Editor’s Note:
On the evening of August 24th local time, French TV revealed that Telegram founder and CEO Pavel Durov was arrested at a French airport .
Subsequently, according to French news website TF1 , Pavel Durov was detained by agents of the French National Anti-Fraud Office. After preliminary investigation, OFMIN, the French investigative agency for combating child sexual exploitation, issued a search warrant for him, and its arrest warrant is only valid on French territory.
TF1 predicts that Durov is likely to appear before an investigating judge on Saturday evening and then could be indicted on Sunday on charges of " multiple crimes, including terrorism, drugs, conspiracy, fraud, money laundering, receiving stolen property, child abuse content... and possibly more . "
An investigator with France’s National Anti-Fraud Office (ONAF) said: “It is certain that Pavel Durov will end up in pretrial detention… Having allowed countless crimes to take place on his platform, without taking any steps to mitigate or cooperate in dealing with them.”
Influenced by this news, TON fell to 5.452 USDT in a short period of time and is now trading at 5.961 USDT, a 24-hour drop of nearly 11%.
TON also responded at this time: "Assuring everyone that the TON community remains strong and fully operational . As a community committed to free speech and decentralization, we firmly support Pavel in this challenging time. Pavel has always been a loyal advocate of these values, and we believe that his efforts to promote an open and decentralized Internet will continue to inspire millions of people . The TON community remains focused on our mission, and we will continue to work hard to uphold these principles around the world. We encourage everyone to remain calm and unite to continue building as we work together to deal with this situation. Thank you for your continued support."
Odaily Odaily compiled an in-depth introduction to Telegram by Mario Gabriele, founder and editor-in-chief of The Generalist, in January 2022. On this occasion, it is necessary to take readers back to the past and present of this legendary social application, and provide additional reading: " TVL increased 7 times, data review of TON's DeFi development in the second quarter ", " TON's future growth potential from a developer's perspective (with high-quality hackathon projects) ", " Looking back at the Telegram Bot track that has been popular for a year, these five competitive strategies have allowed representative players to break through the siege ."
Contents
1. Telegram is the fastest growing app in the world, at least, in some ways. According to a 2021 report, no major app has grown more monthly active users than Telegram, which now has about 600 million users.
2. Telegram has built a narrative around its security. Although it does encrypt messages, most of them are not truly encrypted and are not completely private. However, this does not seem to damage the company's reputation and it has done an excellent job in anti-targeting.
3. There are risks in using cryptocurrencies. The ICO in 2018 brought Telegram $1.7 billion in funding. Unfortunately for founder Pavel Durov, the SEC considered the financing to be an unregistered securities sale, which slowed down Telegram's development and led to unusual financial agreements.
4. Competitions are an effective way to attract talent, and it seems that few companies have as many talented engineers as Telegram. Telegram's success is partly based on talent, and the company often offers prizes for product improvements and also hires the most talented contestants.
5. Telegram still hasn’t found a business model. Since 2017, Telegram has been exploring payment services and has recently tried advertising. So far, neither has achieved good results. From this perspective, Pavel Durov’s team may look for inspiration from WeChat and other peers.
In October 2021, Telegram gained 70 million new users in a single 24-hour period. The ubiquity of social media can make us numb to numbers like these, but 70 million is actually more than the populations of South Africa, France, and Thailand, and only slightly less than twice the population of Canada.
With such a comparison, perhaps you will find that Telegram is already a messaging application with global scale.
Why did this happen? Honestly, a lot of it is because other social media platforms are not working. Facebook has been plagued by problems, and Instagram, Messenger, and Oculus have not been able to satisfy users. Perhaps in search of a better network, or even a better, more human brand of social media, users have flocked to Telegram, the social app founded by the charismatic Russian entrepreneur Pavel Durov.
Telegram feels more like a repudiation of Mark Zuckerberg, which lends itself nicely to its narrative but obscures other strengths. Yes, Telegram has built a reputation as a more privacy-focused alternative, but it’s also a better messaging app. While it may still lag behind WhatsApp in terms of inactive users — 2 billion vs. 600 million — Telegram gives its users more power and finesse.
Of course, Pavel Durov’s business has had its setbacks, such as the botched initial coin offering (ICO) that brought them $1.7 billion in funds, but the organization did not make any progress. Telegram will argue that the SEC is responsible for this failure. However, aside from all this, Telegram has its own problems, such as the fact that it still has not established a viable business model. For Telegram, 10 years later, meaningful revenue still seems out of reach.
It seems that Telegram, a complex and sometimes quixotic company that, despite its product excellence, seems to be playing the role of a counter-puncher that thrives on comparison. In chess, the “Russian Game” is an opening maneuver characterized in part by imitating the opponent and trying to counter. In many ways, Pavel Durov seems to be taking the same approach.
To reach its true potential, Telegram may have to change its game. As the company enters a new decade, it is looking to build a reputation on its own merits. Powered by visionary executives and a talented technical team, Telegram has the key ingredients to not only rival WhatsApp, but even eclipse it. In today’s article, we’ll discuss Telegram’s past and future, including the following:
1. Founding 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 story is even more exciting.
2. Launching Telegram. Pavel Durov set out to build Telegram after being ousted from his old company. To grow the app, he had to deal with FBI interference 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 costs himself, but he also turned to ICOs and bond issuances.
