Why Facebook Has Entrusted Its Future to the CEO of PayPal

One evening last May, Mark Zuckerberg invited David Marcus to dinner.

It wasn't the first time PayPal's soft-spoken French CEO had been over to Zuckerberg's house for a meal, and Marcus figured it was just another social-business kind of thing. But he hardly had time to dig into his salmon before Zuckerberg began the hard sell. Facebook's single-minded founder explained how important the social network would be in the years to come, and what a big part messaging would play in its evolution. Then Zuckerberg made his pitch: Come run Facebook Messenger.

He was offering Marcus an enormous job. It's no exaggeration to say that Facebook's future depends on the success of its mobile messaging application. Messaging is a modern version of the social graph---the web of social relationships that Zuckerberg first set out to map with Facebook. And in a recent public Q&A with users, Zuckerberg explained that it's "one of the few things that people actually do more than social networking." The company that controls the messaging platform will control the future of the way we interact with people and, quite possibly, with businesses.

The trouble is that, in this all-important race, Facebook was behind from the start. Because Zuckerberg was slow to figure out a mobile strategy, the company's messaging feature was eclipsed by fast and simple messaging apps like Snapchat, Viber, and WhatsApp, which have exploded in popularity, letting people text, talk, and share pictures and videos via their phonebooks.

To better compete, Apple and Google remade the texting tools inside their mobile operating systems, transforming them into something more like the Snapchats and the Vibers. But Facebook doesn't have a mobile operating system, so it had to depend on users to download the Facebook app. Even then, messaging was a feature buried within the cluttered app, its icon the size of a pinhead. Sure, Facebook had launched a separate Messenger app, but few people had bothered to download it.

Then last February, Facebook agreed to pay $19 billion for the fastest growing of these apps, WhatsApp, and many people understood it to be Facebook's tacit recognition that Messenger didn't work. The services, however, had very little overlap. Most of WhatsApp's 450 million users were overseas, and they took to the app to get around paying for pricey telephony plans. Meanwhile, in the lucrative North American market, Facebook was still behind.

That's why Zuckerberg invited Marcus to dinner. A serial entrepreneur, Marcus, 41, sold a payments business to eBay’s PayPal in 2011, and soon after, he became CEO. This appealed to Zuckerberg. With Instagram's success, Facebook had proven it could buy a startup and nurture it, allowing it to flourish while benefiting from the Facebook-size resources---legal and infrastructures and spam prevention---that go with building a billion-person service. Similarly, Zuckerberg planned for Messenger to operate as its own startup within Facebook, and its leader to have complete control over the product. With his killer combination of entrepreneurial skills, larger company know-how, and a payments background to boot, Marcus was just the guy to run it.

Marcus agreed to think about it. His head was spinning as he walked to his car. But Zuckerberg followed up the next day with a lengthy email detailing his vision for the business, and the two met several more times. Then, in a move that sent a ripple through Silicon Valley, Marcus left his prestigious CEO position supervising 15,000 people to run a tiny division of Facebook, overseeing less than 100.

He could see something Silicon Valley's analysts could not: the numbers. After a series of changes to Facebook Messenger in recent months---and the company's decision to push people onto the service by shutting off messaging in the primary Facebook app---the numbers were ballooning. On Tuesday, speaking at the Techonomy conference outside of San Francisco in his first public appearance as a Facebooker, Marcus will announce that Messenger now has 500 million monthly active users, a jump of 150 percent in a year. Says Marcus: "We're going for a billion."

But that's only part of his mission. The ultimate aim is to turn Messenger into something far more than a messenger.

Marcus and I are seated at the Alki bakery in the baggage claim of the Seattle airport, along with his colleague Peter Martinazzi, a lanky engineer with cartoonishly expressive eyebrows. The two of them are in town for the day to meet with the Voice-over-IP (VOIP) team responsible for building Messenger into a service you can also use to make telephone calls. It's just one way that the company hopes to use the messaging app as a platform for much bigger things, including, it seems, online payments.

The VOIP project is familiar ground for Marcus. With more than two decades of experience crafting mobile platforms, he has been working on these kinds of telephony problems since before we could ever imagine we'd one day send messages and symbols on the go from our palms. At 23, he started a Swiss telecom operator called GTN Telecom, which provided local and long distance calling as well as internet access. He sold it to the large global competitor World Access four years later.

