The Generalist - Telegram: How to Counter-Attack

With nearly 600 million active users, Telegram is a social media giant with WhatsApp in its sights. It still hasn’t figured out how to make money.  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Hey friends,

Telegram’s story deserves to be a mini-series. A year and a half after going full-time on The Generalist and I’m not sure I’ve come across a company with so much narrative intrigue. Russian SWAT teams! FBI bribes! Hostile takeovers! Living in exile! Crypto drama!

Added to the excitement are real strategic quandaries. What is the best way to monetize a messaging app in 2022? Can advertising be effective without user targeting? Is it possible to be both the world’s most secure app and its most intuitive?

Telegram is operating at a scale few other companies attain. That’s true both literally – the app now has close to 600 million active users – and ideologically. No social media player has done a better job of counter-positioning against Facebook.

It is a heck of a story. Let’s jump in.


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TELEGRAM: HOW TO COUNTER-ATTACK

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Telegram.

  • Telegram is the fastest-growing app in the world. At least, by some measures. A 2021 report suggested that no major app grew monthly active users more than the messaging service. It now boasts around 600 million users.
  • It has built a narrative around its security bonafides. Though Telegram does encrypt messages, most are not truly, completely private. That hasn't seemed to hurt the company's rhetoric, though. It has done a stellar job of counter-positioning itself.
  • Going crypto has its risks. An ICO in 2018 brought $1.7 billion into Telegram's coffers. Unfortunately for founder Pavel Durov, the SEC concluded it constituted an unregistered sale of securities. The debacle distracted Telegram's development and prompted unusual financial agreements.
  • Contests can be an effective recruiting method. Few companies seem to have as many talented engineers as Telegram. Part of its success rests on its use of competitions. The company frequently offers prizes for product improvements, hiring the most talented entrants.
  • It still hasn't found a business model. Telegram has supported payments since 2017 and has recently experimented with advertisements. Neither has caught fire so far. To reach "default alive" status, Durov's team may look for inspiration from WeChat and others.

***

Over a twenty-four-hour spell last October, Telegram gained 70 million new users. Social media's ubiquity has made us numb to such large numbers, but context helps. That figure is greater than the population of South Africa, France, and Thailand; it is only a smidge less than two Canadas.

Such comparisons illustrate that Telegram is a messaging app with global scale. It is capable of onboarding the equivalent of nation-states in the time it takes for the sun and moon to complete their shifts and swap spots.

Why this happened is no less important than its magnitude. Facebook stumbled. For six hours, Instagram, Messenger, and Oculus went dark. In search of stimulus, connection, and perhaps even a better, more humane brand of social media, users flooded to the company founded by a charismatic Russian entrepreneur, Pavel Durov.

Beyond serving as a sign of Telegram's rising fortune, this episode tells us something fundamental about the company and how it works. The messenger is a study in negation, best defined by what it is not. It is not Facebook, with its trailing privacy abuses. It is not Instagram, stuffed and padded by advertisers. It is not even WhatsApp, guilty by association.

That Telegram feels most like a repudiation of Zuckerberg's apparatus gives suitable credit to its narrative but glosses over other strengths. Yes, Telegram has established a reputation as a more privacy-conscious substitute, but it is also, simply, a better messenger. While it may still trail WhatsApp inactive users — two billion to around 600 million — it offers more power and finesse.

Durov's business has had its share of stumbles, of course. A bungled Initial Coin Offering (ICO) brought in $1.7 billion to finance the company's blockchain ambitions but led nowhere. Telegram would argue the SEC bears responsibility for that failure. It can only look inward when it considers its inability to establish a viable business model. Ten years into its life and meaningful revenue still seems distant.

The result is a complex, sometimes quixotic company that, despite its product excellence, seems to do its best work on the back foot, a counter puncher that thrives on comparisons. In chess, the "Russian Game" is an opening sequence characterized, in part, by mirroring one's opponent and attempting to counterattack. In many respects, Pavel Durov seems to be taking the same approach.

To fulfill its true potential, Telegram may have to vary its play. As the company enters a new decade, it will hope to establish a reputation on its own merits. Powered by a visionary executive and exceptionally talented technical team, it has the ingredients to not only match the reach of WhatsApp but eclipse it. In today's piece, we'll talk through Telegram's past and future, covering the following:

  • Establishing VKontakte. Before he tried to build a better WhatsApp, Pavel Durov created Russia's version of Facebook. Though Zuckerberg's story had plenty of intrigue, Durov's is far more exciting.
  • Starting Telegram. Ousted from his old company, Durov set about building Telegram. To grow the app, he's had to contend with FBI interference and SEC truculence.
  • Unusual financing. Durov has resorted to unorthodox means of financing Telegram to avoid raising from venture capitalists. Not only has he paid for much of the development himself, but he's turned to ICOs and bond issuances.
  • Excelling with product. Telegram might have started after WhatsApp, but it is now the clear leader in product. Telegram supports larger groups, more formats, and a range of different features.
  • Money troubles. Much of the company's reputation relies on its commitment to privacy. That makes an ad-based business model an uncomfortable fit. Telegram has experimented with promotions and payments without landing a breakout hit.
  • Looking ahead. There is reason for optimism, though. Other messaging apps have found creative ways to monetize, not least China's WeChat and Japan's LINE.

Let's get started.


IN A MEME

For the pictorially inclined, here's the whole piece — all 9,900 words of it — in a single meme.


PUZZLER

All guesses welcome and clues given to anyone that would like one. Just respond to this email for a hint.

How can you write down eight eights that add up to one thousand?

Greg K rooted around last week’s riddle and got his reward. He was first to provide a correct response, followed by Jeb B, Jaya S, Kavita P, Mike D, and Hari A. All recognized the pattern in our previous puzzler:

One of these is not like the other: Brawl, Carrot, Change, Clover, Proper, Sacred, Stone, Seventy, Swing, Travel. Which is the odd one out and why?

The answer? Carrot. It’s the only one that doesn’t become another word by removing its first and last letters. A sneaky one.

Today is a good day for hot chocolate. I think I’ll go get one and do some reading. I hope you’re able to have a cozy, relaxing day, wherever you are.

Until next time,

Mario

__

*See important disclosures and offering circular

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