The Telegram Business Model – How Does Telegram Make Money?

Executive Summary:

Telegram is a messaging platform that allows users to communicate on both their desktop as well as mobile devices.

Telegram makes money by selling sponsored messages as well as through premium subscriptions.

Launched in 2013, Telegram has grown to become one of the world’s largest messaging platforms. It now boasts over 700 million users.

What Is Telegram?

Telegram is a multiplatform messaging application that is available on a variety of devices and operating systems.

You can download and access Telegram on mobile devices (available on Android and iOS) or use it on macOS, Windows, or Linux. Messages will then sync across all the devices you use.

Users can communicate with each other by text, audio, as well as video messages. Chats are either private or can be organized in groups. One can, furthermore, exchange files of up to 2GB in a variety of formats (including .DOCX, .MP3, .ZIP, etc.).

The content that you send can also be altered using Telegram’s photo and video editing features. You can spice them up by adding emojis, GIFs, or stickers as well.

There’s also the option to follow public channels or open groups. For instance, channels hosted by the Financial Times or Bloomberg allow users to stay up to date with anything happening in the world.

Additionally, Telegram brands itself as a privacy-focused messaging app. Apart from end-to-end encryption, it also doesn’t share data with any third parties.

On top of that, users can create temporary chats (called Secret Chats) whose messages will be deleted after reaching a certain time threshold.

Third-party developers can, furthermore, interact with the platform via its API. This enables them to launch their own applications on Telegram. Prominent examples include Ferdi or Unigram.

How Telegram Started: Company History

Telegram, headquartered in Dubai, United Arab Emirates, was founded in 2013 by Russian brothers Pavel and Nikolai Durov.

From an early age, the two brothers, who grew up in Italy (their father was a professor) but later moved back to their hometown of St. Petersburg, shared a common love for programming.

Pavel, the younger of the two, started coding games on his IBM PC XT when he was 11. At age 17, he created a website for the students of his university to be able to share lectures and discuss exams.

However, his first major breakthrough would come five years later after he just wrapped up his computer science studies.

At the time, the phenomenon of social media was taking the world by storm. Platforms like Myspace and Facebook had managed to amass hundreds of millions of users. This digital gold rush made headwinds all the way in Russia where developers began to build copycat versions.

Nikolai and Pavel, alongside a classmate who provided them with seed funding, started to build a social media platform of their own. They launched the platform, named VKonatkte (“in touch” in Russian), in late 2006.

What immediately stood out about VKontakte was its close resemblance to Facebook. Pavel and his team had borrowed many of the visual cues that made Facebook so popular.

VKontakte took off like a literal wildfire and quickly rose to become the leading social media platform in Russia. Its success trickled down all the way to Pavel who people started referring to as Russia’s Mark Zuckerberg.  

Unfortunately, being a dominant social media platform in Russia does come with its own set of challenges. In late 2011, Russian police forces were standing outside of Pavel’s apartment in St. Petersburg and threatened to storm it should he not take down the account of Russian opposition leader Alexei Navalny. He immediately posted about his experience on VKontakte, which heightened tensions between Russian citizens and its oppressive government.

While the incident did propel his public persona to new heights, it also ended up being the proverbial nail in his coffin. In April 2013, police raided Durov’s home and offices after accusing him of driving a white Mercedes over the foot of a traffic cop.

Although the charges were eventually dropped, the increased police pressure forced Durov to flee the country. For months, no one knew where he was located. However, the bigger blow came a few days after the April raid.

Some of VKontakte’s other founders, without notifying Durov, decided to sell their 48 percent combined stake to United Capital Partners (UCP). UCP and its founder Ilya Sherbovich are known to have deep ties with Putin and the Russian government.

Durov continued to have the majority of voting power, yet increased pressure from outside forces eventually made it impossible to properly run the business. In December 2013, Pavel and Nikolai sold their remaining 12-percent stake to Mail.Ru Group (which is controlled by Alisher Usmanov, another close ally of Putin), which allegedly netted them between $300 million to $400 million.

Armed with generational wealth, the brothers decided it was time to leave Russia for good. First, they acquired citizenship of the Caribbean Island of St. Kitts by making a $250,000 donation to the country’s Sugar Industry Diversification Foundation. The citizenship granted them visa-free travel across Europe.

Months prior, Nikolai and Pavel had developed an end-to-end encrypted messaging application that allowed them to securely communicate with each other. With the global ascend of WhatsApp, they quickly decided to give messaging a try.

In October 2013, right before the sale of their VKontakte shares went through, Telegram was unveiled to the public. Within a matter of a few weeks, more than 100,000 people were already using the app.

telegram company history
Wayback Machine

Its quick adoption was aided by two major developments. First, the quasi-public ousting of the Durov’s from their previous company only increased their popularity across the world. Second, Edward Snowden’s NSA revelations had just come out a few months prior (in June), which led many to distrust the actions of their respective governments.

Telegram cleverly positioned itself as a more secure communication option. Compared to the likes of WhatsApp, users on Telegram could communicate in an end-to-end encrypted manner. Plus, it would take a page out of Snapchat’s playbook by introducing disappearing messages.

