By Mario Gabriele, The Generalist
Compiled by: Dopamine Star, RockFlow
As one of the most successful social media in the world, Telegram has the following core business features:
Telegram is the fastest-growing app in the world. At least, by some measures. A 2021 report showed that no major app had a higher growth in monthly active users than social apps. Telegram now has about 600 million users.
It creates a strong security image. Although Telegram does encrypt messages, most messages are not truly encrypted and completely private. However, this does not seem to harm the company's rhetoric. It does a great job of counter positioning.
There are risks in using cryptocurrencies. An ICO (initial coin offering) in 2018 pumped $1.7 billion into Telegram’s coffers. Unfortunately, the SEC deemed this to constitute an unregistered sale of securities. The debacle distracted Telegram from its development and prompted unconventional financial arrangements.
Competitions are an effective recruiting method. Few companies seem to have as many talented engineers as Telegram. Its success is partly down to its use of competitions. The company often offers bounties to improve its product in order to hire the most talented contestants.
It still hasn’t found a business model. Telegram has supported payments since 2017 and recently tried advertising. But neither has caught on so far. To reach profitability, Durov’s team may look to WeChat and other apps for inspiration.
Behind the business, the story of Telegram's birth combines the most exciting and mysterious elements in the world, including rebellious technology geeks, dealing with official control, the gathering and collapse of the money empire, starting over in a foreign country, and cryptocurrency. Most importantly, Telegram founder Pavel Durov's unchanging fanatical pursuit of freedom. This article tells the wonderful story of Telegram in detail, enjoy.
Table of contents
1. The story of VK
-Chasing Facebook
-Continuously climbing VK
- Money Frenzy
-game of Thrones
- April Fools' Day
2. The story of Telegram
- Storm Center
-The Art of Balance
-TON trouble
-Uneasy Bonds
-New Heights
In October 2021, Telegram gained 70 million new users within 24 hours of mainstream software outages like Facebook. The ubiquity of social media makes us numb to such huge numbers, but the comparison with reality helps us perceive: this number is larger than the population of South Africa, France, and Thailand; it is only slightly less than the population of two Canadas.
This shows that Telegram is a social app with a global scale, which can sweep an entire country within the time of the alternation of the sun and the moon.
The fact that this happened was just as important as the sheer size of its user base. For six hours on the morning of October 5, 2021, Facebook failed, and Instagram, Messenger, and Oculus all went down. Users seeking excitement, connection, and even better, more human social media flocked to Telegram, founded by the charismatic Russian entrepreneur Pavel Durov.
Picture: Pavel Durov, the handsome Telegram soul
Telegram feels more like the opposite of Facebook, thanks to its security-focused branding, but that also obscures other strengths. Yes, Telegram has earned a reputation as being more privacy-focused, but it's also a better social media. While it may still lag behind WhatsApp (around 2 billion) in terms of active users (600 million), it offers more features.
Durov has had his share of setbacks, of course. A botched initial coin offering brought in $1.7 billion in capital to fund the company’s blockchain ambitions but made no progress. Telegram has argued that the SEC was responsible for the failure. But it only focused on its problems when it was questioned about its ability to build a viable business model. Now, a decade later, profitability still seems out of reach.
The result is a complex, sometimes quixotic company with exceptional products and a counter-puncher that thrives on competition. In chess, a "Russian opening" is an opening sequence characterized in part by imitating the opponent and launching a counterattack. In many ways, Pavel Durov seems to have taken the same approach.
In this article, we will discuss the past and future of Telegram, including the following:
VKontakte is founded.
Before trying to build a better WhatsApp, Pavel Durov created Russia's version of Facebook. While Zuckerberg's story is fascinating, Durov's is even more exciting.
Founded Telegram.
Durov set out to build Telegram after being ousted from his old company. To develop the app, he had to deal with FBI interference and SEC brutality.
Unusual financing.
Durov took an unconventional approach to financing Telegram, avoiding raising money from venture VCs. Not only did he pay for most of the development costs himself, but he also turned to ICOs and bond offerings.
Let’s get started.
01 VK Story
Pavel Durov was the second son of Albina Durova and her husband Valery Semenovich Durov, a respected Roman historian. Although born in Saint Petersburg, Durov spent most of his childhood in Turin. The family returned to Russia only after Valery Semenovich Durov accepted the position of Head of the Department of Philology at Saint Petersburg University (SPbU).
Although undoubtedly intelligent, Pavel was the lesser of the Durov brothers. Nikolai, four years older, had shown an extraordinary ability in mathematics from an early age.
As a teenager, Nikolai participated in the International Mathematical Olympiad, winning several gold medals. He was also a talented computer scientist, an interest he passed on to his brother, who showed a talent for building products. At age 11, Pavel created a spin-off of Tetris. Later, he and Nikolai completed Lao Unit, a strategy game set in ancient China.
Pavel was not an obedient student. The boy, who sat at the front of the classroom so he could see the blackboard better, earned good grades but often questioned his teachers' incompetence. He delighted in showing off his superior intelligence, especially with computers. At one point, he changed the screen saver of the school's computers to a picture of his teacher with the words "Must Die" written next to it. Despite repeated attempts by instructors to lock Pavel out of the computer systems, he always seemed to find a way in. This erratic behavior wasn't just directed at teachers; one classmate said that when he spoke to Pavel, he could never be sure if Pavel was serious or laughing at him.
