Deciphering Telegram's Family History: How Pavel Durov Became a 'Facebook Rebel'

Content overview

1. Telegram is the fastest growing app in the world, at least, in some ways. No major app has seen more monthly active user growth than Telegram, which now has around 600 million users, according to a 2021 report.

2. Telegram builds a narrative around its security, and while it does encrypt messages, most are not truly encrypted, nor are they completely private. It doesn't appear to have hurt the company's reputation, though, and has done an excellent job of anti-targeting.

3. There are risks in using cryptocurrencies. The 2018 ICO brought in $1.7 billion for Telegram. Unfortunately for founder Pavel Durov, the SEC considered the financing an unregistered securities sale, resulting in a slowdown in Telegram and an unusual financial deal.

4. Competitions are an effective way to attract talent, and it seems that few companies have as many talented engineers as Telegram. Part of Telegram's success depends on talent, with the company often offering prizes for product improvements and hiring the most talented contestants.

5. Telegram still has not found a business model. Telegram has been exploring payment services since 2017 and has recently experimented with advertising. So far, neither has achieved good results. From this perspective, Pavel Durov's team may look to WeChat and other peers for inspiration.

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In October 2021, Telegram gained 70 million new users in a 24-hour period. The ubiquity of social media makes us numb to such a large number, but in reality, the number of 70 million people is more than the population of South Africa, France and Thailand, and only a little less than twice the population of Canada.

With such a comparison, perhaps you will find that Telegram is already a messaging app on a global scale.

Why does this happen? To be honest, a large part of the reason is that other social media are "not powerful". Facebook has more and more problems, and Instagram, Messenger, and Oculus can't keep users happy. Perhaps in search of a better network, or even a better, more human social media brand, users flocked to Telegram, founded by the charismatic Russian entrepreneur Pavel Durov social applications.

Telegram feels more like a denial of Mark Zuckerberg, which lends a good reputation to its narrative but obscures other strengths. Yes, Telegram has established a reputation as a more privacy-focused alternative, but it's also a better messaging app. While it may still lag behind WhatsApp's inactive users -- 2 billion vs. 600 million -- Telegram empowers users with more power and sophistication.

Of course, Pavel Durov's business has had setbacks, like a botched initial coin offering (ICO) that brought them $1.7 billion that year, but the organization didn't make any progress. Telegram will argue that the SEC is responsible for the failure. However, despite all this, Telegram itself has many problems. For example, it still has not established a viable business model. For Telegram, 10 years later, meaningful revenue still seems out of reach.

It appears that Telegram is a complex and sometimes feeling unrealistic company that, despite the excellence of its product, still seems to be acting as a fightback that thrives on comparisons. In chess, the "Russian game" is an opening that is partly characterized by imitating an opponent and attempting to counterattack. In many ways, Pavel Durov appears to be taking the same approach.

To reach its true potential, Telegram may have to change its gameplay. As the company enters a new decade, it prefers to build a reputation on its own merits. Backed by visionary executives and a talented technical team, Telegram has key elements that not only rival, but even eclipse, WhatsApp. In today's article, we'll discuss Telegram's past and future, including the following:

1. Establish VKontakte. Before trying to build a better WhatsApp, Pavel Durov created the Russian version of Facebook. While Zuckerberg's story is fascinating, Pavel Durov's is even more exciting.

2. Start Telegram. Pavel Durov set about building Telegram after being ousted from his old company. To develop the app, he had to deal with FBI meddling and SEC brutality.

3. Unusual financing. Pavel Durov took an unorthodox approach to financing Telegram to avoid raising money from venture capitalists. Not only did he pay for most of the development himself, but he also turned to ICOs and bond offerings.

4. Good at products. Telegram was created after WhatsApp, but now it's clearly the leader in social media products. Telegram supports larger groups, more formats, and a range of different features.

5. Financial troubles. Much of the company's reputation rests on its commitment to privacy. This makes ad-based business models unsuitable. Telegram has experimented with promotions and other payment methods without breakthrough success.

6. Looking to the future. There's reason to be optimistic about Telegram, though, as other messaging apps have found creative ways to monetize, notably WeChat in China and LINE in Japan.

let's start.

VK's story

The Roman poet Juvenal is not an often quoted name, but he has contributed a lot of trendy words to our current media age, such as "bread and circus" to describe how to appease the masses, "black swan" and "watcher" Describe changes in financial markets.

A single spark can start a prairie fire

Ironically, Pavel Durov — a man born in 1984 — would have his life defined by a search for privacy. Pavel Durov is the second son of Albina Durova and her husband Valery Semenovich Durov A respected Roman historian who has studied the satires of the Roman poet Juvenal.

Although born in St. Petersburg, Pavel Durov spent most of his childhood in Turin and did not return to Russia until his family accepted the post of Head of the Linguistics Department at St. Petersburg University (SPbU) in Valery.

There is no doubt that Pavel Durov is a bright boy, but among his brothers, he is not a very good one. His older brother, Nikolai Durov, who was four years older than Pavel Durov, showed even more extraordinary mathematical abilities from an early age.

Nikolai Durov, who took part in the International Mathematical Olympiad as a teenager and won several gold medals, is now a talented computer scientist and has passed that interest on to his younger brother, Pavel Durov, who is gifted at building products . At the age of 11, Pavel Durov created a spin-off of the Tetris game, and later he and his brother Nikolai Durov completed a strategy game "Lao Unit" set in China.