Then, in February 2014, Facebook announced that it had just acquired WhatsApp for $19 billion. Within 24 hours after the acquisition was made public, Telegram managed to add a whopping 5 million users. Across the globe, its app soared to the top of Apple’s App Store charts. The onslaught of new users even caused its European servers to crash for a few hours.

Just eight months after launching, Telegram had already amassed over 40 million users. Yet, its numbers were still dwarfed by WhatsApp which counted close to 500 million. Over the course of 2014, the team, which was temporarily based in Berlin and contained multiple engineers who all came from VKontakte, continued to refine the product.

One of the key features that it introduced early on was the ability to sync messages and accounts between multiple devices (something that WhatsApp, for example, only introduced years later). This allowed people to use the platform across any imaginable medium, which in turn boosted further adoption.

The continuous improvement theme continued well into 2015 as well. In June, for instance, Telegram introduced bots, which enabled third-party developers to run other applications within its platform.

Another major boost for the organization occurred later that year in December. The Brazilian government, lobbied by its powerful local telcos, temporarily shut down access to WhatsApp. Although the ban only lasted for a few hours, it led to Telegram being downloaded more than two million times.

However, with further adoption also came greater responsibilities. That same month, Telegram, as a result of the Paris terrorist attacks, had to shut down a variety of public channels which were being used to promote ISIS-related content. The company had only introduced its public channels three months prior.

Despite the small setback, Telegram managed to reach the inaugural mark of 100 million users by February 2016. WhatsApp, for comparison’s sake, had already amassed over a billion people on its platform.

To continue differentiating itself against WhatsApp, Telegram made sure to double down on its bot platform. It launched a $1 million fund which granted the most successful bot developers $25,000. To that extent, the company, in October, launched a bot-based games platform that enabled users to play against each other.

Throughout 2017, the company continued to add new features (such as voice calling) while remaining in battle with various governments as well as other organizations. In July, for example, the company had to delete various channels related to terrorist activities within Indonesia. The Indonesian government told the company that it would otherwise be shut down.

Two months later, the Iranian government filed criminal charges against Telegram’s management team, stating that the platform would promote the facilitation of child pornography and other extremist content. In April 2018, Iran ordered its telco providers to shut down access to Telegram.

Apart from the toxic content, Telegram also found itself battling another front: copyrighted content. Due to the fact that users can share files of up to 2GB, more and more channels in which people distributed music and movies began emerging. In November 2017, Russian IT watchdog Roskomnadzor forced Telegram to shut down countless of channels in which these materials were shared.

However, much bigger news dropped right at the turn of the new year. In January 2018, Telegram announced that it intended to launch its very own blockchain platform and native cryptocurrency. The coin, called GRAM, would allow users on the platform to pay for various services and exchange funds.

The launch itself was funded with what turned out to become the biggest Initial Coin Offering (ICO) to date. In March, the company ended up raising $1.7 billion. Meanwhile, its troubles continued to perpetuate.

Around the time of the ICO, Apple temporarily removed Telegram from its App Store over the breach of its guidelines. Then, in April, Russia blocked access to Telegram as the company refused to hand over encryption keys to Russian authorities so they can access user data.

Despite these setbacks, Telegram’s growth remained undeterred. By summertime, the platform had reached the 200-million-user mark (compared to WhatsApp’s 1.5 billion). It doubled down on the growth by launching Telegram X, an alternate and sped-up version of its previous app, in September.

Much of 2019’s theme was about the launch of its blockchain platform as well as token. While the initial plan was to introduce it in Q2 of 2018, the release date was being moved further and further as time passed.

For the longest time, Telegram advertised the 31st of October, 2019, as the final date of the launch. Then, two weeks prior to this date, the Securities and Exchange Commission (SEC) issued a restraining order to halt the issuance of the tokens in the United States. The regulator stated that Telegram had never registered its offering with the SEC while still having raised $425 million (of the $1.7 billion) from U.S.-based investors.

In March 2020, U.S. District Judge Kevin Castel of Manhattan issued a preliminary injunction that barred the launch of its blockchain platform. Then, in May, Telegram announced that it abandoned the project altogether after it failed to come to terms with the SEC. Finally, the saga ended with an $18.5 million civil settlement with the SEC. Furthermore, Telegram promised to return the $1.7 billion that investors had poured into the company.

However, there was also some positive news surrounding the company. A few days after the settlement, Roskomnadzor announced that it had reinstated access to Telegram. Durov and the company agreed to provide the government body with personal data of terrorist suspects.

Furthermore, as a result of lockdown measures due to the coronavirus pandemic, Telegram introduced a few connective features. These included single and group video calls (which propelled Houseparty to worldwide fame) as well as voice chats.

In the meantime, its token project also came back to haunt it. The company, in November, had been ordered to pay $625,000 worth of legal fees to Lantah LLC, a small cryptocurrency firm out of the United States, that it sued in 2018 over using the ‘GRAM’ ticker and trademark.