Despite his interest in programming, Pavel followed in his father's footsteps when he went to college. Not only did he get into SPbU, but he also focused on linguistics. To meet Russia's conscription requirements, he studied propaganda, learning about the Art of War and the tactics espoused by Napoleon. Over time, Pavel realized how seriously his country took information control.
In addition to his studies, Pavel worked on his own ventures, including Durov.com. This initially blogging platform later became a platform for university students to upload essays and exchange ideas. Using a pseudonym, Pavel argued multiple positions on the site, often making deliberately inflammatory statements – such as praising Hitler. He later explained:
“Sometimes I have to fan the flames. If a user agrees with you, you feel like you’re on top of the world, but they’ll leave. If you argue with them and humiliate them, they’ll come back to prove they’re right.”
Durov’s deep understanding of online social networking helped the site attract more than 2.7 million visitors. This not only gave his idea widespread influence, but also reflected the strong demand for online social networking at the time. This insight proved invaluable to the budding entrepreneur as he considered his next move.
Chasing Facebook
In 2006, Slava Mirilashvili logged onto a Russian news website and was surprised to see the face of his old classmate, Pavel Durov. His friend had been reported for creating a popular forum for university 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 had witnessed the rise of Facebook up close. Of course, the social network had been founded two years earlier in Boston. At Durov's forum, he saw the possibilities of a social network for the Russian market.
Slava found Durov's address, and the two young men rekindled their friendship. The conversation quickly turned to the potential of the emerging social network, and McGill graduate Lev Leviev soon joined.
A few months after graduating from St. Petersburg University that summer, Durov registered a domain name: vkontakte.ru. As the story goes, Durov soon came up with the name VKontakte — which means “contact.”
To launch their project, the trio needed funding. Luckily, they had a ready source of funding: Slava’s father, Mikhail Mirilashvili. The Georgian had built a dizzying empire that spanned businesses from real estate to oil, media to gambling. Mirilashvili owned the largest network of slot machines in Europe.
At his son’s behest, Mirilashvili capitalized VK in exchange for 60% control. Although Durov held only 20% (the remaining 20% was split between Slava and Lev Leviev), he received the majority of voting rights, reflecting the startup’s reliance on his vision. (Other sources indicate that three recent graduates each received 20%, and Mikhail Mirilashvili held 40%.)
With money in the bank, VK joined the race for social products. Like Facebook, VK initially targeted college students, growing campus by campus through an invitation system. Durov also encouraged signups through contests: users were encouraged to get as many of their friends to sign up as possible. The referral who invited the most users received a new iPod. This strategy alone helped VK gain tens of thousands of early adopters.
It didn’t take long for VK to break the six-digit user mark. Just six months after launching the company’s beta version, VK became the second-largest social network in Russia, with more than 100,000 users. A little over a year later, VK surpassed Odnoklassniki and reached 1 million users.
Climbing VK
The company's success seems to come from a combination of product knowledge and technical excellence.
From the beginning, Durov demonstrated both vision and pragmatism for the VK product. Early iterations borrowed heavily from Facebook, mimicking the American company’s color palette and features. But VK soon made its own moves. For example, Durov thought Facebook wasn’t doing one thing well enough, and he favored making profile pages the default for users. This was probably more suitable for the Russian market at the time.
In addition, VK supports uploading video and audio files, including many copyrighted files. This has triggered regulatory scrutiny, and a Russian TV company even sued for infringement. But this makes the product richer in content, VK is like a pirated Netflix or Spotify, and users spend hours every week watching videos on the site.
One early VK employee noted that even as VK matured, Pavel still held product features to a very high standard. "Pavel had a very high standard for quality...the quality of the code, the quality of the final product. You had to meet that standard by any means you could." As VK matured, even small stylistic decisions were often referred to the CEO.
VK also excelled on the technical side. As the company grew, supporting skyrocketing user numbers became an increasing challenge, especially when the site became a target for hackers. Thankfully, Durov had an ace up his sleeve: his brother Nikolai. After earning his PhD in mathematics from SPbU in 2005, Nikolai went on to pursue a PhD in computer science (and mathematics) at the University of Bonn. He built a technical backing capable of handling millions of users and fending off attackers.
Money Fever
Soon, though, even the Durov brothers’ technical prowess couldn’t keep up with the demand for growth. VK started monetizing relatively early, encouraging users to buy in-app currency, send premium text messages, and play games. Starting in 2008, the company also experimented with advertising on the site, but Pavel preferred to keep it to a minimum so as not to detract from the user experience. “Customer first is the number one priority, always,” said a former VK employee.
Although growth brings funding, the growing need for more servers also means more funding. VK's new sponsor is Yuri Milner, the founder of DST Global.
At first, taking Milner's cash wasn't a difficult decision for Durov's team. The venture capitalist offered the most money on the best terms while letting VK continue to operate as it wished. But over time, DST's Russian assets were quickly bundled into the Mail.ru Group (MRG). By early 2011, MRG held a 32.5% stake with an option for an additional 7.5%, but it wanted more. "It would be strategically correct for us to take control of the social network, or even better, acquire all of its shares," noted General Manager Dmitry Grishin, one of Milner's deputies. "We are in talks to that end."
