WhatsApp's New Era

Last month, Mark Zuckerberg announced a surprising leadership change in WhatsApp. Will Cathcart, who led WhatsApp since 2019, was replaced by Kunal Shah, an India-based serial entrepreneur. Just before joining WhatsApp, Shah was running CRED, an Indian fintech platform that rewards members with a high credit score for timely credit card bill payments and financial management. Moreover, while hiring Shah to lead WhatsApp, Meta also invested $900 million for a 20% stake on CRED.

Meta has historically promoted from within: the leaders of Facebook, Instagram, and Reality Labs are all long-time Meta veterans, making an external hire with no prior Meta experience something of a new development. Bringing in an outsider for this specific seat suggests Meta wanted a different skill set than its bench offered.

A Bloomberg piece mentioned that Chris Cox, Meta’s chief product officer, had been contacting entrepreneurs and investors in countries where WhatsApp is central (e.g. India, Brazil, Mexico etc.) to get perspective on how the app should evolve. Cox reached out to Shah for advice on what qualities the next WhatsApp leader needed, and concluded the person giving the advice was, in fact, the right person to lead the app.

Given the somewhat surprising nature of this hire, I was curious to learn more about Kunal Shah and listened to a couple of his podcasts (Lenny’s Podcast, The Knowledge Project). Since there is a decent amount of overlap among the ideas discussed in these podcasts, you can just pick one if you want to get a taste of Shah’s philosophy. After listening to these podcasts, I found him to be quite a compelling character. I guess I’m not surprised why Cox felt compelled to hire him.

One of Shah’s signature product playbook was “Delta-4 framework” which he discussed in both podcasts. Let me quote the specific bit discussing this framework from Lenny’s podcast:

Kunal Shah

it’s called the Delta 4 framework, but I think it’s actually quite simple. If you think about it, a lot of people say that your product has to be 10x better and it’s not very measurable. You don’t know if you are 10x better or not unless you’re delusional.

And the trigger for me was actually, I’m the unusual tech founder in India. I’m the only humanities/philosophy major founder in India who’s got into tech. And I often wondered if most people who were my peers, or people who were ahead of me, were significantly smarter academically or otherwise.

And why did I become successful with my first startup, Freecharge, which I exited in 2015 for nearly $450 million? And I was like, “What would make this happen?” Because I would not qualify into this super league of really top IIT rankers that exist in India.

And that got me onto this philosophical quest to find out what makes things successful. So the simple framework is, an example I give often is that, imagine the old way of taking a cab ride and an Uber.

And if I asked you to give me the score of efficiency on Uber and let’s say getting the old cab, what would you say, Lenny? I’m curious. Out of 10?

Lenny Rachitsky

Yeah, give a cab three and then Uber like a nine. Yeah.

Kunal Shah

So every time you see that the product efficiency delta is greater than or equal to four, three things happen. It is irreversible. Second is that you have a very high tolerance for it to fail. If Uber fails a little bit, will you say, “Oh my God, I’m going to really stop using it?”

And the third thing is what I call the UBP, ‘Unique Brag-worthy Proposition.’ Every time humans unlock a Delta 4 product or service, they cannot stop talking or sharing about it.

And therefore all Delta 4 products will naturally have lower CAC or sometimes zero CAC because people, humans.. and think about it, Lenny, how you discovered Google, definitely not through an ad, definitely not through some performance marketing here and there. Somebody showed you the demo and you were like, “Oh my God, this is crazy.”

I am originally from Bangladesh and while India and Bangladesh are sufficiently different cultures, there are perhaps more cultural similarities than differences between these countries. Admittedly, I found it a bit odd that he felt the need to highlight his prior successful exit and personal history while explaining an product framework intuition that he came up with. I do agree that Shah has a very unlikely profile from typical Indian entrepreneurs. If you grow up in South Asian culture, you probably know that not having STEM background in South Asia is essentially tantamount to being vagabond. The fact that a Philosophy major had multiple successful exits in Indian tech startup scene and now going to lead one of the highest usage messaging apps in the world is indeed nothing short of incredible!