Pavel Durov is not a "safe" student, much less the kid who sits at the front of the classroom to better see the blackboard and get good grades. Pavel Durov often tells teachers that they are incompetent, and seems happy to show off his brilliance, especially when it comes to computing. At one point, he changed the screen saver on the school computer to a picture of a teacher with the words "must die" next to it. Despite multiple attempts by the instructor to lock Pavel Durov out of the computer system, he always seemed to find a way to get in. The odd behavior wasn't just on the teacher, one classmate said when he spoke to Pavel Durov he never seemed to be sure if he was serious or mocking him.

Despite his interest in programming, Pavel Durov followed in his father's footsteps while attending college, not only attending St. Petersburg State University, but also focusing on linguistics. To meet Russia's conscription requirements, Pavel Durov studied propaganda, learned tactics espoused by Sun Tzu and Napoleon, and over time he realized the importance of information control.

In addition to his studies, Pavel Durov has devoted his career to developing his own business, including launching the Durov.com blog, which became a platform for college students to upload papers and exchange ideas. However, Pavel Durov would often deliberately make inflammatory remarks - such as praising Hitler. He later explained:

“Sometimes I have to fan the flames, and if users agree with you, you feel like you’re on top of the world, but that makes them leave. If you argue with them, humiliate them, they’ll come back and prove they’re right ."

Pavel Durov's website attracts more than 2.7 million visitors thanks to a deep understanding of online social dynamics, which not only gives his ideas widespread reach, but when the budding entrepreneur considers his next move Insight will prove invaluable.

chasing facebook

In 2006, Slava Mirilashvili logged on to a Russian news site and was surprised to see his old classmate Pavel Durov, whose friend had been exposed for creating a popular online forum for college students. (As an illustration, we'll refer to Slava Mirilashvili as "Slava" to distinguish him from his father, who was also involved in the story.)

Slava Mirilashvili saw Facebook's rise up close. Of course, the social network started two years ago in Boston. But on Pavel Durov's forum, he saw the possibility of a similar business for the Russian market. So, Slava Mirilashvili finds the address of Pavel Durov, and the two young men renew their friendship. The conversation quickly turned to the potential of the nascent social networking space, soon joined by some other friends and McGill graduate Lev Leviev.

That summer, a few months after graduating from St. Petersburg University, Pavel Durov registered a domain name: vkontakte.ru. As the story progresses, the name VKontakte (meaning "contact") was initially modeled after Facebook (Facebook dropped the 'the' in The Facebook in the name), so it's clearly cleaner.

To start their project, the trio needed funding. Luckily, they had a ready source of funding: Mikhail Mirilashvili, father of Slava Mirilashvili, the Georgian who built a dizzying empire spanning businesses ranging from real estate to oil, media to gambling, and one of Europe's largest slot machine network.

At the behest of his son, Mikhail Mirilashvili capitalized VK in exchange for 60% of the business. Although Pavel Durov holds only 20% of the company (the remaining 20% is split between Slava and Lev Leviev), he gets the majority of the voting power, reflecting the startup's reliance on his vision (there are other sources too) Sources show that three recent graduates each received 20%, with Mikhail Mirilashvili holding 40%).

With the money, VK started to enter the market. Like Facebook, VK initially targeted college students and grew on a campus-by-campus basis by invitation. Pavel Durov also encourages signups with contests: users are encouraged to get as many friends as possible to sign up. Who became the best referrer, rewarded a new iPod, and this strategy alone helped VK gain thousands of early adopters.

It didn’t take long for VK users to break through six figures. And, just six months after the beta, VK became the second largest social network in Russia with over 100,000 users. A year later, VK surpassed 1 million users and surpassed Odnoklassniki, another local social media giant.

Scale up the VK network

VK's success seems to come from a combination of product knowledge and technical excellence.

From the very beginning, Pavel Durov demonstrated the vision and pragmatism of VK products. Early iterations borrowed heavily from Facebook, mimicking the American company's color palette and features. But soon, VK introduced other personalization features. For example, Pavel Durov tends to have profile pages as user defaults. This was probably more suitable for the Russian market at the time.

Additionally, VK supports video and audio file uploads, including many copyrighted files. However, the feature sparked a copyright dispute, with a Russian TV company suing it for infringement. In addition, to make the product richer, VK also "mocks" the Netflix or Spotify service, and many users spend hours a week watching videos on the site.

An early VK employee noted that even though the VK business was mature enough, Pavel Durov still ruled product functionality with high expectations, stating: "Pavel has high standards for product quality...the quality of the code. , the quality of the final product, you have to meet that standard in any way.” As VK matures, even small style decisions are often brought to the CEO.

VK has also excelled on the technical side, and as the company has grown, skyrocketing transaction volumes have become a growing challenge, especially when the site has been targeted by hackers. Thankfully, Pavel Durov has another ace in the line: his older brother Nikolai Durov. After receiving a PhD in Mathematics from St Petersburg State University in 2005, Nikolai Durov went on to study a PhD in Computer Science (and Mathematics) at the University of Bonn, during which time he built a backend capable of handling millions of users and defending against attackers .

money mania

Soon, however, Pavel Durov's technical prowess couldn't keep up with the growing demand. VK started monetizing relatively early, encouraging users to buy in-app currency, send premium text messages, and play games. Starting in 2008, the company has also experimented with placing ads on the site, but Pavel Durov prefers to keep ads to a minimum so as not to affect the user experience — "The customer comes first, always."