4. Good at products. Telegram was created after WhatsApp, but now it is clearly the leader in social media products. Telegram supports larger groups, more formats, and a range of different features.
5. Funding troubles. Much of the company’s reputation rests on its commitment to privacy. This makes an advertising-based business model unsuitable. Telegram has tried promotions and other payment methods without breakthrough success.
6. Looking to the future. However, there are reasons to be optimistic about Telegram, as other messaging apps have found creative ways to monetize, especially China’s WeChat and Japan’s LINE.
Let’s get started.
VK's Story
The Roman poet Juvenal is not a name that is often quoted, but he contributed many buzzwords to our media age, such as using "bread and circuses" to describe how to appease the masses and using "black swan" and "watchman" to describe changes in financial markets.
A single spark can start a prairie fire
Ironically, the life of Pavel Durov – a man born in 1984 – would be defined by the search for privacy. Pavel Durov was the second son of Albina Durov and her husband, Valery Semenovich Durov, a respected Roman historian who had studied the satires of the Roman poet Juvenal.
Although born in Saint Petersburg, Pavel Durov spent most of his childhood in Turin, until his family returned to Russia after Valery accepted a position as the head of the Department of Linguistics at Saint Petersburg University (SPbU).
Pavel Durov was undoubtedly a smart kid, but among his brothers, he was not the most outstanding one. His brother Nikolai Durov, who was four years older than Pavel Durov, showed even more extraordinary mathematical ability from an early age.
Nikolai Durov, who participated in the International Mathematical Olympiad as a teenager and won several gold medals, is now a talented computer scientist and has passed on this interest to his younger brother, Pavel Durov, who is also very talented in building products. At the age of 11, Pavel Durov created a derivative product of the game Tetris, and later he and his brother Nikolai Durov collaborated on a strategy game set in China, Lao Unit.
Pavel Durov was not a "settled" student, certainly not the kid who sat at the front of the classroom to get a better view of the blackboard and get good grades. Pavel Durov often told his teachers they were incompetent and seemed to enjoy showing off his superior intelligence, especially when it came to computers. At one point, he changed the screen saver of the school's computers to a picture of a teacher with the words "Must Die" written next to it. Despite multiple attempts by instructors to lock Pavel Durov out of the computer systems, he always seemed to find a way in. This erratic behavior wasn't just directed at the teachers, as one classmate said he could never seem to be sure if he was serious or laughing at him when he spoke to Pavel Durov.
Despite his interest in programming, Pavel Durov followed in his father's footsteps when he went to college, not only enrolling at St. Petersburg State University, but also focusing on linguistics. In order to meet Russia's conscription requirements, Pavel Durov studied propaganda, learning the tactics espoused by Sun Tzu and Napoleon, and over time he realized the importance of information control.
In addition to studying, Pavel Durov also devoted himself to developing his own business, including launching the Durov.com blog, which became a platform for university students to upload papers and exchange ideas. However, Pavel Durov would often make deliberately inflammatory remarks - such as praising Hitler. He later explained:
“Sometimes I have to fan the flames. If users agree with you, you feel like you’re on top of the world, but it can cause them to leave. If you argue with them and humiliate them, they’ll come back to prove they’re right.”
Thanks to his deep understanding of online social dynamics, Pavel Durov's website has attracted more than 2.7 million visitors, giving his ideas wide reach and insight that will prove invaluable to the budding entrepreneur as he considers his next move.
Chasing Facebook
In 2006, Slava Mirilashvili logged onto a Russian news site and was surprised to see his old classmate, Pavel Durov, being exposed for creating a popular online forum for college students. (As a note, we’ll refer to Slava Mirilashvili as “Slava” to distinguish him from his father, who is also involved in this story.)
Slava Mirilashvili had witnessed the rise of Facebook up close. Of course, the social network had been founded two years earlier in Boston. But on Pavel Durov's forum, he saw the possibility of a similar business for the Russian market. So, Slava Mirilashvili found Pavel Durov's address, and the two young men rekindled their friendship. The conversation quickly turned to the potential of the emerging social networking space, and some other friends and McGill University graduate Lev Leviev soon joined.
That summer, a few months after graduating from St. Petersburg University, Pavel Durov registered a domain: vkontakte.ru. As the story goes, the name VKontakte (which means "contact") was originally modeled after Facebook (which dropped the 'the' in The Facebook) and was therefore decidedly cleaner.
To launch their project, the trio needed funding. Luckily, they had a ready source of funding: Slava Mirilashvili’s father, Mikhail Mirilashvili, a Georgian who had built a dizzying empire spanning real estate to oil, media to gambling, and owned 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 held only 20% of the company (the remaining 20% was divided between Slava and Lev Leviev), he received the majority of the voting rights, reflecting the startup's dependence on his vision (other sources also indicate that three recent graduates each received 20%, and Mikhail Mirilashvili held 40%).