But it's also telling that Marcus knows payments, something that Zuckerberg has indicated will be a part of the messaging future. In 2000, Marcus started Echovox, which set out to help large European companies connect with and make money off of mobile audiences. His next company, Zong, began its life as a spinout of Echovox, offering a mobile payments platform that let you pay for items online via direct billing to your mobile phone. In its height, it had access to 3.2 billion mobile users, and gained attention here in the US because it worked closely with Facebook to sell the social network's virtual currency over the phone.

When PayPal bought Zong in 2011, he became a vice president. Then, in early 2012 when Scott Thompson left PayPal to run Yahoo, Marcus rather abruptly became the PayPal CEO. Many saw his arrival as a clear sign that PayPal was taking a more entrepreneurial approach. Under his leadership, PayPal launched its offline mobile card reader, PayPal Here. But Marcus found the challenges of managing a massive workforce less satisfying. As he says: "It wasn't a creative thing to do. You were fixing things rather than building things."

On June 9, Marcus announced his new role via a Facebook post. Then he got in his car and drove the 17 miles from PayPal's San Jose headquarters to Menlo Park for an all-hands meeting with the Messenger team. If the mood was celebratory, it didn't last long. A few senior members of the team brought him into a conference room where Martinazzi jumped into action. Recalling the day, Marcus looks over at Martinazzi, who raises his eyebrows and smiles. "Peter was like: 'I'll send you 15 presentations and invite you to ten groups and can you come back tomorrow?" Marcus remembers.

In the Seattle airport, Martinazzi glances down and shrugs. "We had a lot to do," he says.

That's been the story of Messenger from the beginning. You can trace its evolution to 2011, when Facebook paid a reported $40 million for the group messaging app Beluga, recruiting its founding trio of former Google engineers.

By the end of the year, it had launched standalone messenger apps for Apple iOS and Android devices. But the messaging tool had remained locked in the netherworld of lost communications---an email product that wasn't as good as email and an instant messaging product that wasn't embraced widely enough to be useful. Eighteen months after the app was released, only 10-20 percent of Facebook's active users (which today number 1.3 billion) had downloaded it.

That's when Facebook head of growth Javier Olivan stepped in. The growth team is the equivalent of Facebook’s Navy SEALs, a special operations force brought in when the potential for a feature to take off is great and the stakes are high. Most of Facebook's development teams interact with Olivan's team at some point. As competing messaging applications gained steam, Olivan dug into the data to see how Facebook users behaved.

"We saw that when you compare the way users message when they use the app vs. inside the Facebook app, the engagement was different," Olivan explains. "The patterns of use were different." In other words, when people had the app, they messaged more. Olivan had to figure out how to spur more people to download the app.

Eventually, he pulled out the Messenger engineering teams---at that time, about ten folks on Apple's iOS and ten folks on Android---and moved them to his building under the leadership of Martinazzi. The app was now considered a separate product. The team rebuilt it entirely, using native components and tricking it out with many of its competitors' most popular features.

They built in the ability for users to sync with their phone books and message anyone, even people who weren't on Facebook. And they added a group chat feature as well as a "Like" button that can expand when you hold it down (in case you really like something).

The smiley face on the bottom of the screen produces pages of stickers, all sourced from artists by a former game designer. Next to that icon, a microphone lets users record and send sounds. A small phone icon in the top right corner lets users make calls over the internet directly from the app.

The Messenger team did a lot of work on the backend as well. Originally, Messenger used the same code that supported the messaging feature within Facebook's main app. "We've revamped the way the servers and the clients talk to each other entirely," says Martinazzi. "Now the app uses less data and the messages get there faster, which is really important when it's my phone and I'm on a limited data plan."

But despite these improvements, many of Facebook's diehard users didn't download the app. They already had the communications tools they needed on their phones, and if they really needed to check a Facebook message, they could still access it through Facebook proper. So last April, Facebook experimented with cutting off the ability for users to message in its core app.

It first experimented with this in several countries in Europe where Facebook's messaging was very popular. The experiment worked, and Facebook saw an uptick in engagement. So the company decided to cut off messaging in its main app for everyone. Then came the backlash.

David Marcus didn't have a hand in the decision to kill messaging in Facebook proper, but he thinks the move was critical. "Adults don't download apps anymore," he says, the faintest hint of a Swiss French accent slipping into his sentences. "So if we didn't do this, there's no way people would give it a try."