Despite bringing in money, the growing need for more servers meant more money was needed. So Yuri Milner, founder of DST Global, a new investor in VK, came on the scene.

At first, taking Yuri Milner's investment wasn't a difficult decision for Pavel Durov's team - generally, VCs provide the most money on the best terms, while allowing VK to continue operating on its own terms . But over time, DST Global's Russian assets were bundled into Mail.ru Group (MRG). By early 2011, MRG held a 32.5% stake, with an option to hold a further 7.5%—obviously, they wanted more. Dmitry Grishin, one of Yuri Milner's lieutenants and general manager, was blunt at the time, saying, "It's strategically right that we take control of this social network, or even better buy all of its shares. , we are having conversations about that."

However, the conversation did not seem to last long. Although Pavel Durov reportedly visited MRG's offices to discuss the acquisition, he took to social media to give the final answer: Posting a photo of his middle finger with a caption saying it was his "official" response to Dmitry Grishin , and called MRG a "garbage dump".

Despite the strong wording, they did not prevent MRG from exercising its option to increase its stake to 40% and value VK at $1.5 billion. At the time, the social network had 125 million user accounts and had operations throughout Russia and other ex-Soviet countries.

Game of Thrones

VK's influence gives it its real power.

But by the end of 2011, that power had become a burden.

In December 2011, protests over unfair parliamentary elections swept Russia. In response, the country's security agency, the FSB, pressured VK to shut down seven opposition groups and pass on user information. In response, Pavel Durov tweeted a photo of a husky in a hoodie with his tongue sticking out, his way of letting the world and VK users know he won't give in to pressure.

A SWAT team visited his apartment shortly after, although Pavel Durov refused to let them in. After being surrounded, he decided to call his brother and tell him what had happened. As Pavel Durov later said, it was this moment that inspired him to start Telegram:

"I realized I didn't have a safe way to communicate with him, and that's how Telegram started."

It is worth noting that Pavel Durov's reputation has instead improved since the SWAT team retreated, at least for now.

The pressure, however, continued into the new year, culminating in Nikolai Durov's decision to leave VK. Squeezed by businessmen and bureaucrats, and without the support of his closest older brother, young Pavel Durov became increasingly unstable.

For example, Pavel Durov once threw money out of VK's office window. It is said that he had just given a large bonus to a vice president of the company, but the president replied that what was important to him was the mission. Instead of money, Pavel Durov decided to challenge his vice-president and suggested that he throw rubles on St. Petersburg's bustling Nevsky Prospect. Although the VP agreed, Pavel Durov decided it wasn't flashy enough and decided to take over, making paper airplanes out of 5,000-ruble notes and throwing them at the fast-moving crowd — what Pavel Durov later called "the history of our company." One of the funniest moments ever."

Meanwhile, MRG is still fighting for control.

In late 2012, Alisher Usmanov, the tycoon who financed Yuri Milner and MRG, said "concrete negotiations" were under way.

The pressure continued into 2013, when VK came under fire from the Recording Industry Association of America (RIAA) for piracy, hampering the company's chances of publicly filing on Western exchanges.

Two months later, the worst April for Pavel Durov came.

On April 4, 2013, the Russian media Novaya Gazeta dropped a bombshell, stating that instead of resisting FSB progress, Durov and the VK actively encouraged resistance groups. While Pavel Durov often seems like an idealist and inspired by liberal tendencies, he is also a pragmatist. In the long run, he may have decided to take aggressive action to protect VK's independence.

Around the same time, police investigated Pavel Durov on suspicion of a hit-and-run accident after driving a white Mercedes over the foot of a traffic inspector. Fearing retribution, Pavel Durov fled, and some believe he absconded to Italy, Switzerland or St. Kitts and Nevis. On April 16, 2013, investigators stormed VK's offices and tore up filing cabinets.

Wherever he is, Pavel Durov makes a phone call almost every day, looking to confirm whether United Capital Partners (UCP) has bought a 48% stake in VK. He didn't know anything about it at the time, though the news would prove true, and Mirishvalis and Leviev ended up selling their stake for $1.12 billion to a company rumored to have government ties. In fact, many believe that UCP would not be able to fund an acquisition of this magnitude without the help of its backers.

Perhaps feeling that their days in VK would not last long, Pavel Durov and his brother had already started a "low-key" construction of a new project - this free and secure messaging service is Telegram, with paper airplanes as a symbol, has accumulated considerable user base. By October 2013, Telegram had more than 100,000 daily active users and had surpassed WhatsApp in some features. Despite this appeal, Pavel Durov does not intend to use the project for profit, but envisions it as a not-for-profit project with development financed by their new holding company, Digital Fortress.

April Fool's Story

In January 2014, Pavel Durov sold the remaining VK shares to Ivan Tavrin, CEO of MegaFon. By then, Pavel Durov had settled with Alisher Usmanov because he was part owner of the mobile operator. Presumably, Pavel Durov should know what to expect.

A few months later, Ivan Tavrin sold the shares he bought to MRG, giving the company control of VK. Ultimately, Russia's internet giants have taken over the country's largest social network.

Although Pavel Durov is still CEO, he is beginning to take grievances with UCP and MRG. On April 1, 2014, he announced his resignation through his VK account. Many thought it was a (rather weird) April Fool's joke.