With the money, VK began to enter the market. Like Facebook, VK initially targeted college students, growing campus by campus through invitations. Pavel Durov also encouraged registrations through competitions: users were encouraged to get as many friends as possible to register. Whoever proved the best referral would get a new iPod, and this strategy alone helped VK gain tens of thousands of early adopters.
It wasn’t long before VK had six-digit user numbers. And, just six months after its beta release, VK became the second-largest social network in Russia, with more than 100,000 users. A year later, VK had over 1 million users and surpassed another local social media giant, Odnoklassniki.
Expanding the VK network
VK's success seems to come from a combination of product knowledge and technical excellence.
From the beginning, Pavel Durov showed vision and pragmatism with the VK product. Early iterations borrowed heavily from Facebook, mimicking the American company’s color palette and features. But soon, VK introduced other personalized features. For example, Pavel Durov preferred to make profile pages the default setting for users. This may have been more suitable for the Russian market at the time.
In addition, VK supports uploading video and audio files, including many copyrighted files. However, this feature has caused copyright disputes, and a Russian TV company has sued it for infringement. In addition, in order to make the product richer, VK also "mimics" Netflix or Spotify services, and many users spend hours a week watching videos on the website.
One early VK employee noted that even as VK matured, Pavel Durov still ruled product features with high expectations: “Pavel had a very high standard for product quality…the quality of the code, the quality of the final product, you had to meet that standard in any way you could.” As VK matured, even small stylistic decisions were often brought up to the CEO.
VK also excelled on the technical side, and as the company grew, skyrocketing transaction volumes became an increasing challenge, especially when the site became a target for hackers. Thankfully, Pavel Durov had an ace up his sleeve: his older brother, Nikolai Durov. After earning his PhD in mathematics from St. Petersburg State University in 2005, Nikolai Durov went on to pursue 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 fending off attackers.
Money Fever
Soon, however, Pavel Durov’s technical proficiency could no longer keep up with the growing demand. VK started monetization relatively early, encouraging users to buy in-app currency, send paid text messages, and play games. Starting in 2008, the company also experimented with advertising on the site, but Pavel Durov preferred to keep ads to a minimum so as not to affect the user experience - "Customer first is the first priority, always."
Despite the funding, the growing demand for more servers meant that more money was needed. So, VK's new investor, DST Global's founder Yuri Milner, came on the scene.
At first, taking Yuri Milner's investment wasn't a difficult decision for Pavel Durov's team - generally speaking, venture capitalists offer the most money on the most favorable terms while letting VK continue to operate as it wants. 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 for another 7.5% - apparently, they wanted more. General Manager Dmitry Grishin, one of Yuri Milner's deputies, bluntly stated at the time that "it would be strategically correct for us to take control of the social network, or even better, acquire all of its shares, and we are in dialogue for this."
However, the conversation did not seem to last long. Although Pavel Durov reportedly visited MRG’s offices to discuss the acquisition, he gave his final answer on social media: posting a photo of a middle finger with a caption that this was his “official” response to Dmitry Grishin and calling MRG a “dump.”
Despite the tough words, they did not stop 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 operations throughout Russia and other former Soviet countries.
Game of Thrones
VK’s reach gives it real power.
But by the end of 2011, that power had become a liability.
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 picture of a husky in a hoodie, sticking out his tongue, his way of letting the world and VK’s users know that he would not give in to the pressure.
Soon after, a SWAT team visited his apartment, although Pavel Durov refused to let them in. Surrounded, he decided to call his brother and tell him what was happening. As Pavel Durov later said, it was this moment that inspired him to create Telegram:
“I realized I had no secure way to communicate with him, and that’s how Telegram started.”
It is worth noting that after the SWAT team withdrew, Pavel Durov's reputation was enhanced, at least for the time being.
However, the pressure continued into the new year, eventually leading to Nikolai Durov's decision to leave VK. Squeezed by businessmen and bureaucrats and without the support of his closest brother, young Pavel Durov's behavior began to become increasingly unstable.
For example, Pavel Durov once threw money out of the office window of VK. It is said that he had just given a large bonus to a vice president of the company, but the president replied that the mission was more important to him than the money. Pavel Durov decided to challenge his vice president and suggested that he throw the rubles into the busy Nevsky Avenue in St. Petersburg. Although the vice president agreed, Pavel Durov still thought that this was not flashy enough, so he decided to take over and made paper airplanes with 5,000 ruble banknotes and threw them into the rapidly gathering crowd - Pavel Durov later called it "one of the funniest moments in the history of our company."
Meanwhile, MRG is still fighting for control.
In late 2012, Alisher Usmanov, the tycoon who financed Yuri Milner and MRG, said “concrete negotiations” were underway.
The pressure continued into 2013, when VK came under fire from the Recording Industry Association of America (RIAA) for piracy, which hampered the company's chances of filing publicly on Western exchanges.
Two months later, April, the most terrible month for Pavel Durov, arrived.
On April 4, 2013, Russian media Novaya Gazeta dropped a bombshell, stating that Durov and VK were not resisting the FSB's advances, but actively encouraging resistance. Although Pavel Durov often seems like an idealist and is inspired by liberal tendencies, he is also a pragmatist. In the long run, he may have decided to take measures to protect VK's independence.