Lantah itself had immediately issued a countersuit as it had already filed an application with the U.S. Patent and Trademark office in late 2017. Telegram had dropped the lawsuit in the summer of 2020 due to the abandonment of the project but was still forced to pay Lantah’s legal fees.

After a worldwide backlash against WhatsApp and its way of sharing data with Facebook, tens of millions of users flocked to alternative and more secure alternatives, which predominately included Telegram as well as rivals Signal and Viber.  

Telegram itself was able to add more than 25 million users within three days, pushing its total user count to over 500 million. Even world leaders like Mexican President Andrés Manuel López Obrador opened a Telegram group, which amassed over 10,000 members right after launch.

To Telegram’s credit, the company also made sure to double down on those developments. Days after the outcry against WhatsApp, it added the ability to seamlessly import your WhatsApp chat history into Telegram.

In order to continue funding its now global ambitions, Telegram raised a $1 billion debt round in March 2021. The capital was predominately by Arabic investors including Mubadala Investment Company and Abu Dhabi Catalyst Partners.

Years prior, Telegram had moved its headquarters from Berlin to Dubai after the company failed to get visas for some of its engineers. Telegram, which is now one of the highest-valued tech businesses in the MENA region, is seen as a crucial driver of talent and growth by representatives of these states (which often also influence and oversee the investment decisions Mubadala and others make).

However, the company, which now aims for an IPO in the next few years, continued to be embroiled in political pressure. In September 2021, it removed Alexei Navalny’s “Smart Voting” bot (following similar moves by Apple and Google) prior to a three-day parliamentary vote in Russia. The move was a result of the firm’s intention to limit the usage of bots that are associated with election campaigns.

In recent times, Telegram became particularly important for Ukrainian forces who would communicate during the war and share live updates from the battle ground. Its public channels, in particular, are used by officials to send out messages to thousands of people.

Today, Telegram counts over one billion users. The company, furthermore, employs over 600 people in Dubai and across the globe.

How Does Telegram Make Money?

Telegram makes money by selling sponsored messages as well as through premium subscriptions.

The company was previously supported by the billions in funding that it has received as well as the personal funds of the Durov brothers.

As mentioned earlier, Telegram, for close to two years, tried to implement its very own blockchain network and cryptocurrency token.

Therefore, the company could’ve generated revenue from a variety of income streams, including:

  • the issuance and holding of the GRAM token itself (much like Binance and Ripple do)
  • the introduction of payment services, for instance for peer-to-peer transactions or other services offered by businesses
  • the distributed storage of files
  • a proxy service for creating decentralized VPN services

… and a few more. However, the SEC ultimately halted the launch of both the blockchain network as well as the token.

This came as a stark contrast to the firm’s early statements (back in 2014) in which it emphasized within its FAQs that “Telegram is not intended to bring revenue, it will never sell ads or accept outside investment. It also cannot be sold.” 

CEO Pavel Durov, however, eventually reversed that course as the company continued to add on more users.

“After all, more users mean more expenses for traffic and servers. A project of our size needs at least a few hundred million dollars per year to keep going,” said Durov on his official Telegram account back in March 2021.

Those promises ultimately became reality in November 2021 when Durov introduced the Telegram Ad Platform on his own channel.

The premise of Sponsored Messages is that, compared to WhatsApp and other platforms, they are less intrusive – both in terms of their appearance as well as the data that they utilize.

Telegram monetizes the Sponsored Messages on a CPM-basis (Cost-Per-Mille), meaning the advertiser pays Telegram for every 1,000 views that the ad generates. Advertisers can set a maximum budget to ensure that they’re not overspending.

They are then presented with a variety of data points that let them know how much views those messages have generated, what budget has already been spent, and more.

Then, in June 2022, Telegram introduced a second revenue source: premium subscriptions (while simultaneously reaching 700 million monthly users).

The subscription, which costs between $4 to $6 per month depending on the user’s location, grants you access to a variety of perks including:

  • verification badges in chats
  • premium app icons
  • animated profile pictures
  • unique stickers and reactions
  • voice-to-text conversions
  • faster downloads and greater file sizes for uploads

… and plenty more. However, the core user experience remains unaffected. Hence, the subscription is aimed power users who utilize Telegram to manage their business or generally use the app on a very frequent basis.

Interestingly, chat platform Discord has chosen a similar monetization strategy by offering premium features to power users.

Ensuring that the free experience stays as good as it has been consequently allows Telegram to keep growing at the rate it has.

And the more free users it onboards, the greater the likelihood of creating thriving communities around those user groups. And some of them, depending on how strong those community ties are, may feel the need to elevate their user experience by opting into those premium features.

Telegram Funding & Valuation

According to Crunchbase, Telegram has raised $2.7 billion across two rounds of debt and venture funding.

Notable investors include Oyster Ventures, Dalma Capital, ARK Fund, Abu Dhabi Catalyst Partners, as well as sovereign investor Mubadala.

No valuation figure was disclosed in either of the firm’s two funding rounds. This will likely be the case once the firm decides to go public.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.