Are you kidding me? Eight years later, it's still unclear. But on April 3, 2014, Pavel Durov returned to social media and posted a meme dog, claiming it had been a prank. On April 21, he again reported that he had been fired, this time because he had mistakenly withdrew his previous resignation application.

Whatever the case, at the end of April 2014, Pavel Durov shared a final update: he will be working full-time on Telegram to find a new home for his team. In a Facebook post, he wrote:

Which country or city do you think is best for us? Feel free to leave a comment below. To give you an idea of our preferences, we don't like bureaucracy, war over regulation. We like freedom, a strong justice system, free markets, neutrality and civil rights.

Telegram's story

Telegram's story is modeled after VK.

Although the messaging app reached stratospheric heights in a short period of time, it also caused controversy along the way. Since starting work on the project in 2012, Telegram has nearly 600 million monthly active users and is the fastest growing app on this basis in 2021. In the process, Pavel Durov had to resist the "chasing" of the FBI and the "difficulties" of the SEC.

Start in a storm

When Pavel Durov left Russia, he wasn't hurt by the money, and later reports suggested he left with about $300 million and 2,000 bitcoins -- worth about 87 million at today's prices Dollar. The funds gave him enough to fund Telegram's development and invest in the Caribbean island of St. Kitts and Nevis in exchange for citizenship. Together with brother Nikolai Durov, who was named CTO, they started developing Telegram.

In fact, not everyone is convinced of the project's promise, as it's a WhatsApp clone that brings little new. In its early stages, though, Telegram's team set itself apart by offering a number of innovations, such as a smoother interface, faster interactions, and supposedly more secure communications. The promise attracted users, with the company racking up 35 million users within a few months of its launch. After Facebook bought WhatsApp for $21.8 billion in early 2014, Telegram's counter-stance became stronger.

However, the UCP was still causing trouble for Pavel Durov at the time. VK shareholders sued his ownership of Telegram, claiming that Pavel Durov spent the company's time and money developing Telegram. The disagreement continued until 2014, when MRG bought UCP’s stake in VK, and the lawsuit against Pavel Durov was dropped, and Telegram’s path was finally clear.

Problems keep coming?

By 2016, Telegram had amassed 100 million monthly active users (MAUs) with a "zero marketing budget". Still, Telegram has often found itself at the center of controversy, but the problem is that the app's privacy-focused features appeal not only to security-conscious users, but also to extremist groups looking to stay out of the public eye. Telegram strives to control jihadists using the app and adequately moderate illegal content.

In addition, Telegram also began to clash with U.S. government agencies. At one point, Russian police are believed to have pressured mobile operators to intercept Telegram messages. Meanwhile, Pavel Durov also claimed that the FBI tried to bribe him and his developers to introduce backdoors. As he put it, U.S. intelligence officials offered "tens of thousands of dollars" to a Telegram engineer, which is hardly a tempting offer given Pavel Durov's claim that Telegram developers are mostly millionaires.

Despite these issues, Telegram continues to grow.

Another reason for this growth is Facebook, where millions of people turn to Telegram every time the Facebook social network fails or goes into trouble due to misuse of user data. As we've pointed out, Telegram often acts as a "fight against Facebook" tool, and the worse Facebook does, the better Telegram will grow. Of course, the same is true of Telegram's relationship with other traditional social tools, such as the Korean app Kakao Talk users in 2014 and 2019 also began to switch to Telegram.

Telegram business continues to rise as public opinion and media narratives turn against existing, ad-driven products. In this case, it appears to have only one problem: money.

Trouble with TON

By 2018, Telegram had nearly 200 million users, but had yet to find a reliable form of monetization. While Pavel Durov still seems to see his creation as a public good, generating revenue will allow it to be self-sustaining. Also, Pavel Durov's windfall from VK won't last forever; in 2017, the company reportedly cost the company $70 million.

Although Pavel Durov is notorious for his dislike of advertising on VK -- which at one point boosted Facebook's average revenue per user by a factor of seven -- he certainly knew it was the most efficient way to monetize the social network. However, this script does not seem to be suitable for Telegram. With a focus on privacy and security, Telegram can't pass data on to advertisers without breaking its fundamental promises, which means they have to think elsewhere about how to make money.

Fortunately, beginning in 2018, early Bitcoin investors gradually turned to the wider social network.

In January 2018, Telegram announced the launch of the "Telegram Open Network" (TON), a new blockchain that supports an in-app ecosystem that Pavel Durov claims will prove to be "far superior" to current technologies such as Bitcoin or Ethereum. There are chains.

The TON program supports payments and purchases, including from third-party developers. Telegram raised $1.2 billion in an initial coin offering (ICO) to fund its construction. Participants include Silicon Valley high-profile investment firms such as Sequoia Capital, Benchmark, Kleiner Perkins and Lightspeed. If Telegram didn't sell the stake, at least the thinking at the time was that this financing provided some opportunity for its rapid growth.

TON White Paper

At first glance, token financing is a masterful strategic move that gives Telegram a trove of idea-based warfare. Telegram executive and former VK engineer Anton Rozenberg later noted:

Everything in the financing seemed magical: Telegram managed to raise as much money on a virtual project as the company itself was valued, if not more — with little commitment to investors and no equity losses.

