Telegram app thrives, but advertisers need – and soon $ 700 million

Telegram is one of the few significant social media challengers for Facebook Inc.,

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at the end of 2022 on a route to one billion users active each month, compared to about 550 million today.

But first, Pavel Durov, the Russian emigrant in Dubai who owns Telegram, needs to figure out how to turn the momentum of his app into a self-sustaining business.

“A project of our size needs at least a few hundred million dollars a year to continue,” he said. Durov wrote in his public channel on Telegram late last year. “As we do this, we will remain independent and true to our values, and redefine how a technology enterprise should function.”

To pay the bills, Mr. Durov investors out $ 1 billion to $ 1.5 billion in corporate debt, with the promise of discounted equity when the company eventually goes public, people said of the plans. He also announced plans to sell ads on public Telegram channels later this year, as well as to offer other premium services for businesses and users.

A Telegram spokesman declined to comment on the effects or the amount of debt owed to the company. The spokesperson said that the cost of equipment and bandwidth of Telegram is rising because it has achieved more than 40% year-on-year growth in users.

Telegram offers public channels, which is something like a cross between Twitter TWTR -1.28%

feeds and chat rooms, as well as encrypted communications that are private.

Messaging programs are becoming popular, but their business models remain uncertain. Facebook’s WhatsApp still does not generate significant revenue for the social media business, and recently announced a call for businesses to use the app for customer service. Signal is owned by a non-profit foundation and relies heavily on donations. The opening sound Discord Inc. generated $ 130 million in revenue last year by selling premium subscriptions to users, but is still not profitable.

Telegram will have to convince advertisers that the audience is wide, which can be a challenge following reports that far-right groups and white supremacists have flocked to the app after being banned from other platforms. Mr. Durov will also have to satisfy Apple Inc.

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in Alphabet Inc.’s

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Google – whose app stores control most of Telegram’s distribution – said the app could undermine threats of violence and coordinate illegal activities such as weapons and drug sales.

The Telegram spokesman said the company’s advertising strategy would likely initially focus on Asia, Eastern Europe and the Middle East. He added that Telegram has a working relationship with Apple and Google for content moderation.

Mr. Durov launched Telegram in late 2013 with his brother, Nikolai, a few months before being pushed out of the UK, the Russian social media platform he founded. Mr. Durov launched his new app, funded with the proceeds of UK sales, less as a business than as a way for people to send messages while avoiding government oversight and censorship.

For some time, Mr. Durov and a few dozen staff members had no fixed headquarters, but rather traveled the world and set up shop in one city after another, he told the Journal in 2016. However, the company now has its operating base in Dubai. it says it does not keep servers there.

Mr. Durov maintains a long-standing friendship of his UK days with actor and technology investor Jared Leto, with whom he shares an ascetic lifestyle that avoids meat and alcohol.

Mr. Leto het mnr. Durov describes it as “the X Factor that is so rare among founders”, with “a bit of mystery in it for a good mate.” Asked whether he had invested in Telegram’s bond offering, or would invest in a final initial public offering, Mr. Leto replied, “What is the first rule of the fight club?”

Mr. Durov is proud of the use of the app by dissidents in Iran, Russia and elsewhere, writing that “Telegram has never given in to pressure from officials who wanted us to carry out political censorship.”

These principles were tested after the Islamic State’s terrorist attacks in Europe in 2015 and 2016, during which militants used Telegram as a propaganda tool to recruit and communicate potential attackers. Mr. Durov initially responded by using encryption to protect private chats on his service.

The company also started removing terrorist propaganda from public channels when it was tagged. The Telegram spokesman said the company now uses a ‘robust moderation system’ for public channels, including automated content monitoring systems and manual.

At the end of 2017, Telegram started recruiting investments in a new cryptocurrency. The company eventually sold about 200 investors early access to the currency units – known as grams – in two rounds that brought in $ 1.7 billion. Some investors said they bought in because it was the related shares – which Mr. Durov was not willing to sell.

The U.S. Securities and Exchange Commission sued Telegram at the end of 2018 before issuing the currency, arguing that the company was selling securities illegally, which Telegram denied. During the lawsuit, the SEC said Telegram had funded more than 90% of its operating costs using investors’ cash.

Telegram finally settled the case and agreed to pay a $ 18.5 million fine in June 2020. Telegram repaid all the remaining funds to investors, which at the time amounted to 72% of the total, the spokesperson said.

Some of those who have invested say they feel burned out. But Mr. Durov offered non-US investors the opportunity to convert their repayments into annual loans that, taking into account interest rates, would pay 110% of their initial investment on April 30, 2021, according to a copy of a loan agreement seen. by the Journal. According to people informed about Telegram’s plans, the loans are now valued at about $ 700 million.

The Telegram spokesman said the losses by some investors were deplorable, but added that investors were being warned against regulatory risks. To repay the creditors, Telegram sells five-year bonds that pay about 7% or 8% a year, people say about the company’s plans, with a sweetener that those who buy the bonds have a preferential allocation of 10 % has discount on the listing price if Telegram is disclosed.

Some information about the fundraising plans was previously reported by The Information.

Of mnr. Durov will bring his company public, yet to be seen. Several investors have said they doubt the founder wants to relinquish any control. In a Telegram message, Mr. Durov told the Journal that he prefers to opt for an IPO over financing venture capital firms. “Making public is an open and democratic way of raising capital, which is more in line with our values,” he said.

Instead of selling ads itself, Telegram said it would likely first use an agency model to deal with outside companies in different regions to handle commission sales.

Large, brand-sensitive companies may be wary of appearing on a platform that focuses on refusing to cooperate with governments and where it is easy to find hate speech and conspiracy theories, said Brian Wieser, head of business intelligence. of media buying, said conglomerate GroupM.

Even marketers who aim to drive clicks and sales – rather than build a reputation – may struggle with Telegram’s refusal to collect and share data about its users, because performance marketing requires detailed analysis, he said. Wieser said.

“It’s not enough to know that you can get a billion impressions in the course of a month,” he said. “You have to have a process to run against the impressions.”

Mr. Durov said last month that he believes the use of user data to target ads is immoral. The Telegram spokesman said advertisers could rather target ads by selecting topics, or even through a specific channel to show ads.

“Telegram intends to demonstrate that precise, context-based advertising is not only an ethical alternative to targeted advertising, but can be just as effective,” the spokesman said.

—Jeff Horwitz contributed to this article.

Write to Sam Schechner by [email protected]