900 million users, a valuation of 30 billion dollars, "dark version of WeChat" decides to go public

Author: Pavel Durov, Geek Park

Editor: Jingyu, Geek Park

Since 2017, Telegram's founder Pavel Durov has not given any public interviews. Until recently, this mysterious billionaire gave an interview to the Financial Times, signaling to the outside world that Telegram is seeking an IPO.

According to Durov himself, Telegram, which has been established for 11 years and has 900 million users worldwide, is valued at around $30 billion.

As a globally recognized platform and a hidden tech giant seeking to go public, Telegram is a peculiar existence.

It is often mentioned, but little is known about its internal workings; it has only 50 core employees but supports 900 million monthly active users; for many years, Telegram has heavily relied on the personal financial support of its founder Durov, with almost no ambitions for commercialization until the past two years when it began to monetize; it presents itself with an image of free speech and resistance to authoritarianism, and almost does not conduct any content review except in the face of significant public opinion.

From various perspectives, Telegram does not resemble a "normal" business company. To understand Telegram's abnormality, one might need to first understand VK.

01 Without VK, There Would Be No Telegram

Pavel Durov | Image Source: Wired

Durov is often referred to as "Russia's Zuckerberg," a title stemming from his first company, VK. VK is a Facebook imitator, established in 2006. In the vast single market of Russia, VK took off rapidly, surpassing 100 million registered users by 2010.

VK registered users from 2006 to 2012 | Image Source: Wikipedia

Today, VK no longer belongs to Durov. The circumstances surrounding Durov's departure from VK and Russia remain a subject of much speculation, but it is certain that it is related to VK's immense social influence. An important backdrop is the unfair elections in Russia in 2011, where the United Russia party led by Putin dominated the parliamentary elections, triggering massive protests.

Protests occurred in the squares and also on VK. The successor to the KGB, the FSB, pressured VK to shut down opposition group accounts. Durov's response was to publicly disclose a letter from the FSB to VK on Twitter, along with a photo of a husky wearing a blue hoodie and sticking out its tongue.

Image Source: twipic

The conflict with the Kremlin elevated Durov's reputation; some viewed him as a hero, but his relationship with the Kremlin seems to be more complex than that of a rebel against authority. The Russian media outlet Novaya Gazeta revealed that Durov had been actively providing the authorities with information about thousands of users they needed, including IP addresses, phone numbers, and other identifying information.

Around the same time, Durov became embroiled in a hit-and-run incident, and Russian police began entering VK's offices. Shortly thereafter, it was reported that VK's other two founders had sold their shares to the pro-Kremlin Russian financial investment company United Capital Partners, while Durov himself had fled to the United States and was in the process of establishing a new social network.

Then, on August 14, 2013, an app with a blue paper airplane icon appeared on iTunes—Telegram. In an interview with The New York Times, Durov claimed that the inspiration for Telegram came from a sudden visit by a Russian special police unit to his apartment—"I realized I had no secure way to communicate with him (Durov's brother), and that's how Telegram started."

02 "Notorious" Privacy Protection

Durov's experiences at VK profoundly influenced Telegram's style; at least in its presentation to the outside world, Telegram has always maintained an image of "vowing to protect user data." In a 2014 interview with The New York Times, Durov stated that the inspiration for Telegram came from the sudden visit of a Russian special police unit to his apartment in 2011 when he was about to call his brother: "I realized I had no secure way to communicate with him, and that's how Telegram started."

In the interview, Durov described Telegram as a distributed company, not subject to the jurisdiction of any one country or security agency. To achieve this, Telegram has distributed its servers around the world to ensure that no government can easily force Telegram to relinquish any data.

Telegram also developed a "secret chat" feature that uses end-to-end encryption, meaning that servers cannot see the content of the messages. However, oddly, this feature is turned off by default and can only be activated after navigating through four layers of menus. Additionally, only one-on-one chats can be protected by this feature; group chats are not included.

Although some cryptography experts, such as Nadim Kobeissi, founder of the cryptography consulting firm Symbolic Software, believe that Telegram's encryption technology cannot compare to its competitor WhatsApp, this does not prevent users from thinking of Telegram as the first option for encrypted communication, especially when WhatsApp was acquired by Facebook.

In the ecosystem of social networks, Telegram plays a rebellious role against tradition. The acquisition of WhatsApp by Facebook meant that it needed to modify its privacy policy to collect user data to feed its parent company's biggest cash cow—"targeted advertising." Many who are inherently opposed to large companies thus turned to Telegram.

Another significant portion of its user growth is also related to large companies. After many were banned from using Twitter or Facebook due to hate speech and misinformation, they turned to Telegram. In 2021, within 72 hours after the Capitol riot in the United States, Telegram added 25 million users. For a time, it was the most downloaded app on the Google Play Store.