Around the same time, police investigated Pavel Durov for a suspected hit-and-run after he ran over a traffic warden's foot in a white Mercedes. Fearing retaliation, Durov fled, and some believe he fled to Italy, Switzerland, or St. Kitts and Nevis. On April 16, 2013, investigators stormed VK's offices and ripped open filing cabinets.
Pavel Durov made a phone call almost every day, wherever he was, hoping to confirm that United Capital Partners (UCP) had purchased a 48% stake in VK. He knew nothing about this at the time, although the news would prove to be true, with Mirishvalis and Leviev eventually selling their shares for $1.12 billion to a company rumored to have government ties. In fact, many believed that UCP would not have been able to finance such a large acquisition without the help of its backers.
Perhaps sensing that his days at VK were coming to an end, Pavel Durov and his brother had already begun to build a new project "in a low profile" - this free, secure messaging service was Telegram, and with a paper airplane as its logo, it had accumulated a 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 did not intend to make a profit from the project, but envisioned it as a non-profit project, with its development funds funded by their new holding company Digital Fortress.
April Fools' Day Stories
In January 2014, Pavel Durov sold his remaining VK shares to MegaFon CEO Ivan Tavrin. By then, Pavel Durov had reconciled with Alisher Usmanov, as part owner of the mobile operator, and presumably, Pavel Durov knew what was going to happen next.
A few months later, Ivan Tavrin sold his purchased shares to MRG, giving the company control of VK. Finally, Russia's Internet giants seized control of the country's largest social network.
Although Pavel Durov remained CEO, he began to sour on UCP and MRG, and on April 1, 2014, he announced his resignation via his VK account. Many people thought it was a (rather strange) April Fools' joke.
Was it a joke? Eight years later, it’s still unclear. But on April 3, 2014, Pavel Durov returned to social media and posted a dog meme, claiming it had been a prank all along. On April 21, he reported that he had been fired again, this time for mistakenly withdrawing his previous resignation.
Whatever the case may be, at the end of April 2014, Pavel Durov shared a final update: he would 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 would be the 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 judicial system, free markets, neutrality, and civil rights.
Telegram Story
Telegram's story imitates VK.
Although the messaging app has reached stratospheric heights in a short period of time, it has also attracted controversy along the way. Since starting work on the project in 2012, Telegram has reached nearly 600 million monthly active users and is the fastest growing app on that basis in 2021. In the process, Pavel Durov has had to fend off the "hunt" of the FBI and the "difficulties" of the US Securities and Exchange Commission.
Starting in the storm
When Pavel Durov left Russia, he wasn’t hurt by the money, with later reports suggesting he left with around $300 million and 2,000 Bitcoins — worth around $87 million at today’s prices. These funds gave him enough to finance the development of Telegram and invest in the Caribbean island of St. Kitts and Nevis in exchange for citizenship. Together with his brother Nikolai Durov, who was named CTO, they began developing Telegram.
In fact, not everyone believed in the project's promise, as it was a copy of WhatsApp and brought little to the table. However, in its early stages, the Telegram team offered a number of innovations, such as a smoother interface, faster interactions, and allegedly more secure communications. This promise attracted users, and the company attracted 35 million users within a few months of its launch. After Facebook acquired WhatsApp for $21.8 billion in early 2014, Telegram's counter-position became even stronger.
However, UCP was still causing trouble for Pavel Durov at the time. VK shareholders sued him over his ownership of Telegram, claiming that Pavel Durov had spent the company’s time and money developing Telegram. The disagreement continued until 2014, when MRG purchased UCP’s shares in VK, and the lawsuit against Pavel Durov was dropped, freeing Telegram’s path forward.
Constant problems?
By 2016, Telegram had amassed 100 million monthly active users (MAUs) with “zero marketing budget.” Despite this, Telegram has often found itself at the center of controversy, but the problem is that the app’s privacy-focused features have attracted not only security-conscious users but also extremist groups who want to stay out of the public eye. Telegram has struggled to control the jihadist groups that use the app and adequately moderate illegal content.
In addition, Telegram has also begun to run afoul of US government agencies. At one point, Russian police are believed to have pressured mobile operators to intercept Telegram messages. At the same time, Pavel Durov also claimed that the FBI tried to bribe him and his developers to introduce a backdoor. As he said, US intelligence officials offered a Telegram engineer "tens of thousands of dollars", which was hardly an attractive offer, given that Pavel Durov claimed that most Telegram developers were millionaires.
Despite these problems, Telegram continues to grow.
Another reason for this growth is Facebook. Every time the Facebook social network has a malfunction or gets into trouble due to the misuse of user data, millions of people turn to Telegram. As we have pointed out, Telegram often acts as a tool to "resist Facebook". The worse Facebook performs, the better Telegram develops. Of course, the same is true for Telegram's relationship with other traditional social tools, such as the Korean application Kakao Talk users who also began to turn to Telegram in 2014 and 2019.
As public opinion and media narratives turn against existing, ad-driven products, Telegram continues to rise. In this context, its problem seems to be just one: money.