The communication did not seem to last long. Although Durov reportedly visited MRG’s offices to discuss the acquisition, he gave his final answer on social media: posting a photo of himself giving his middle finger and captioning it as his “official” response to Grishin, calling MRG a “dump.”
Despite the strong words, they could not prevent MRG from exercising its option to increase its stake to 40% and value VK at $1.5 billion. At this time, the social network had 125 million user accounts across Russia and the former Soviet Union.
game of Thrones
VK’s influence gave it great power, which by the end of 2011 proved to be a liability. In December 2011, protests over unfair parliamentary elections spread across Russia. In response, the country’s security agency, the FSB, pressured VK to shut down the accounts of seven opposition groups and to direct positive messaging to its users. In response, Durov tweeted a photo of a husky in a hoodie, sticking its tongue out. It was his way of letting the world and VK’s users know that he would not give in to government pressure.
Soon after, a SWAT team visited his apartment, although Durov refused to let them in. Surrounded by police, he decided to call his brother and tell him what was happening. As he later said, it was this moment that inspired another successful product idea for VK: "I realized that I had no secure way to communicate with him. That's how Telegram started."
It is worth noting that after the SWAT team withdrew, the conflict with the Kremlin brought Durov's reputation to the fore and enhanced his civilian reputation, at least at the time.
Pressure from the government continued into the following year, and this may have been the reason why Nikolai decided to leave VK. Young Durov, squeezed by businessmen and bureaucrats and without his closest allies, continued to behave erratically.
In one famous incident, Durov threw money out of VK’s office window. As the story goes, he had given a large bonus to one of the company’s vice presidents at the time. When the employee replied that it was the mission that mattered to him, not the money, Durov challenged him to prove it, suggesting that he throw the rubles onto St. Petersburg’s bustling Nevsky Prospekt. While the vice president agreed, Durov thought he wasn’t showing off enough and decided to take over, making paper airplanes out of 5,000 ruble notes and then letting them float down into the rapidly gathering crowd. Durov later called it “one of the funniest moments in our company’s history.”
Meanwhile, MRG was still vying for control. In late 2012, Alisher Usmanov, a tycoon who financed many of Milner and MRG’s activities, said “concrete negotiations” were ongoing. Usmanov would not tolerate no. Not only was the Uzbek absurdly wealthy, he was also seen as an ally of the Kremlin.
The pressure continued into 2013. VK came under fire from the Recording Industry Association of America (RIAA) for piracy, which thwarted the company's chances of filing for a public listing on a Western exchange.
April 2013 was the worst month for Pavel Durov. On April 4, Novaya Gazeta dropped a bombshell when the Russian newspaper reported that Durov and VK, far from resisting the FSB’s demands, were actively encouraging the government to crack down on resistance organizations. To support these accusations, the journal published correspondence between VK’s then press secretary, Durov, and senior government officials.
According to Novaya, Durov outlined to colleagues his cooperation with the FSB and said he had passed information about thousands of users to the FSB. After initially denying the authenticity of the messages, VK's press secretary finally admitted to the collaboration; Durov continues to deny the allegations against him.
While Durov often seems like an idealist, inspired by liberal tendencies, he is also a pragmatist. In the long run, he may have decided to take some kind of government cooperation measure to protect VK's independence.
Around the same time, police investigated him for a suspected hit-and-run in which he ran over a traffic warden's foot in a white Mercedes. Fearing political reprisals, Durov went on the run, and some believe he fled to Italy, Switzerland, or St. Kitts and Nevis. On April 16, investigators stormed VK's offices and ripped open filing cabinets.
Wherever Durov was, he received a call on April 17 asking if he could confirm that United Capital Partners (UCP) had bought a 48% stake in VK. Although he knew nothing about it, the news was true. Mirilashvilis and Leviev sold their shares to UCP, a company rumored to have links to the government, for $1.12 billion. Many believed that UCP could not have financed such a large acquisition without the help of influential backers. The Kremlin seemed to have forced a partial acquisition, even though company law gave existing shareholders a right of first refusal on such sales, and even MRG later called it a "dubious plan" by UCP.
Perhaps sensing that his time at VK was waning, Durov moved on to the side project he’d started with Nikolai soon after the SWAT team arrived at his apartment: a free, secure messaging service called Telegram, with a paper airplane as its logo, that had amassed a sizable user base. By October 2013, it had more than 100,000 daily active users and some features surpassed WhatsApp. Despite this appeal, the Durov brothers envisioned the project as a nonprofit, with development funding provided by their new holding company, Digital Fortress.
April Fools' Day
In January 2014, Pavel Durov sold his remaining VK shares to Ivan Tavrin, CEO of MegaFon. By then, Durov must have reconciled with Usmanov, as he was part owner of the mobile operator. A few months later, 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 Durov remained CEO, he began to sour on UCP and MRG, and on April 1 of that year, he announced his resignation via his VK account. Many people thought it was a (rather bizarre) April Fools’ joke.