One source said that Telegram’s entry into the crypto space prompted Facebook to make a follow-up effort. Like Libra (now known as Diem), Telegram's crypto project was similarly ill-fated. Despite the growing number of users on Telegram, the development of TON has struggled. According to another former employee, Telegram told backers that they had completed “90-95%” of most of the initial build of TON in September of that year, indicating that the launch was still days away. In December of that year, they said they were just days away from publishing their work. However, after the start of the new year, TON has not seen the light.

In September 2019, Telegram released its experimental source code, and in October, the SEC came to the door.

The SEC determined that TON token financing constituted a sale of unregulated securities, halting its development, said Stephanie Avakian, co-director of the SEC Enforcement Division:

The urgent action we are taking today is aimed at preventing Telegram from illegally selling digital tokens to the U.S. market.

TON was delayed again, and after further questions, Pavel Durov capitulated.

In May 2020, Pavel Durov announced that he was abandoning the project, blaming the SEC for TON's death. The company spent $405 million on development but hasn't released any viable product versions. Frustratingly, some investors are starting to consider filing lawsuits alleging that their funds were misused to develop the Telegram messaging app instead of the TON network.

In the end, Telegram returned 72% of its funds to TON investors — a total of $1.2 billion, and many were frustrated that they didn’t get an equity stake in Telegram. Non-U.S. investors have the option to convert their refunds into loans, which will bring a 110% return on their initial investment after a year, allowing Pavel Durov to hurry to raise more capital. Telegram also paid an $18.5 million fine to the SEC, but has not "admitted or denied the allegations."

After severing from the project, Pavel Durov handed control of TON to the "community", because the code is open source, anyone can continue to build on the project's architecture, so several Derivatives, including "Free TON" and "Toncoin". "Toncoin" appears to have established itself as the spiritual heir to the original, with Pavel Durov's endorsement at the end of 2021, and the project is currently run by two independent developers, with nine other developers linked to Toncoin's Github, But based on code contributions to various repositories, "Toncoin" development appears to be sporadic. In contrast, Free Ton has now been renamed Everscale and uses a different programming language than the original TON code.

Current employees of Telegram spoke about their views on TON, noting that the SEC interfered with the development of the core product and created friction. Despite Pavel Durov's daring attempts, TON ultimately failed to address monetization and capitalization.

uneasy bond

Telegram owes a massive $700 million by April 31, 2021. Once again, Telegram ran into funding problems, with Pavel Durov admitting that he needed "hundreds of millions of dollars a year" to run Telegram.

With over 500 million active users, Telegram has no shortage of suitors. There are reports that some Western venture capital firms have offered to buy 5% to 10% of the business at a valuation of $30 billion, with some investment firms even raising the valuation to nearly $40 billion.

However, from his previous experience in founding VK, Pavel Durov understood the dangers of bringing in outside investors. After being shuffled from the CEO position last time, he won't let that happen again.

Instead of selling equity, Pavel Durov turned to debt. In March 2021, Telegram issued a $1 billion bond with an annual interest rate of 7-8%. What's more, if Telegram IPOs within three years of its offering, buyers can exchange the bonds for equity at a 10% discount to the listing price. If Telegram takes longer to hit the public market, the discount will skyrocket to 15-20%.

Among the bond buyers are Abu Dhabi-based sovereign wealth fund Mubadala Investment, and as part of the acquisition, Pavel Durov has pledged to expand Telegram’s presence in the region and is expected to open another office in the UAE.

Surprisingly, this deal by Mubadala Investment involves the Russian Direct Investment Fund (RDIF). In a secondary transaction, the Abu Dhabi company reportedly sold $2 million in bonds to RDIF. Mubadala Investment claims the deal is part of a joint venture created between sovereign wealth funds. Telegram expressed dissatisfaction with a spokesperson:

The Russian direct investment fund is not on our list of investors selling bonds and we would not be open to any deal with this fund.

Still, RDIF now has the right to take a stake at a price lower than Telegram's potential IPO. While this may have angered Pavel Durov, the fund's participation also suggests that, in some ways, the Telegram CEO has won.

new heights

Shortly before Mark Zuckerberg announced Facebook's rebranding, the company experienced the massive disruption we've already discussed. Within a day, Facebook customers flocked to other social networks, with messaging app Signal reporting "millions" of users and Telegram announcing 70 million new users. This set a "record" for Pavel Durov's company and a meaningful boost to its 5 billion users at the start of the year.

While this is the most high-profile example of Telegram's progress, 2021 is, broadly speaking, an excellent year of growth. Telegram was the fastest-growing major app last year, surpassing Instagram, Zoom, TikTok, Signal, and more. In 2022, Telegram hopes to surpass the 1 billion active user milestone, but they may need to continue improving the product to achieve that goal.

The Key to Telegram's Success: A Strong Product

If you take a quick glance at Telegram, you might think it's just another undifferentiated messaging app. But actually, this app is much more interesting. Telegram is a powerful product that constantly pushes the limits of what a messenger can and should do. While Telegram may have started out as a WhatsApp clone, it now shares many similarities with Twitter, Clubhouse, Reddit, Discord, and Slack, rather than just a simple, smooth user interface.

MTProto protocol

Telegram relies on a custom protocol called "MTProto" designed by Nikolai Durov to provide security while maintaining performance. Specifically, the MTProto protocol utilizes two encryption schemes with different levels of privacy.