TON Trouble
By 2018, Telegram was approaching 200 million users, but had yet to find a reliable form of monetization. While Pavel Durov still seems to view his creation as a public good, generating revenue would make it self-sustaining. Moreover, Pavel Durov’s windfall from VK would not last forever; in 2017, the company’s costs were reported to have reached $70 million.
Although Pavel Durov is known for not liking to run ads on VK — which at one point increased Facebook’s average revenue per user by 7 times — he surely knew that this was the most effective way to monetize a social network. However, this playbook doesn’t seem to fit Telegram well. With its focus on privacy and security, Telegram can’t pass data to advertisers without violating its fundamental promises, which means they have to think about how to make money elsewhere.
Fortunately, starting in 2018, early Bitcoin investors gradually turned to wider social networks.
In January 2018, Telegram announced the launch of the “Telegram Open Network” (TON), a new blockchain that supports an in-app ecosystem, which Pavel Durov claimed would prove to be “far superior” to existing chains like Bitcoin or Ethereum.
TON plans to support payments and purchases, including from third-party developers. Telegram raised $1.2 billion through an initial coin offering (ICO) to fund its construction. Participants included Silicon Valley big-name investment firms such as Sequoia Capital, Benchmark, Kleiner Perkins and Lightspeed. If Telegram does not sell equity, at least the idea at the time was that the financing provided some opportunities for rapid growth.
TON Whitepaper
At first glance, raising money through tokens was a masterful strategic move that gave Telegram a war chest of ideas. Telegram executive and former VK engineer Anton Rozenberg later noted:
Everything about the funding round seemed magical: Telegram had managed to raise as much, if not more, on a fictitious project than the company itself was valued at — with virtually no commitments to investors and no equity losses.
One source said Telegram's entry into the crypto space prompted Facebook to make subsequent efforts. Like Libra (now called Diem), Telegram's crypto project was equally ill-fated. Although Telegram's number of users increased, the development of TON was struggling. According to a former employee, Telegram told supporters that they had completed most of the initial construction of TON in September of that year "90-95%", indicating that the launch was still a few days away. In December of that year, they said they were only a few days away from announcing their work. However, after the start of the new year, TON has not seen the light of day.
In September 2019, Telegram released its experimental source code, and in October, the U.S. Securities and Exchange Commission came knocking.
The SEC determined that the TON token financing constituted the sale of unregulated securities and halted its development. Stephanie Avakian, co-director of the SEC’s enforcement division, said:
The emergency action we are taking today is intended to prevent Telegram from illegally selling digital tokens into the United States market.
TON was delayed again, and after further problems, Pavel Durov capitulated.
In May 2020, Pavel Durov announced that he was abandoning the project and blamed the SEC for TON’s demise. The company spent $405 million on development but did not release any viable product version. Frustrated, some investors began to consider filing a lawsuit, claiming that their funds were misused and allocated to the development of the Telegram messaging app instead of the TON network.
Ultimately, Telegram returned 72% of the funds to TON investors—a total of $1.2 billion, many of whom were frustrated that they did not receive an equity stake in Telegram. Non-US investors had the option to convert their refunds into loans, resulting in a 110% return on their initial investment after one year, which allowed Pavel Durov to hurry up and raise more funds. Telegram also paid an $18.5 million fine to the SEC, but did not "admit or deny the charges."
After splitting from the project, Pavel Durov handed control of TON to the "community", and because the code was open source, anyone could continue to build on the project's architecture, so several spin-offs soon emerged, including "Free TON" and "Toncoin". "Toncoin" seems to have established itself as the spiritual successor to the original and was endorsed by Pavel Durov in late 2021. The project is currently run by two independent developers, and another nine developers are associated with 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 Telegram employees spoke about their views on TON, noting that the SEC interfered with the development of the core product and caused friction. Despite Pavel Durov’s bold attempts, TON ultimately failed to solve the monetization and capitalization issues.
Uneasy Bonds
As of April 31, 2021, Telegram owed a massive $700 million. Once again, Telegram is having funding problems, with Pavel Durov admitting that he needs “hundreds of millions of dollars a year” to run Telegram.
With more than 500 million active users, Telegram has no shortage of suitors. Some Western venture capital firms have reportedly offered to buy a 5% to 10% stake in the business at a valuation of $30 billion, with some even raising the valuation to nearly $40 billion.
However, from his previous experience with VK, Pavel Durov knew the dangers of bringing in outside investors, and after being ousted from the CEO position last time, he wasn't going to let it happen again.
Instead of selling equity, Pavel Durov turned to debt. In March 2021, Telegram issued $1 billion in bonds with an annual interest rate of 7-8%. What's more, if Telegram IPOs within three years of the offering, buyers can exchange the bonds for equity at a 10% discount to the listing price. If Telegram takes longer to enter the public market, the discount will rise sharply to 15-20%.
Among the bond buyers was Abu Dhabi’s sovereign wealth fund Mubadala Investment, and as part of the acquisition, Pavel Durov pledged to expand Telegram’s influence in the region, with the expected opening of another office in the UAE.