Was it a joke? Even eight years later, we still don’t know the answer. On April 3, Durov returned to social media, posting the Annoying Dog meme and saying it was a prank. On April 21, he was fired for real, this time for mistakenly withdrawing his resignation. Simmering beneath the surface was the UCP’s displeasure with Durov’s involvement in Telegram, which they considered a competing project, and which they claimed he had used VK funds to support.
Whatever the case, Durov shared a final update at the end of April: he would be returning to Telegram full-time to find a new home for his team. In a Facebook post, he wrote:
Which country or city do you think would be best for us? Feel free to leave a comment below. To give you an idea of our preferences, we don't like bureaucracy, police states, big government, war, socialism, and over-regulation. We like freedom, a strong judiciary, small government, free markets, neutrality, and civil rights.
02 The story of Telegram
The story of Telegram shares many similarities with that of VK. Although the social app reached great heights in a short period of time, it did so with much controversy along the way. Since the Durov brothers began working on the project in 2012, Telegram has reached nearly 600 million monthly active users and was the fastest growing app in 2021. Along the way, Durov had to fend off the FBI, face the SEC, and even make an uneasy peace with Russian power brokers.
Center of the Storm
When Pavel Durov left Russia, he wasn’t short of money. Later reports suggest he left with around $300 million and 2,000 Bitcoins. At today’s prices, that’s around $87 million. This gave him enough money to finance the development of Telegram and invest in the Caribbean island of St. Kitts and Nevis in exchange for citizenship. Along with his brother Nikolai, who was named CTO, Pavel began developing Telegram.
Not everyone was convinced by the project’s promise, as it was a copy of WhatsApp and brought little to the table. But even in its early days, Telegram’s team differentiated itself by offering a smoother interface, faster interactions, and supposedly more secure communications. That promise attracted users, and the company attracted 35 million users within a few months of its launch. Telegram’s different stance became even more powerful after Facebook acquired WhatsApp for $21.8 billion in early 2014.
The Art of Balance
By 2016, the company had amassed 100 million monthly active users (MAUs) with “zero marketing budget.” Despite this, Telegram has often found itself at the center of controversy. 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. Dissidents and journalists working in repressive countries have also benefited.
Government agencies also caused conflict. At one point, Russian police were believed to have pressured mobile operators to block Telegram messages. Meanwhile, Durov claimed the FBI tried to bribe him and his developers to build a backdoor. As he put it, U.S. intelligence officials offered a Telegram engineer "tens of thousands of dollars," hardly an enticing offer given Durov's claims that the app's developers were millionaires.
Despite these obstacles, Telegram continues to grow. Often, it’s driven by Facebook’s missteps. Whenever Facebook has a glitch or gets in trouble for misusing user data, millions turn to Durov’s product. As we’ve noted, Telegram has often served as a Facebook subversion tool, thriving on the blood of the American behemoth. The same is true of its relationship with other traditional social tools. Criticism of the South Korean app Kakao Talk in 2014 and 2019, for example, pushed users toward Durov’s Telegram.
As public opinion and media narratives turned against existing, ad-driven products, Telegram continued to grow. Its only problem seemed to be the small matter of money.
TON’s troubles
By 2018, Telegram was approaching 200 million users, but had yet to find a reliable form of monetization. While Durov still seemed to view his creation as a public good, the revenue was not enough to make it self-sustaining. Moreover, Durov’s VK windfall would not last forever; in 2017, the company’s costs reportedly reached $70 million.
Although Durov is known for not liking ads on VK, he surely knows that this is the most effective way to monetize the social network. But this script doesn’t seem to fit well with Telegram. With its focus on privacy and security, Telegram can’t pass data to advertisers without violating its fundamental promises. This means that the money has to come from somewhere else.
Durov, an early Bitcoin investor, turned to the cryptocurrency space. In January, Telegram announced its intention to launch the Telegram Open Network (TON), a new blockchain that would support an in-app ecosystem. With typical rhetoric, Durov claimed it would be “far superior” to existing blockchains 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 royalty, Sequoia Capital, Benchmark, Kleiner Perkins, and Lightspeed.
Figure: TON Project White Paper
At first glance, this was a masterful strategic move that gave Telegram a treasure trove of ideas to compete against. Telegram executive and former VK engineer Anton Rozenberg later noted:
Everything in this ICO seemed magical: Telegram managed to raise as much money on a virtual project as the valuation of the company itself, or even more - with almost no commitments to investors and no equity losses.
One source said Telegram’s entry into crypto prompted Facebook’s follow-up efforts. Like Libra (now called Diem), Telegram’s attempt proved ill-fated. While the core app’s growth continued to snowball, TON’s development floundered.
According to a former employee, Telegram told supporters that most of TON’s initial construction was “90-95%” complete in September 2018. The new year began, but TON had yet to see the light of day. In September 2019, Telegram released its experimental source code. In October, the SEC called.
The U.S. SEC determined that TON ICO was selling unregulated securities and ordered the project to stop development. Stephanie Avakian, co-director of the enforcement division, said:
“The emergency action we are taking is intended to prevent Telegram from flooding U.S. markets with digital tokens that we believe are being sold illegally.”