While a more technical reader might be able to parse more from the image below, the rest can be something knowing that "Part 1" is "Server-Client Encryption", which means that user data is stored in Telegram's servers. All "cloud chats" use this encryption scheme. By the way, Telegram's corporate structure is designed to add an extra layer of security here. Data from cloud chat is distributed on servers around the world and managed by different legal entities. As Telegram explained, "several court orders from different jurisdictions" are needed to protect company data.

"Secret Chat" utilizes more secure end-to-end encryption (E2EE), as shown in "Part 2" of MTProto. In E2EE, no one but the sender and receiver can decipher the data, not even Telegram can decipher messages sent through this layer.

Telegram's approach in this regard has drawn criticism. In a recent Twitter post, Moxie Marlinspike, co-founder and former CEO of rival messaging service Signal, outlined his problems with the product.

In Moxie Marlinspike's opinion, Telegram is no more secure than Facebook Messenger, saying:

"Telegram stores all of a user's contacts, groups, media and every message you've ever sent or received on its servers in clear text, the app on a user's phone is just a 'view' on their server, the data actually exists The place. Pretty much everything you see in the app, Telegram sees too... Confusingly, Telegram does allow you to create very limited "secret chats" that do nominally use e2ee (no groups, Sync, no sync)…”

FB Messenger also has an e2ee "secret chat" mode and is much less restrictive than Telegram (and also uses the better e2ee protocol), but no one would consider FB Messenger an "encrypted messenger".

FB Messenger and Telegram are built almost identically.

Moxie Marlinspike's work building Signal complicates his argument, as does his product's ties to the CIA and other U.S. national security entities. Still, it highlights a core part of Pavel Durov's strategy. Like its founder, Telegram is both idealistic and pragmatic. Yes, it wants to provide a safe experience for those who need it, but not at the expense of most users. While having true E2EE might create a more private experience, it would make Telegram less useful for many people; for example, messages would no longer be synced across devices.

A member of the Telegram team I spoke with explained that most importantly, the company wants to give users the best possible experience — for some, that might involve E2EE and disappearing chats, but for most Humanly, it doesn't. When comparing Telegram to Signal, the former VK employee discussed earlier succinctly said:

"Signal has too few users."

to chat with

At the heart of Telegram's visible product is its chat feature. Available across devices, users can message each other through a simple, intuitive interface. Interestingly, I found it to feel smoother, faster and more vivid than WhatsApp. Buttons do what you expect, and little functions make for unexpected fun.

More specifically, Telegram's chat feature is powerful. It supports various files (doc, zip, mp3) with high size limit. Replies, mentions, and hashtags are integrated, and in-app photo editing is surprisingly advanced.

As mentioned above, default chats are stored in the cloud so that users can view them when they move from phone to laptop and back again. If you want to keep it private, you can start a "secret chat" which uses E2EE and can be set to automatically destroy messages after a period of time.

group chat

If users want to communicate with a wider group of people, they can turn to "groups". Like other instant messaging apps, group chats are used for different purposes, from family chat to business coordination. A recent article noted that Telegram groups are popular among students. Instead of emailing a teacher or texting a friend at a time, students share questions and answers in an ongoing chat reminiscent of Discord.

In some countries, Telegram groups have also become a Slack alternative. For example, one source pointed out that in Russia, many people prefer Telegram to the Salesforce subsidiary -- in part because it's completely free. As we'll discuss later, this may provide a path to a solid profit model.

Telegram groups have a life of their own because, like the rest of the app, these names are almost incredibly powerful. Telegram supports a maximum of 200,000 members; WhatsApp can only have a maximum of 256 members. Telegram has built a suite of sharing and management tools to manage these types of users, group admins can create group links to share with the world, and granularly manage how members are allowed to interact.

channel

If Telegram's groups mimic Discord, then a "channel" is a kind of Twitter or Reddit facsimile. Channels are not conversations, but are built for broadcasting and have no upper limit on the number of users. For example, some corporate channels on Telegram have more than 8 million participants.

There are channels of popular memes, pictures, news, quotes and more. Over 400 million people watch Telegram channels every day. Channel owners can view data item by item. If the channel owner wants to allow viewers to chat, they can nest breakout discussions within the channel.

Audio and Video

Telegram accelerated the development of its audio feature after witnessing the pandemic trajectory of Clubhouse's outbreak. In fact, Telegram provided voice calling in the early days of development, but now Telegram groups and channels can host "unlimited" voice chats, millions of people can join, and administrators can invite participants on stage, record them discussions, and share a link to the conversation outside of the app. Telegram quickly surpassed Clubhouse in listening time due to Telegram's already large user base. The company has followed a similar trajectory with video, from calls to group calls to pseudo-streaming. Telegram can now support up to 1,000 simultaneous viewers and allow for easy recording and viewing. We should expect further improvements. Telegram's blog wrote:

"We will continue to raise the limit until everyone on the planet can join a group call and watch our celebration (coming soon)."

pay

While you may not have seen it, Telegram does support in-app payments, a feature that first appeared in beta in 2017, but was limited to interactions with Telegram "bots." Through this interface, users can "do everything from ordering pizza to calling a taxi to changing winter tires when they get tired of winter".

How many people have done these things? While its official blog update highlights that Telegram now integrates with 15 different payment providers, including Stripe, the fact that the company has yet to celebrate any major milestones suggests that processing volumes are low. Over time, payments will likely become one of the most critical elements of the Telegram platform. While the company currently doesn't take any commissions, it's easy to imagine a small rake -- giving Pavel Durov's team the firepower to continue building.

other details

In addition to Telegram's primary function, it has many secondary functions that many may not have discovered.