Surprisingly, this deal by Mubadala Investment involves the Russian Direct Investment Fund (RDIF). The Abu Dhabi company reportedly sold $2 million in bonds to RDIF in a secondary transaction. Mubadala Investment claims that the deal was part of the creation of a joint venture between sovereign wealth funds. Telegram expressed dissatisfaction to a spokesperson:
The Russian Direct Investment Fund is not on the list of investors to whom we sell bonds and we would not be open to any transaction with this fund.
Still, RDIF now has the right to take a stake at a discount to Telegram’s potential IPO price. While this may have angered Pavel Durov, the fund’s involvement also suggests that in some ways the Telegram CEO has already won.
New Heights
Shortly before Mark Zuckerberg announced Facebook's rebrand, the company experienced the massive outage we've already discussed. In a single day, Facebook customers flocked to other social networks, with messaging app Signal reporting "millions" of new users and Telegram announcing 70 million new users. This set a "record" for Pavel Durov's company and a meaningful boost to the 5 billion users it had at the beginning of the year.
While this is the most notable example of Telegram's progress, 2021 was a stellar year for growth broadly speaking. Telegram was the fastest-growing major app last year, surpassing Instagram, Zoom, TikTok, Signal, and others. In 2022, Telegram hopes to surpass the 1 billion active user milestone, but they will likely need to continue to improve 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 the app is much more interesting than that. Telegram is a powerful product that continues to push the boundaries of what a messenger can and should do. While it may have started out as a WhatsApp clone, Telegram now has more in common with Twitter, Clubhouse, Reddit, Discord, and Slack than just a simple, sleek 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 privacy levels.
While more technical readers may be able to parse more from the image below, the rest can be understood 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 Chats is distributed across servers around the world and managed by different legal entities. As Telegram explains, “several court orders from different jurisdictions” were needed to protect corporate data.
Secret Chats utilize more secure end-to-end encryption (E2EE), as demonstrated in “Part 2” of MTProto. In E2EE, no one except the sender and receiver can decipher the data, not even Telegram can decrypt messages sent through this layer.
Telegram has drawn criticism for its approach in this regard. In a recent Twitter post, Moxie Marlinspike, co-founder and former CEO of rival messaging service Signal, outlined his issues with the product.
In the opinion of Moxie Marlinspike, Telegram is no more secure than Facebook Messenger. He said:
"Telegram stores all of a user's contacts, groups, media, and every message you've ever sent or received in plaintext on its servers, and the app on a user's phone is just a "view" onto their servers, where the data actually lives. Almost everything you see in the app, Telegram sees as well... Confusingly, Telegram does allow you to create very limited "Secret Chats" (no groups, no syncing, no syncing) that nominally do use e2ee..."
FB Messenger also has an e 2 ee "secret chat" mode, and is much less restrictive than Telegram (and also uses the better e 2 ee 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 do 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 secure experience for those who need it, but not at the expense of the majority of users. While having a true E2EE might create a more private experience, it would make Telegram less useful for many people; messages would no longer sync across devices, for example.
A member of the Telegram team I spoke with explained that, above all else, the company wants to provide the best experience for its users — for some, that may involve E2EE and disappearing chats, but for most, it won’t. When comparing Telegram to Signal, the former VK employee discussed earlier put it succinctly:
“Signal has too few users.”
chat
The core of Telegram's visible product is its chat feature. Available across devices, users can message each other through a simple, intuitive interface. Anecdotally, I found it to feel smoother, faster, and more lively than WhatsApp. Buttons do what you expect, and small features create unexpected fun.
More specifically, Telegram's chat functionality is strong. It supports a wide variety of files (doc, zip, mp 3) with high size limits. Replies, mentions, and hashtags are baked in, and the in-app photo editing is surprisingly advanced.
As mentioned above, by default chats are stored in the cloud so that users can view them as they move from phone to laptop and back again. If you want to keep things 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 chats to business coordination. A recent article pointed out that Telegram groups are popular among students. Instead of emailing a teacher or texting a friend one at a time, students share questions and answers in an ongoing chat, which is reminiscent of Discord.
In some countries, Telegram groups have also become a Slack alternative. For example, one source noted that in Russia, many people prefer Telegram to the Salesforce subsidiary — in part because it’s completely free. As we’ll discuss later, this could provide a path to a solid revenue model.
Telegram groups take on a life of their own because, like the rest of the app, they’re almost as powerful as they are named. Telegram supports up to 200,000 members; WhatsApp can only have 256. Telegram has built a suite of sharing and management tools to manage these types of users, and group admins can create group links to share with the world and fine-tune how members are allowed to interact.
Channels
If Telegram’s groups mimic Discord, then “channels” are a kind of Twitter or Reddit facsimile. Rather than conversations, channels are built for broadcasting and have no upper limit on the number of users. For example, some company channels on Telegram have more than 8 million participants.
There are channels for popular memes, pictures, news, quotes, etc. More than 400 million people watch Telegram channels every day. Channel owners can check the viewing data on a per-channel basis. If channel owners want to allow viewers to talk, they can nest breakout discussions within the channel.