The launch of TON was delayed again, and Durov capitulated. In May 2020, Telegram’s CEO announced that he was abandoning the project, blaming the SEC for TON’s demise. The company spent $405 million on development but did not release a viable product version. Frustrated, some investors considered filing a lawsuit, claiming that their funds were misused and should have been allocated to developing Telegram instead of the TON network.
Ultimately, Telegram returned 72% of the funds to TON investors — a total of $1.2 billion. Many 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 a year, which allowed 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 separating himself from the project, Durov handed control of TON to its "community." Because the code is open source, anyone can continue to build on the project's architecture. Several spinoffs have emerged, including "Free TON" and "Toncoin." The latter seems to have established itself as the spiritual successor to the original and received Durov's endorsement in late 2021. Two independent developers are at the helm of the project. Based on a tracing of various storage data, development appears to be sporadic. Nonetheless, the spinoff trades at a market cap of $4.4 billion, or $18.2 billion on a fully diluted basis. Free TON has been rebranded as Everscale and uses a different programming language than the original TON code.
When I asked a current Telegram employee about their thoughts on TON, they noted that it interfered with the development of the core product and caused friction. They also communicated the company’s separation from TON’s future. Despite Durov’s bold attempts, TON ultimately failed to solve the monetization and capitalization issues. He took another unusual approach.
Uneasy Bonds
Telegram owes $700 million by April 31, 2021, when the company’s loans to ICO investors who chose to accept its offer will come due. Once again, Telegram is having money problems, with Durov admitting that it needs “several hundred million dollars a year” to operate.
With more than 500 million active users, Telegram has no shortage of admirers. Some reports say Western VCs have offered to buy 5% to 10% of the business at a valuation of $30 billion; others put the price closer to $40 billion.
But starting VK taught Durov the dangers of bringing in outside investors, and after being ousted from the CEO position once, he wasn't going to let it happen again.
Instead of selling equity, Durov turned to debt. In March last year, 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 buyers was Abu Dhabi’s sovereign wealth fund Mubadala Investment. As part of the acquisition, Durov pledged to expand Telegram’s presence in the region, with the expected opening of another office in the UAE.
Surprisingly, Mubadala’s bond purchase involved the Russian Direct Investment Fund (RDIF). In a secondary transaction, the Abu Dhabi company sold a reported $2 million in bonds to RDIF. Mubadala called the exchange part of a joint venture between sovereign wealth funds. Given Durov’s strained relationship with the authorities in his home country, Telegram told a spokesperson:
“The Russian Direct Investment Fund is not on the list of investors to whom we sell bonds. We would not be open to any deal with the fund.”
Still, RDIF now has the right to take a stake at a discount to Telegram's potential IPO price. While it may have angered Durov, the fund's involvement also suggests that in some ways, Telegram's CEO has already won. Russian authorities have sought to control the app for almost as long as it has existed. The Kremlin tried to ban the app for nearly two years when Durov failed to meet their demands, finally throwing in the towel in 2020. RDIF's participation in the bond sale suggests the country considers Telegram too big to ban.
New Heights
Shortly before Mark Zuckerberg announced Facebook’s rebrand, the company experienced the massive outage we’ve already discussed. Within a day, customers were flooding in. Messaging app Signal reported gaining “millions” of users, while Telegram announced 70 million new users. This set a “record” for Durov’s company and a meaningful boost for an app that had 5 billion users at the beginning of the year.
While this is the most notable example of Telegram’s progress against WhatsApp, 2021 was a stellar year for growth broadly, with Telegram being the fastest-growing major app last year, outpacing Instagram, Zoom, TikTok, Signal, and others. In 2022, the company hopes to surpass 1 billion active users. To get there, it will likely need to keep improving an already strong product.
The above mainly reviews the growth experience of Telegram's founder and the magnificent development history of Telegram itself. The second half of this article will conduct an in-depth discussion on the advantages and disadvantages of Telegram's products and business models. For a commercial company, this is the most essential part, so stay tuned.
01 Natural Power——Powerful Products
At first glance at Telegram, you’d think it’s just another boring social app. The truth is much more interesting, it’s a powerful product that continues to push the limits of what a social app can be.
MTProto
Telegram relies on a custom protocol called "MTProto". MTProto was designed by Nikolai and Durov to provide security while maintaining performance. Specifically, the protocol utilizes two encryption schemes with different privacy levels.
The figure below, “Part 1”, is about “server-client encryption”, which means that user data is stored on Telegram’s servers. All “cloud chats” use this encryption scheme. In addition, Telegram’s corporate structure adds an extra layer of security, with data from cloud chats distributed across global servers and managed by different legal entities. As Telegram explains, “several court orders from different jurisdictions” are needed to protect corporate data.
Secret Chats utilize more secure end-to-end encryption (E2EE), as demonstrated in MTProto’s “Part 2.” In E2EE, no one except the sender and receiver can decipher the data , not even Telegram can decrypt messages sent through this layer.
Figure: MTProto analysis
Telegram’s approach to encryption has drawn criticism. In a recent Twitter post, Moxie Marlinspike, co-founder and former CEO of rival messaging service Signal, outlined his issues with the product:
“It surprises me that after all this time, almost all media coverage of Telegram still refers to it as a ‘crypto messenger’.