For example, Telegram protects you from having to display clear text. When sending private text, you can select some or all of the text and mark it as hidden. To decipher it, the reader must explicitly click on it. (However, this feature may only be available in certain countries.)

Another useful feature is "Nearby People". Although turned off by default for privacy reasons, anyone can find local groups and chats by activating the feature.

There are similar additional features, such as text recognition, a set of bots that can automatically post emails or launch gaming experiences, and additional identity features. While these seem unlikely to play a significant role in Telegram's future, these details subtly improve the product.

Telegram's corporate culture

There is very little information about Telegram's culture, but we can still peek at Telegram's culture through how it works and what makes it unique.

Founder's Leadership

A friend of Amazon once told me that, like many other companies, the e-commerce giant organizes itself into "tiers." An entry-level engineer might be a level 4 or "L4," while a VP might be an L10. The highest level is L12, which has only one member, the founder: Jeff Bezos. (This always feels a little comical; why would a whole new class — out of reach of others — be needed to reinforce Jeff Bezos' supremacy?)

Telegram feels like this - Pavel Durov is unique when it comes to control. Not only did he bring capital to the company, but he guided the company's vision. So, what kind of person is Pavel Durov?

As we've mentioned, he appears to be a fickle, contradictory character who champions an ascetic lifestyle and escape from vanity and wealth traps. While Pavel Durov describes himself as an iconoclast, he has been accused of colluding with the FSB, and his financing options have leaned more traditionally. While Abu Dhabi is a modern city, the UAE is not a bastion of tolerance. Of course, no country is perfect, especially the United States, but some of Pavel Durov's most important human and corporate decisions show more than a little ideological plasticity.

Aside from this disconnect, Pavel Durov is a highly intelligent programmer with a keen product awareness. One employee described him as a "visionary" who was able to recruit extremely talented engineers and unite them on a common goal, insisting on a high standard of work and delivering quickly.

Another central figure is Telegram's CTO Nikolai Durov, who is primarily responsible for building and improving the core architecture, and is rumored to have completed the entire MTProto and TON specifications alone; the company's Android client is also almost entirely based on sources, according to sources. Created by him alone. Nikolai Durov is an eccentric character. In a post on Medium, a childhood friend told a story he'd heard about him: Nikolai Durov was so focused on his job that he didn't notice a beetle had fallen out of his cereal bowl, and ended up unknowingly I didn't feel like it was eaten up.

A Telegram employee pointed out that Nikolai Durov seemed shy and did not communicate often in large groups, but they said that Pavel Durov showed extraordinary care for his brother, because what Nikolai Durov brought was of great value, so Pavel Durov Durov will give him all the tools he needs to succeed.

product delivery

As mentioned earlier, Telegram is known for fast product delivery. Despite only getting off the ground four years after WhatsApp, Telegram quickly caught up and sprinted forward from a functionality standpoint. Now, both WhatsApp and FB Messenger lag behind Pavel Durov's Telegram, with some features even Telegram launched a few years ago.

The reason why the product iteration can be completed in such a fast way is mainly due to Telegram's flat management structure - if Telegram operates in a similar way to VK, it means that the company has almost no manager position, and they adopted a "small and fast spirit". ”, many decisions are made by Pavel Durov alone.

Talent mining

Telegram has reportedly done an excellent job hiring engineers. In part, this is thanks to Pavel Durov's reputation. In Russia, he is seen as a generation of entrepreneurs and a symbol of technological progress. A source explained how this helped Telegram's image, saying:

"In Russia, Telegram is already a symbol."

This allows the company to pick and choose elite developers in Russia. (Russia has some of the best software engineers in the world, according to some reports, and Russian developers have won more international university programming competitions than any other country.)

funds

While Telegram could opt for private financing, Pavel Durov may prefer to raise funds through an IPO. The company reportedly aims to go public in 2023, a timing that may have been inspired by the terms of the bond offering.

According to a report in Russian newspaper Vedomosti, Pavel Durov has started talks with investment banks and is looking for a suitable listing venue. Obviously, Pavel Durov is considering SPACs and direct listings, but he seems to be leaning more towards the latter. While the New York Stock Exchange is a controversial destination, Asian exchanges are also on his mind, including the Hong Kong Stock Exchange.

If Telegram went public today, what kind of valuation would it get?

At the time of its acquisition in 2014, WhatsApp reported 400 million active users, meaning Facebook paid about $55 per user. Assuming Telegram has more than 600 million active users, it could be valued at $32.7 billion.

But in the eight years since WhatsApp was snapped up, the market has changed. Social media companies have further demonstrated their earning potential, fintech has permeated various products, and tech giants have gained prominence. Judging Telegram by the same per-user value feels outdated.

We may need to turn to the private market for a better comparison. Last September, Discord raised $500 million at a $15 billion valuation. At the time, the company reported 150 million active users, equivalent to $100 per user. By that measure, Telegram would be worth nearly $60 billion, a number that feels like a better proxy for the company's worth.

Competitor Comparison

Of course, the main difference between Telegram and Discord is revenue. Discord founder Jason Citron has earned $130 million from his gaming-focused chat business, a figure that has grown at a compound annual growth rate of 126 percent over the past five years.

If Telegram is going to make money, it's certainly not on that order of magnitude.

