within a month, Jan had WhatsApp up and running on the Apple Store. But it kept crashing and few people were using it. Faced with his failure, while out playing frisbee with his friend, Brian Acton, he said he was going to have to go look for a job. Acton said “You’d be an idiot to quit now, Give it a few more months.”
Jan tried again, adding instant messaging and deciding the app would be the opposite of Yahoo, where he had worked for a while: Simple and non-commercial. He wrote the rules: “No ads, no games, no gimmicks”
As a simple alternative to expensive text messaging, WhatsApp began to grow. First to 10,000 users, then 1,000,000, and now, today, to a staggering 450,000,000 users (That’s compared to Facebook who only had 145 million users after four years).
It’s free for a year, then 99c a year. By focusing on the users and their experience, the number of users has grown exponentially.
IT’S ALL ABOUT LIFETIME VALUE
Jan’s whole focus has been on his customers – and the lifetime value of each customer. What’s the lifetime value of your customer?
Here’s the math on WhatsApp…
With WhatsApp’s growth (with one million NEW customers each day), Jan sees the potential for between 1 billion and 2 billion customers within the next two years. If they stick around for even just 5 years at $1 per year, that’s up to $20 billion in sales.
The $19 billion price Facebook is paying for WhatsApp puts each WhatsApp user at $42 in lifetime value.
Facebook, on the other hand, has 1.3 billion users and is worth $176 billion, which means each user is worth $135 (That’s 3x the value). So Mark Zuckerberg sees the $19 billion he is spending as a bargain.
How much is the lifetime value of your customer? What will keep them coming back again and again? And who can you partner with or even eventually sell to where each of your customers is worth even more to them than to you?
“NO ADS, NO GAMES, NO GIMMICKS”
Jan’s focus on what to deliver to his customers has as much to do with what he said “no” to (“No ads, no games, no gimmicks”) as what he said yes to. What is it that you can say “no” to today, that will keep more of your customer saying “yes”?
One more thing – In a world where everyone’s focused on brand-building, Jan has been so focused at his customers over the last four years, he hasn’t even put a sign outside the WhatsApp office, which is behind a signless door down a back street in San Jose.
After all his success, Jan was asked if he would fork out for a WhatsApp sign for the office…
“I can’t see a reason for there being a sign. It’s an ego boost.” he answered, “We all know where we work.”