Telegram has a lot of compelling features, but when it comes to privacy and data collection, there’s nothing worse than this.”
In Marlinspike's opinion, Telegram is no more secure than Facebook Messenger:
“Telegram stores all of your contacts, groups, media, and every message you’ve ever sent or received in plain text on its servers, and the app on your phone is just a “reading window” to the servers. Almost everything you see in the app, Telegram can see too… Confusingly, Telegram does allow you to create limited “secret chats” that nominally use the e2ee protocol…
FB Messenger also has an e2ee "secret chat" mode that's actually much less restrictive than Telegram (and also uses a better e2ee protocol), but no one would consider Messenger an "encrypted messenger".
FB Messenger and Telegram are built almost identically.”
Marlinspike highlights a core part of Durov's strategy. Like its founder, Telegram is both idealistic and pragmatic , it wants to provide a secure experience for those who need it, but not at the expense of the majority of users. While using a true E2EE protocol might create a more private social experience, it would be less useful for many Telegram users, for example messages would not sync between different devices.
A member of the Telegram team explained that the company wants to provide the best experience for its users - for some, this may involve E2EE protocols and private chats, but for most, it won't. When comparing Telegram to Signal, the former VK employee said lightly: "Signal is not a product for billions of people."
Chat
The core of Telegram's 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 lively than WhatsApp. Buttons interact as expected, and small features are unexpectedly fun.
More specifically, Telegram's chat features are powerful. It supports a wide range of files (doc, zip, mp3) with size limits, replies, mentions, and hashtags are all built in, and photo editing is very advanced.
As mentioned above, Telegram stores chat data in the cloud by default so that users can view them when moving from their phone to their laptop and back again. If you want to keep it secret, you can start a "secret chat", which uses E2EE and can be set to automatically destroy messages after a period of time.
Group Function
If users want to communicate with a wider group of people, they can use "groups". Like other social software, these groups are used for different purposes, from family chats to business negotiations. A recent article pointed out that Telegram groups are popular among students. Instead of just sending an email to the teacher or a text message to a friend, students share questions and answers in an ongoing chat. This is an unexpected highlight of Telegram, reminiscent of Discord.
In some countries, Telegram groups are popular with startups and small and medium-sized enterprises. For example, one source pointed out that in Russia, many enterprises prefer Telegram to Salesforce subsidiaries, in part because it is completely free. Opening the enterprise market may provide a reliable path for Telegram's future commercialization.
Telegram groups take on a life of their own, and they are incredibly powerful. Telegram supports up to 200,000 members , and WhatsApp supports up to 256. Telegram has built a set of sharing and management tools to manage groups of this size, and group administrators can create group links to share with the world and fine-tune how members communicate with each other.
Channel Features
If Telegram’s groups mimic Discord, then the “channels feature” is a copy of Twitter or Reddit. Channels are not conversations, but are built for broadcasting, with no upper limit on the number of users. For example, some company channels on Telegram have more than 8 million participants.
Telegram has different channels for popular memes, pictures, news, etc. More than 400 million people watch Telegram channels every day. Channel owners can view data on a per-channel basis. If channel owners want to allow viewers to talk, they can embed breakout discussions within the channel.
Figure: Telegram channel with 8 million subscribers
Audio Video
After witnessing the massive popularity of Clubhouse, Telegram accelerated its audio development. It offered voice calls in the early stages of development. Today, Telegram groups and channels can 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 Telegram's already large user base, Telegram quickly surpassed Clubhouse in terms of listening time.
The company is following a similar strategy with video, moving from calls to group calls to streaming models. Telegram can now support up to 1,000 simultaneous viewers and allows for easy recording and viewing. According to Telegram’s blog, “We will continue to increase this limit until everyone on the planet can join a group call and watch our yodel celebration (coming soon).”
Payment Function
Although you may not have noticed, Telegram does support in-app payments. A beta version of this feature first appeared in 2017, but it was limited to interactions with Telegram's "bot." Through this interface, users can "do everything from ordering a pizza to calling a taxi to having your winter tires replaced in the winter."
How many people have done any of these things? While a blog update highlighted that Telegram now works with 15 different payment providers, including Stripe, the fact that the company has yet to celebrate any major milestones suggests that user numbers are low. Over time, payments could become one of the most critical elements of the Telegram platform. While the company currently doesn’t take any commissions, it’s conceivable that there will be a small cut in the future to provide Durov’s team with the firepower to continue building.
02 Corporate Culture——Spartan Competition
There is little public information about Telegram’s culture. It’s a business that prides itself on privacy, but presents challenges for business analysts. By investigating, it’s still possible to understand how Telegram operates and what makes it unique.
lead
A friend at 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 just one member: Jeff Bezos . (This always struck me as a little funny: Why is there a need for a whole new tier that no one else can reach? To reinforce Bezos’ supremacy?)
Telegram feels the same way. Pavel is unique in terms of control. He not only injects money into the company, but also guides its vision. So, what is Durov's leadership style like?