While listening to Shah, I cannot help but think that he’s a conjecture machine! He is very fond of coming up with hypothesis that he developed based on his intuition and then test that idea in public and in market. He’s a very, very good storyteller and isn’t really married to have precise answer. An academician might care more about whether the optimum number is delta-4 or 3 or something else, but Shah seems to just care more about transmitting a simple intuition and then make it work through his products. He also has a lot of provocative ideas on all sorts of things and it won’t surprise me if he gets much more in hot water for his ideas now that he’ll be under the scanner to lead one of Meta’s most consequential apps for the next decade or so. Perhaps it speaks to his Philosophy background, but he seems to have a knack of amalgamating myriad different things from culture to religion to business in order to come up with a coherent framework. For example, take a look at his take on how low trust societies end up relying heavily on large brands. Some excerpts from Lenny’s podcast:

“…all low trust markets, and let me define low trust markets as where consumers are a lot more wary of trying new things because there are no institutions that protect you against bad behavior done by a company.

So for example, if I ever had a fall in a coffee shop in the US, I can think about suing them and making money off it. In India, you’re only worried about “I’m going to pay for my thing.” You don’t even think about suing the coffee shop or even hoping that you’ll get any money for that.

So what happens is in a low trust country, and all developing nations are low trust by design, because the institutions are not strong enough to really, really take care of many things. What happens is there is concentration of trust.

So you will see that super apps, superstars, super companies all exist in low trust markets because the lack of trust creates concentration of trust, and therefore you will see one app can do 400 things.

For example, we have a company like Tata that can do salt to car to jewelry to anything and people will buy it because it’s a Tata brand, because it comes from a low trust society trusting the brand and not being, “Oh, I’m going to prefer this new brand.”

The joy of trying new things is not so high in low trust nations.”

Can Shah capitalize on WhatsApp’s omnipresence brand to start a monetization bonanza in India? I suspect after speaking with Kunal Shah, Cox perhaps felt awfully ignorant about the nuances of Indian culture. In fact, Cox indicated that understanding how people use WhatsApp in a market like India requires familiarity with how the product is embedded in daily life. India is WhatsApp’s largest user base, and Meta evidently wanted someone who experiences the product the way those users do rather than someone managing it from Menlo Park.

Ironically, if you listen closely to Shah’s podcast appearances, he actually seems less interested in services that are essentially utilities and WhatsApp is closer to utility than perhaps any app out there in India. Shah frames gross margins as a function of status and competing on utility is a race to the bottom, but "we gladly pay a premium for an increase in status." India is status-driven in its own ways: Indians spend multiples of annual salary on weddings (Shah claimed 6x of annual salary) and living rooms are more lavish than bedrooms because both signal "you have made it."

It’s quite clear that Shah relishes on his Philosophy background and rightly understood it to be a real differentiator in a market where all products are built by STEM nerds. Nonetheless, it’s hard to look past how CRED was targeted to India’s affluent whereas WhatsApp operates at 3-billion user scale. While Shah’s extraordinary success so far gives me comfort that he doesn’t need to have a direct and relevant experience for him to be successful even on a global scale, it does indicate that WhatsApp will be a very different beast for him.

Over the years, I have noticed there is almost a rift between two groups of Meta shareholders. One group thinks Zuckerberg showed incredible foresight for buying WhatsApp at only ~$19 Billion valuation. With 3 Billion MAU today, that seems like a great bargain. But the other group points out Zuckerberg made the not-so-great decision to issue ~178 million Facebook shares at ~$78/share back then to acquire WhatsApp in 2014. In other words, Meta bought WhatsApp with ~7% of outstanding shares of the company and twelve years later, WhatsApp is still contributing a low single-digit share of revenue (while perhaps incurring losses). However, the former group quips that such number driven analysis actually misses the strategic masterstroke Zuckerberg might have played; just imagine WhatsApp on the hand of any of Meta’s direct competitors and you can then perhaps appreciate why Meta would like to own the communication layer of the world instead. It’s a good debate, but at some point the numbers need to back up the “strategic masterstroke” argument. I think Shah will amp up the product velocity for WhatsApp in the coming year(s), but I do want to note that while he is a gifted story teller, he is perhaps yet to generate a single dollar of profit in any of the companies he founded and operated. In fact, while Shah is happy to brag about his ~$450 Million exit of FreeCharge to Snapdeal in 2015, let me also highlight that Snapdeal ended up selling FreeCharge for just $60 Million in 2018. Of course, WhatsApp is a very different canvas with near zero CAC and thin existing monetization. Shah probably could not ask for a better opportunity to generate his first dollar of operating profit in his career!

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