Audio and Video
After witnessing the pandemic trajectory of Clubhouse, Telegram accelerated its audio feature development. In fact, Telegram offered voice calls in the early stages of development, but now Telegram groups and channels can already host "unlimited" voice chats that millions of people can join, and administrators can invite participants on stage, record their discussions, and share conversation links outside the application. Due to its already large user base, Telegram quickly surpassed Clubhouse in terms of listening time. The company 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 allows easy recording and viewing. We should expect further improvements. Telegram's blog wrote:
“We’ll continue to increase the limit until everyone on the planet can join a group call and watch our celebration (coming soon).”
Payment
Although 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 a Telegram “bot.” Through this interface, users can “do everything from ordering a pizza to calling a cab to changing to winter tires when you get tired of winter.”
How many people have done any of that? While its official blog updates highlight that Telegram now integrates with 15 different payment providers, including Stripe, the fact that the company hasn’t celebrated 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 cut — providing Pavel Durov’s team with the firepower to continue building.
Other details
Besides the main features of Telegram, it also has many minor features that many people may not have discovered.
For example, Telegram protects you from having to show plain text. When sending a private text, you can select part or all of the text and mark it as hidden. To decipher it, the reader must explicitly click on it. (This feature may only be available in certain countries, though.)
Another useful feature is "People Nearby." Although it is turned off by default for privacy reasons, anyone can find local groups and chats by activating the feature.
There are also additional features like 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 big role in Telegram’s future, these details all subtly improve the product.
Telegram's corporate culture
There is little information about Telegram culture, but we can still get a glimpse into its culture through how Telegram works and what makes it unique.
Founder Leadership
A friend at Amazon once told me that the e-commerce giant, like many other companies, 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, and L12 has only one member, the founder: Jeff Bezos. (This always struck me as a little funny; why does it take an entire new tier—one that no one else can touch—to reinforce Jeff Bezos's supremacy?)
Telegram feels like this - Pavel Durov is unique in terms of control. He not only brings money to the company, but also guides the company's vision. So, what kind of person is Pavel Durov?
As we mentioned, he seems to be a mercurial, contradictory character who embraces an ascetic lifestyle and escapes the trap of vanity and wealth. Although he calls himself an iconoclast, Pavel Durov has been accused of collusion with the FSB and of leaning toward traditional means when it comes to financing. While Abu Dhabi is a modern city, the UAE is no bastion of tolerance. Of course, no country is perfect, least of all the United States, but some of Pavel Durov's most important human and corporate decisions have shown more than a little ideological plasticity.
Despite this disconnect, Pavel Durov is a highly intelligent programmer with a keen sense of product. One employee called him a “visionary” who was able to recruit very talented engineers and unite them around a common goal, and he held work to a high standard and delivered quickly.
Another key figure is Telegram's CTO Nikolai Durov, who is mainly responsible for building and improving the core architecture. It is rumored that he completed the entire MTProto and TON specifications alone; according to sources, the company's Android client was also almost entirely created by him. Nikolai Durov is an eccentric character. In a post on Medium, a childhood friend told a story he had heard about him: Nikolai Durov was so focused on his work that he didn't notice a beetle fell into his cereal bowl and eventually ate it all without noticing.
One Telegram employee noted that Nikolai Durov seemed shy and didn't often communicate in large groups, but they said Pavel Durov showed extraordinary care for his brother and that because Nikolai brought something of extraordinary value, Pavel Durov would provide him with all the tools he needed to succeed.
Product Delivery
As mentioned above, Telegram is known for fast product delivery. Despite starting four years after WhatsApp, Telegram quickly caught up and then sprinted forward from a feature perspective. Now, both WhatsApp and FB Messenger are behind Pavel Durov's Telegram, with some features even being introduced by Telegram years before.
The reason why product iteration can be completed in such a fast manner 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. They adopt a "small, fast and smart" approach, and many decisions are made by Pavel Durov alone.
Talent Discovery
Telegram has reportedly done an excellent job recruiting engineers. In part, this is thanks to Pavel Durov’s reputation. In Russia, he is seen as a symbol of a generation of entrepreneurs and technological progress. One source explained how this helped Telegram’s image, saying:
“In Russia, Telegram is already a symbol.”
This allows the company to pick Russia’s elite developers. (Russian software engineers are the best in the world, according to some reports, and Russian developers win more international university programming competitions than any other country.)
funds
While Telegram could opt for private funding, Pavel Durov may prefer to raise funds through an IPO. The company is reportedly aiming to go public in 2023, a timing that could be inspired by the terms of the bond offering.
According to a report from the Russian newspaper Vedomosti, Pavel Durov has begun talking to investment banks and is looking for a suitable listing location. Apparently, Pavel Durov is considering both SPAC and direct listing, but he seems to be leaning towards the latter. While the New York Stock Exchange is a controversial destination, Asian exchanges are also under consideration, including the Hong Kong Stock Exchange.
If Telegram went public today, what 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 surpassed 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 profit potential, fintech has permeated all kinds of 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 markets 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, which works out to $100 per user. By that metric, Telegram would be worth closer to $60 billion, a number that feels like a better representation of the company’s value.