But the move did piss a lot of people off. The week before Marcus officially joined Facebook, the company started switching Messenger off for sections of its North American audience, and people grumbled. A lot. Privacy activists complained that the new app required users to set their settings all over again and that it defaulted to settings that identified too much personal information.

Users began citing and spreading misinformation such as rumors Facebook had permission to keep your camera turned on all the time, spying on you. An outdated Huffington Post article began recirculating, advancing the idea that the Android version of Messenger requested outrageous permissions.

Call it the burden of being Facebook. Because the social network took an early and aggressive position on privacy (betting that it would matter less to people over time), it picked up a reputation for compromising the privacy of its users. As the social network matured, the company has been aggressive about offering up the controls its users request. But a reputation, as anyone knows, can be hard to shake.

In truth, the permission requests that the Huffington Post piece called out were neither more onerous nor less common than those similar messaging apps require, and not all that different than the main Facebook app. It's the nature of the relationship consumers strike with app makers when these apps are released: in order for them to do what we want them to do, we have to give up some control over our own experience, providing them permission.

But if Facebook often confronts similar issues in product rollouts (Instagram had a backlash over revised privacy terms early in its life), it has also learned quite a bit about what happens next. To wit: people use the product. In less than six months, Facebook has more than doubled the number of active users on Messenger. What's more, as the users discover what Messenger can do, they are using it more frequently.

This is Facebook's lifeblood. Gartner analyst Brian Blau says that for Facebook to have power, people need to use it, spending time on it and inputting their data. "The only way to do that is to have [users] constantly on the network, connecting into Facebook," he explains.

To be sure, some users are still annoyed. A quick survey of my social network turned up complaints of the Facebook-is-overlord variety, general privacy concerns reflecting misperceptions about how privacy settings work, and the feedback that Facebook was trying to win over users for a product users didn't need.

As my sister-in-law wrote in a Facebook post: "I absolutely hate it. One centralized app where you can do everything you need to do is so much more efficient from a user perspective and a phone/memory one too."

If Marcus is successful, however, everyone will feel they need it. "It's really hard to express emotion across a texting interface, and so we want to give people tools that enable them to express themselves better," he tells me. Just as importantly, he wants the application to work---fast---for every type of message every single time.

Marcus then whips out his phone to show me a feature in development, which will improve the dependability of the product. He sends a message to Martinazzi, and a small blue dot pops up, indicating that Martinazzi has received this message. Beside him, Martinazzi responds to the ding. Once he has read the message, Marcus' blue dots are replaced by a miniscule Martinazzi chat head.

The plus? You can tell when someone has gotten your message, and whether she has read it. "We're going to be doing a lot more things like this," Marcus says. His bet is that if Messenger becomes the most predictable way to communicate, even my sister-in-law will let bygones be bygones and download the app---eventually.

So far, the Messenger team has not been focused on making money, but it's not a stretch to imagine how Messenger could become profitable. In Facebook’s second quarter earnings call, Zuckerberg indicated there would be an overlap between Messenger and payments, but that it was a long way out. Leaked snapshots obtained by a tech blogger suggest Facebook has experimented with a service that let's friends make payments to each other.

That's not the only way to make money off the service. Already, Facebook has done some advertising-related experiments. When Despicable Me 2 came out in theaters last year, Facebook worked up a partnership that let users download Minion stickers. It's easy to imagine a future strategy for making money off stickers.

Marcus has even grander ambitions. In Facebook's earliest days, Zuckerberg introduced the ambitious idea that banner ads would be replaced by ads so compelling to users that they would function as content. When I first spoke to him about this in 2005, it seemed insane. But last year, Facebook brought in $7.9 billion in sales, capturing nearly six percent of the global display advertising market with its social ads.

In similar fashion, Marcus wants to reinvent messaging between people and businesses, so that it's useful to both parties. "It's really broken," he tells me, as we are wrapping up our airport coffee.

I agree with him. Who doesn't hate spam mail? But I can't imagine how it could be better. "What do you mean?" I ask.

"Well, what airline are you flying today?" he says.

"United," I reply.

"Have you ever looked forward to calling United?" he asks with a slight smile.

The question hangs between us as we reach for our bags. What would United be willing to pay Facebook to communicate better with me? For that matter, what would it take for me commit to using Facebook to message? And can Marcus convince all of us to double down on Messenger along with him? A significant part of Facebook’s future may be riding on it.