In Telegram's official usage policy, it clearly states that disseminating violent, obscene, or criminal content or posting false information is a violation. However, in reality, Telegram's censorship is quite lenient.

The other side of freedom is chaos; various people can voice their opinions in the public square, but the most attention-grabbing content is often violent, pornographic, or criminal. The "N Room Incident" that erupted in 2020 occurred in Telegram's chat rooms, where 74 female victims were coerced into posting nude photos, videos, and even more extreme content.

N Room Incident Images | Image Source: Hong Kong 01

Telegram seems to be becoming a new dark web.

According to data from the cyber organization Cyberint, mentions of "Email: pass" and "Combo" in Telegram increased fourfold in 2021, reaching nearly 3,400 times (these terms are jargon among hackers indicating leaked email account lists).

Terrorists also favor Telegram. Members of ISIS behind the 2015 Paris attacks used Telegram for propaganda. ISIS also used the app to recruit attackers for the 2016 Berlin Christmas market attack. In 2017, a Turkish prosecutor found that the mastermind behind the Istanbul Reina nightclub New Year's Eve attack received instructions from ISIS leaders via Telegram.

From a product design perspective, this is a consequence of Telegram intentionally amplifying the influence of content on its platform. For example, public channels can have an unlimited number of subscribers; private groups can accommodate up to 200,000 people, far exceeding WhatsApp's limit of 1,024 members. Additionally, any user can upload a single file of up to 2GB.

Telegram seems unwilling to address these issues; it typically only bans certain accounts under significant government or public pressure. Palestinian digital rights activist Nadim Nashif believes this is simply part of Telegram's business model: "Leaders of companies like Telegram are not foolish… they have made such decisions—being controversial might be quite good, as it can attract more people."

Telegram also likely lacks the capacity for content moderation, currently employing only about 50 core staff. As of 2023, Facebook has 7,500 content moderators.

03 900 Million Monthly Active Users, But Not Profitable

No matter how much Telegram does not resemble a normal company, when facing an IPO, it must make itself appear like a normal company. The core indicator of this is its commercialization capability.

Internet companies are typically asset-light, with the bulk of expenses usually being employee salaries. In this regard, Telegram controls its costs well, with only about 50 employees.

Another major expense is server bandwidth costs, especially since Telegram has 900 million monthly active users worldwide. Durov revealed in an interview that the annual cost per monthly active user is less than 70 cents, which means Telegram's costs over the past year were less than $630 million (approximately 4.553 billion RMB).

In its early years, Telegram had no ambitions for commercialization and relied entirely on Durov's personal assets. According to The Wall Street Journal, by April 2021, Telegram had accumulated $700 million in debt. One of Telegram's responses was to issue bonds in excess. However, for a company that cannot generate its own revenue, the larger its user base grows, the faster it burns through cash.

In reality, the profitability of Telegram, with its 900 million monthly active users, can be described as very weak.

From a data perspective, Telegram's commitment to privacy makes it unsuitable for advertising, the most profitable business model in the internet age. For example, Meta and Alphabet reported that in Q4 2023, Meta's revenue was $40.111 billion, with over 96% coming from advertising; Google's revenue for Q4 2023 was $86.31 billion, with over 75% from advertising. Because Telegram does not collect user data and promises not to display ads in one-on-one chat interfaces, it has lost the cash cow of targeted advertising.

On the other hand, hate speech and violent or criminal content on Telegram also deter major advertisers who are concerned about brand image. After Elon Musk acquired Twitter in 2022, a large number of major advertisers, including IBM, Apple, Walt Disney, Comcast, and Warner Bros., left the platform. The New York Times reported at the time that this resulted in a loss of about $75 million.

From a product perspective, Telegram lacks a news feed interface, further limiting advertising display space.

From a user culture standpoint, Telegram's reputation largely relies on its commitment to privacy, and this segment of users is inherently averse to advertising.

In fact, Telegram has already begun some commercialization explorations since two years ago, but based on the company's values, some of these actions are somewhat distorted. For example, advertisers can sell ads in specific channels, with the condition that the channel has over 1,000 users, and the ad content must be limited to 160 characters. Alternatively, there is a premium membership for 33 RMB per month, with core features including 4GB of file upload capacity, richer emoji packs, and—ad-free experience.

The good news is that Durov has stated that Telegram is close to profitability and is expected to achieve it this year. However, for a company aiming for an IPO, this means more transparent information disclosure, more compliant content moderation, and stronger profit expectations. Whether Telegram can still adhere to its values at that time may be a question.