As we mentioned, he seems to be a mercurial, contradictory character. He comes across as a very strong advocate of an ascetic life, wanting to escape the trap of vanity and wealth. Despite calling himself a rebel, he has been accused of colluding with the FSB, and his choice of financing and Telegram's headquarters (Telegram is based in Dubai) is not rebellious.
While Abu Dhabi is a modern city, the UAE is not a bastion of tolerance. Critics and activists are often jailed on vague charges, and women’s rights remain compromised. Of course, no country is perfect, least of all the United States, but some of Durov’s most important life and business decisions have shown a softness and flexibility in his ideology. (On the other hand, technology can be a force for progress. By building a social media giant in the Middle East, Durov may be contributing to a more liberal regional culture.)
Despite this disconnect, Pavel is a highly intelligent coordinator 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. He insisted on high standards of work and demanded rapid delivery.
Although nominally Telegram's CTO, Nikolai Durov does not seem to have management responsibilities. As befits his technical genius, Nikolai is not influenced by such worldly influences, and his task is to build and improve the core architecture. It is rumored that he completed MTProto and TON specifications alone. According to sources, Telegram's Android client is almost entirely his creation.
Nikolai is an eccentric character. In a Medium post, a childhood friend recounted a story he had heard about Nikolai that struck him as very real. The “genius among geniuses” once unknowingly ate a bowl of cereal with worms in it, and his mind was always occupied with more important problems.
One Telegram employee noted that Nikolai seemed shy and rarely interacted in large groups. They said Pavel showed extraordinary care for his brother, recognizing Nikolai's creations and providing him with the environment he needed to succeed.
set sail
As mentioned above, Telegram is known for moving fast. Employees I spoke with emphasized that although Telegram lagged behind WhatsApp at first, it quickly caught up and then sprinted forward with innovative features. Now, WhatsApp and Messenger lag behind Durov's company in rolling out product updates that Telegram launched years ago.
This could be partly due to the flat management structure — if Telegram operates similarly to VK. Former employees I spoke with noted that there were few managers in the VK work environment. Instead, employees worked on the product and moved quickly. In many cases, decisions were made by Durov. Telegram may be run in the same way.
competition
Telegram has reportedly done a great 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, “Telegram in Russia is a symbol. You could say it’s a symbol of resistance.”
This enables the company to cherry-pick Russia’s elite developers. (By some accounts, the country’s software engineers are the best in the world; Russia has won more international university programming competitions than any other country.) Telegram has taken a creative step to support the talent pipeline: launching “contests.”
On contest.com (what a domain!), Telegram hosts “developer challenges” to improve its products and find new teammates. For example, the company recently held a “GIF Contest” to create more “GIF-style videos.” The winner can take home $50,000.
Thousands of people enter these competitions, according to one employee. Telegram hires the “top two or three” from the entrants. This is part of the reason the company has managed to stay lean throughout its lifespan. It hires engineers who are, quite literally, in the top 0.1% of the world.
03 Default Inventory - The Dilemma of Survival
In addition to being the co-founder of Y Combinator, Paul Graham is also known for his writings on building company culture. In his famous framework, startups are either “alive by default” or “dead by default.”
Startups that are alive by default can achieve profitability without further funding. They can continue to operate without additional capital injections.
Startups that die by default don’t have that freedom; their survival depends on financing.
Graham’s advice is that startups should ask themselves whether they are defaulting to survival too early rather than too late.
He said, “Starting to worry about your own mortality too early may not be that dangerous, whereas starting to worry about it too late is very dangerous.”
Thanks to Durov’s personal wealth, Telegram has been able to hold off on answering that question. However, starting in 2018, the company seemed to realize that its founder’s wealth was not unlimited, a realization that led to the ill-fated TON ICO and eventual bond sale. While $1 billion in debt financing has given Telegram some breathing room, there’s no doubt that the company is now “dead by default.” The money won’t last forever, either. Assuming Telegram maintains a burn rate of several hundred million per year, it could run out of cash within three years .
How can the company get out of this mess? It either needs to raise more money from private or public markets, or find a credible way to commercialize it.
Valuation
While Telegram could choose private investors, Durov may prefer to raise funds through an IPO. The company is reportedly aiming for a public listing in 2023. The timing could be influenced by the terms of the bond offering — if it takes more than three years for Telegram to go public, the discount given to bond backers would increase.
Reports from Russian newspaper Vedomosti indicate that Durov has already begun contacting investment banks and is looking for a suitable venue for the offering. Durov is apparently considering both SPACs and direct listings, with a preference for the latter. While the New York Stock Exchange is a controversial destination, Asian exchanges are also being considered, 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 acquired, the market has changed. Social media companies have further demonstrated their monetization potential, fintech has permeated various products, and tech giants have gained prominence. Judging Telegram’s valuation by the same 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 figure that better represents the company’s current value.
Figure: Comparison of the number of users and valuations of the three major social software
Of course, the difference between Telegram and Discord is revenue. Discord CEO Jason Citron's game-focused chat business has earned $130 million in revenue, a figure that has grown at a compound annual growth rate of 126% over the past five years. If Telegram is making money, it's certainly not on that scale.
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 commercialize.