Competitor Comparison
Of course, the main difference between Telegram and Discord is revenue. Discord founder Jason Citron has made $130 million in revenue by focusing on chat for games, a figure that has grown at a compound annual growth rate of 126% over the past five years.
If Telegram is going to make money, it's definitely 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 during Facebook's IPO, they want to see some signs of commercial demand. To do that, Telegram needs to find a way to make money.
How does Telegram make money?
Despite having a hot product-market fit, in some ways Telegram seems to be an unrealistic application and has not yet achieved product-model fit. Despite some experiments, Pavel Durov's team has not yet settled on a final business model, which they need to keep changing, testing advertising, subscription and payment-based approaches.
Although Pavel Durov believes that advertising that relies on user data is unethical, Telegram is willing to make money through "attention", such as -
advertise
In October 2021, Pavel Durov announced that promotions will be allowed on Telegram, but they will not rely on user data. In addition, they will also try to drive returns for advertisers by allowing advertisers to target specific channels. Sponsored businesses can choose to promote their products in channels dedicated to relevant topics, rather than precisely targeting users within specific age ranges, geographic locations, and expressed interest groups. So far, advertisers can only access channels with more than 1,000 users and the minimum budget must be more than $2 million. It is worth mentioning that Telegram hopes to try to distribute part of the revenue to channel owners in time.
The question is, does this model work? It seems to be an uphill battle. For advertisers, fine targeting has always been key, so Telegram's approach does not seem to satisfy advertisers, not to mention that Pavel Durov himself has never liked ads, so it is hard to imagine him happily running a business funded by the advertiser model.
subscription
So where else could Telegram make money? Subscriptions might be another option, and could come in a number of different forms. The company has proposed a “cheap” product that removes the ads it’s adding. While not a particularly exciting proposition, it could open up user sponsorships similar to the “server boosts” that Discord monetizes.
If you use your imagination a little more, it's not hard to imagine a subscription service that could monetize power users, especially those who run large groups or channels. Premium features could be behind a paywall, for example, but Telegram would need to be careful not to alienate creators. Since Telegram is already used as an alternative to Slack in some parts of the world, it could introduce an enterprise tier, although charging would likely eliminate its main appeal.
WhatsApp's "Business" product seems to be heading in that direction, but instead of focusing on internal communications, it's about giving companies tools to better serve their customers. This includes marketing and user support tools. While Facebook gives these features away for free, monetizing them by pushing businesses to buy ads on Instagram or Facebook itself, Telegram will likely charge for them. In addition, over time, Telegram may also seek to compete with companies like Hubspot and Intercom, offering a lightweight alternative for mobile-first businesses.
Payment
Profiting from payments feels like the most natural choice for Pavel Durov. While it hasn’t worked out for Telegram yet, it seems like the conditions are in place for success. Not only does Telegram have a large user base, but much of its strength comes from the fact that its users are mostly from less banked regions, including Armenia, Cambodia, Kazakhstan, Jordan, and Venezuela, among others. Moreover, thanks to its unfortunate experience 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 on social networks.
Telegram employees also highlighted payments as an area of focus, noting in particular the lack of a unified global payment system, comparing the current state of the space to messaging before WhatsApp. Just as WhatsApp changed the game by bypassing telecom providers, Telegram could do the same by outsmarting or integrating with traditional payment processors. The result is just as simple: seamlessly sending data (or money in this case) anywhere on the planet, which could leverage or involve stablecoins or other cryptocurrencies.
Facebook is catching up on this with Diem, but Telegram may be in a better position. While consumers deeply distrust Mark Zuckerberg’s company, Telegram is known for its focus on privacy, which can be an advantage when it comes to the sensitive subject of money.
Implementing a payment strategy could make Telegram even more powerful than WhatsApp, making it one of the most influential companies in the world. Even if it can’t become a global social payment giant, getting a piece of the pie would give them a solid foothold.
Reasons to trust Telegram
Even though they haven’t made progress in terms of revenue generation, for Telegram, they can build a great business on top of the messaging app. While Facebook hasn’t figured out what to do with WhatsApp, both WeChat and LINE are making a decent amount of revenue.
When it comes to profitability, WeChat is top-notch. The Tencent subsidiary is less an app than an ecosystem, 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 Tencent’s other revenue, a report from January last year noted that WeChat processed $250 billion in transactions in a single year, with payments mostly coming through its “mini-programs” — essentially third-party apps built for the platform.
It’s encouraging to see that WeChat, which only started its “Mini Program” initiative in 2017, now supports over 1 million such partners. WeChat doesn’t seem to be far behind Telegram in terms of active users – the same report shows that WeChat currently has 1.2 billion monthly active users, about twice as many as Telegram.
Can Telegram find similar multifaceted success? The answer may not be easy, after all, WeChat benefits from a huge market support and a super-organization to fund its development.
Another example is LINE, a Japanese company with about 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 games, payments, and shopping. While billions of dollars won’t be enough to support Telegram’s market cap in the long run, it could give them a good foundation.
Whatever direction Telegram chooses, they will need to act quickly.
We should be glad 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.
Where will Telegram and Pavel Durov go in the future? Perhaps time will tell. But one thing is certain - Pavel Durov still has a long way to go.