Can Telegram go public without revenue? While investors today are more willing to underwrite fast-growing social media companies than they were at Facebook's IPO, they want to see some signs of business demand. To do this, Telegram needs to find a way to make money.

How does Telegram make money?

Despite its red-hot product-market fit, Telegram appears to be an impractical application in some ways, and product-model fit has yet to be achieved. Despite some experimentation, Pavel Durov's team hasn't settled on a final business model, and they need to keep changing, testing advertising, subscription and payment-based approaches.

While Pavel Durov thinks ads that rely on user data are unethical, Telegram is willing to make money by "following" things like --

advertise

In October 2021, Pavel Durov announced that it would allow promotions on Telegram without relying on user data. In addition, they will try to drive advertiser returns by allowing advertisers to target specific channels, with sponsors having the option to promote their wares in channels dedicated to relevant topics, rather than pinpointing specific age ranges, geographies, and expressive Users within an interest group. So far, advertisers have only been able to access channels with more than 1,000 users and have had to have a minimum budget of more than $2 million. It's worth mentioning that Telegram wants to try in time to distribute some of the revenue to channel owners.

The question is, does this model work? It seems like an uphill battle. For advertisers, fine-grained targeting has always been key, so Telegram doesn't seem to satisfy advertisers in this way, not to mention Pavel Durov himself has always disliked advertising, so it's hard to imagine him happily running a Businesses funded by the advertiser model.

subscription

So where else can Telegram make money? Subscriptions may be another option, which can come in many different forms. The company has come up with a "cheap" product that removes the ads it's adding. While not a particularly exciting proposition, it could open up user sponsorships similar to "server boosts" that Discord monetizes.

If you're a little more imaginative, it's not hard to imagine subscription services monetizing power users, especially those running large groups or channels. For example, premium features might be behind a paywall, but Telegram needs to be careful not to alienate creators. Since Telegram is already being used as an alternative to Slack in some parts of the world, it could introduce an enterprise tier, although a fee might take away its main appeal.

WhatsApp's "business" product appears to be heading in this direction, but instead of focusing on internal communication, it gives companies the tools to better serve their customers. This includes marketing and user support tools. While Facebook gives away these features for free, monetizing by driving businesses to buy ads on Instagram or Facebook itself, Telegram may charge a fee. In addition, over time, Telegram may also seek to compete with the likes of Hubspot and Intercom to provide a lightweight alternative to mobile-first businesses.

pay

Earning money through payments felt like the most natural choice for Pavel Durov. While this hasn't worked out for Telegram yet, it appears to have the conditions for success. Not only does Telegram have a huge user base, but much of its strength comes from the fact that most of its users are from regions with less bank accounts, including Armenia, Cambodia, Kazakhstan, Jordan, and Venezuela, to name a few. Also, due to its misfortune with TON, the company has real crypto expertise that it can put to good use. Late last year, Pavel Durov revealed that the app would support Toncoin payments. Perhaps this is the first step towards embedded crypto transactions in social networks.

Telegram employees also highlighted payments as an area of focus, in particular, noting the lack of a unified global payment system, comparing the status quo in the area to messaging before WhatsApp. Just as WhatsApp changed the game by bypassing telecom providers, Telegram could do the same by going beyond or integrating with traditional payment processors. The result is equally simple: sending data (money in this case) seamlessly anywhere on the planet, which could leverage or involve stablecoins or other cryptocurrencies.

Facebook is chasing this with Diem, but Telegram may be in a better position. While consumers greatly distrust Mark Zuckerberg's company, Telegram is known for its focus on privacy, which can be an advantage when it comes to the sensitive issue of money.

Implementing a payment strategy may make Telegram stronger than WhatsApp, making it one of the most influential businesses in the world. Even if they can't become a global social payment giant, as long as they have a share of this market, they can gain a firm foothold.

Reasons to trust Telegram

Although there has been no progress in generating revenue, for Telegram they could build a great business on top of the messaging app. While Facebook has yet to figure out how to use WhatsApp, both WeChat and LINE are making decent money.

When it comes to profitability, WeChat is top-notch. The Tencent subsidiary is more of an ecosystem than an app, offering chat, payments, e-commerce, gaming and more through a single interface, and the company makes money through advertising, payments and purchases. While it's hard to separate WeChat's revenue from the rest of Tencent's, according to a related report last January, WeChat processed $250 billion in transactions in a year, with payments mostly going through its "mini-programs" -- essentially is a third-party application built for the platform.

Encouragingly, WeChat didn't start its "mini-program" program until 2017, and has now supported more than 1 million such partners. From an active user standpoint, WeChat doesn't appear to be far behind Telegram -- the same report shows that WeChat now has 1.2 billion monthly active users, about twice as many as Telegram.

Could Telegram find similar multifaceted success? The answer may not be easy, after all WeChat benefits from huge market support and has a super-organization to fund its development.

Another example is LINE, a Japanese company with around 160 million monthly active users, 84 million of which are in its home country. Its revenue reached $1.5 billion in 2020, thanks to a combination of gaming, payments and shopping. While billions of dollars won't be enough to support Telegram's market cap in the long run, it can give them a good foundation.

Whatever direction Telegram chooses, they need to move quickly at the moment.

We should be delighted that Telegram exists, and while the app may not be as private as users think, it raises the bar in terms of usability and depth of functionality.

What is the future of Telegram and Pavel Durov? Maybe time will tell. But one thing is for sure - Pavel Durov still has a long way to go.