Commercialization
Telegram is a quixotic app in some ways. While it has a hot product-market fit, it has yet to achieve product-business model fit. Despite some experiments, Durov’s team has yet to settle on a final business model. It needs to keep changing, testing the effects of ads, subscriptions, and payment features.
While Durov believes that advertising that relies on user data is unethical, Telegram is willing to sell its audience's attention. In October 2021, Durov announced that it would allow advertising promotions on Telegram, but would not rely on user data. Instead, the company will try to achieve a return on advertisers by opening specific channels to advertisers. Sponsored businesses can choose to promote their products in channels dedicated to relevant topics, rather than precisely targeting users of specific age ranges, geographic areas, and interests. So far, advertisers have only had access to channels with more than 1,000 users and must have a minimum budget of more than $2 million. Telegram hopes to try to distribute part of the revenue to channel owners.
Will it work? It seems like an uphill battle. Fine-grained targeting has always been a very attractive thing for advertisers, and few will favor less precise platforms unless attention is drastically reduced. Even the Telegram employees I spoke with seemed to think this would be a challenging approach. Not to mention that Durov never seemed to like ads, resisting them even in his VK days. It’s hard to imagine him happily running a business that was monetized by this model.
Where else can Telegram make money? Subscriptions, which come in a variety of different forms, are also an option . The company offers a “not expensive” product that removes the ads added within the app. While not a particularly exciting offer, it could open up users to click-throughs, similar to Discord’s “server boost feature.” While these features are limited, they let users support the company.
Looking at the bigger picture, it’s not hard to imagine a subscription service that could monetize through power users, especially corporate users who run large groups or channels. Since Telegram is already used as an alternative to Slack in some parts of the world, it could bring in corporate users, although charging would likely lose its main appeal.
WhatsApp's "commercial" product seems to be heading in that direction. But instead of focusing on internal communications, it's about providing companies with tools to better serve their customers, including marketing and user assistance tools. While Facebook gives these features away for free, it earns them by pushing businesses to buy ads on Instagram or Facebook. But Telegram will likely charge, too, and over time it may seek to compete with companies like Hubspot and Intercom, offering lightweight alternatives for mobile businesses.
Figure: Tool assistant provided by WhatsApp for corporate users
Payments seem like the most natural choice. While this hasn’t started for Telegram yet, it seems to have what it takes to succeed. Not only does it have a massive user base, but much of its strength comes from reaching unbanked populations, including Armenia, Cambodia, Kazakhstan, Jordan, and Venezuela. Plus, thanks to its unfortunate experience with TON, the company has real crypto expertise that it could put to good use. Late last year, Durov noted that the app would support Toncoin payments. Perhaps this is the first step for many towards socially embedded crypto transactions?
Current Telegram employees highlight payments as an area of focus. They note the lack of a unified global payment system . 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 equally simple: sending data (or digital currency in the context of payments) anywhere on the planet, which could leverage or involve stablecoins or other cryptocurrencies.
Facebook has been chasing this with Diem, but Telegram may have the upper hand. While consumers deeply distrust Zuckerberg’s company, Telegram has a reputation for being privacy-focused. That image is priceless when it comes to the sensitive subject of money.
Implementing such a strategy makes Telegram not only more powerful than WhatsApp, but also one of the most influential companies in the world. Even if it fails to achieve global payments, even a small share of this market will allow the company to gain a foothold.
Reasons to believe
Even though it has yet to make headway in terms of revenue generation, the good news for Telegram is that it 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 decent money.
WeChat is first-rate in this regard. It’s less an app than an ecosystem, offering chat, payments, e-commerce, games and more through a single interface. The Chinese company makes money through advertising, payments and purchases. While it’s difficult to separate WeChat’s revenue from Tencent’s other revenues, a report from January last year noted that the sub-unit processed $250 billion in transactions in a year, mostly through payments through its “mini programs.”
Encouragingly, WeChat, which only started its “Mini Program” initiative in 2017, now supports more than 1 million partners. In terms of active users, it is not far behind Telegram—the same report shows that the company has 1.2 billion monthly active users, about twice as many as Durov’s company.
Can Telegram achieve similar multifaceted success? It won’t be easy. WeChat benefits from strong government support and a superpower organization funding its development. But it still offers the possibility.
LINE thrives with a small user base. The Japanese business has around 160 million monthly active users, 84 million of which are in its home country. Revenues reached $1.5 billion in 2020, thanks to a combination of games, payments, and shopping. While a few billion dollars won't be enough to support Telegram's market cap in the long run, it will be a good foundation. Again, LINE benefits from wealthy owners, as the app merged with SoftBank subsidiary Z Holdings in March last year.
Whatever direction Telegram chooses, it will need to move fast. Thankfully, that’s what Pavel Durov does best.
We should be glad that Telegram exists. While the app may not be as private as users think, it has certainly elevated the discussion around user security and pushed its competitors to improve. At the same time, it has raised the bar in terms of both usability and depth of functionality.
Time will tell where Telegram and Pavel Durov will go. For most of Telegram’s history, it has been compared and juxtaposed with much larger businesses. As it reaches new heights and crosses the 1 billion user mark, such comparisons no longer make sense.
Telegram will be unique and special, fulfilling its mission of information delivery without forgetting to delight its users. Durov’s game has just begun.
