The Canadian who wants to dethrone Facebook

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Ted Livingston is a creature of routine.

Every morning, while his wife is still asleep, he folds his 6-foot-2 frame into the tub for an hour-long soak. If he's travelling (there are stretches when he flies to Silicon Valley once a week), his hotel room must have an ensuite bath. He does nothing in there but think, and maybe read articles on his iPhone. The 28-year-old also likes to walk, which he does, often—with potential new hires, colleagues, journalists, investors, by himself. He has several winding, well-paced routes he takes through the leafy, '70s-era suburban Waterloo neighbourhood where Kik Inc.'s headquarters hide behind a strip-mall massage parlour and an accountant's office. With venture capitalist Fred Wilson—co-founder of Union Square Ventures and early backer of Kickstarter, Tumblr and Twitter—Livingston paced New York's High Line so they could get to know one another.

Chances are you've never heard of Kik. But the kids know all about it—240 million people, 40% of them between the ages of 13 and 19, use the free chat app every day. "Even in the U.S., not a lot of people have built that," says Anamitra Banerji, who sits on Kik's board and is a partner at Silicon Valley venture capital firm Foundation Capital, an early Kik investor.

In a recent Comscore survey, Kik ranked among the top 20 stickiest apps in the U.S., alongside Netflix, Snapchat, Google Maps, Pinterest and Gmail. Translation: Kids flock to Kik and spend a lot of time there. That has helped Kik raise $120.5 million since 2009, $88 million of it in the past two years—huge sums for the Canadian tech scene (all currency in U.S. dollars). All that cash has catapulted Kik into "unicorn" territory, the sobriquet for start-ups with a valuation north of $1 billion (a figure the intensely publicity-shy Livingston only reluctantly confirms).

Livingston's plans extend far beyond chat, however. "Microsoft built an operating system for all the desks in the world," he tells me as we walk together on a windy day in October. The always-on nature of mobile computing, he argues, offers a chance to rebuild our relationship with software. And as he sees it, only Facebook and Kik are competing to do that in North America. "This is a race to build an operating system for the world, period."

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Like Facebook's Mark Zuckerberg, Livingston prefers the hoodie and jeans to the suit and tie. "I think it comes down to that authenticity thing," he says as I wander along beside him. "You see somebody in a suit, a flashy office, a flashy car—they're trying to create an image. Don't get me wrong, it's cool to wear a suit. But it's a little bit manufactured."

His executive suite is also "authentic," dominated by a wall of cluttered bookshelves and a white particle-board desk where he sits with his back to the door. The only sign of status is that it's upstairs from the bullpen of workstations that fill the rest of the building, where Kik's 110 employees—80% of them focused on software and product development—tap away on their keyboards.

Livingston's reluctance to embrace the outward signs of his wealth extends, by his own account, back to high school. His father, Bob, is a lifelong Bay Streeter (he's now a vice-president with CIBC Wealth Management), and Livingston and two of his three brothers attended the private all-boys Crescent School, whose motto is: "Men of character from boys of promise." Depending on whom you ask, the 102-year-old school is as exclusive as, or perhaps more so than, its better-known rival for the city's elites, Upper Canada College.

"I was always sort-of-like ashamed of that. I still am," says Livingston of his private-school pedigree. (Every sentence he utters is loaded with sort ofs and likes; after a while, I stopped transcribing them.) "I saw all these kids with all this money, flaunting it, driving really nice cars," he continues. "Almost all my friends were from outside Crescent."

Still, he describes it as a school for "smart kids" and humble-brags that one year, he "accidentally" ended up with the highest overall grade average. Accidentally, he explains, because he says he wasn't exactly a grinding student. "I would never study. I was the guy like, 'Okay, there's an exam in one hour—go.'" But still, the As came. For his brothers, too—the eldest, Michael, is a doctor; his younger brother, Blair, runs a financial-tech start-up in Toronto.

It's his youngest brother, Jack, who had the most profound impact on Livingston. Jack was born with a severe form of cerebral palsy. "He never walked—never even crawled. Never talked," Livingston says in a clear and level voice, like he's explained this all before, many times. "He had a personality, and we had, like, a relationship, but not like a real relationship. We never had a conversation, for example." Jack died two years ago, at the age of 19. "This was a kid who was totally dependent for his whole life," says Livingston. "And I think it really impressed on me and my other brothers just how lucky we got."

With he and his wife, Christine Thayer, a product manager at Kik, starting to talk about having kids of their own, Livingston's been thinking a lot about the message of his brother's life. His maternal grandmother likes to remind the boys: "To whom much is given, much is expected." Assuming that's true, Livingston says, "A, you better do something with it, and B, you better remember that luck had a big part to do with it. If you're dealt a good hand, you owe society for that, almost."

Livingston headed to the University of Waterloo in 2005 to study mechatronics—a blend of electrical, mechanical and computer engineering—and spent three co-op placements at BlackBerry. At the same time, he set out to build a music app that would let users share songs with friends via BlackBerry's BBM chat app. At the start of the 2009 school year, he quit Waterloo to work on the app—then called Unsynced—full-time. Within a couple of months, he'd changed the name to Kik and added an instant messaging function. But as third-party chat apps like WhatsApp started to gain popularity, Livingston realized he'd need access to a cross-platform chat system. When BlackBerry opted to keep BBM proprietary, Kik started a competing app that would work on BlackBerry, iOS and Android. Kik Messenger went cross-platform in April, 2010, with roughly 50,000 users.

After a redesign in October of that year, Kik amassed a million users in 15 days. Then Whoopi Goldberg talked about Kik on The View—"it was her new favourite thing or whatever," says Livingston—and users hit two million in a week.

Then came the lawsuit. Livingston's old em-ployer, BlackBerry, claimed his start-up infringed on its mobile text patents and accused it of co-opting BBM's trademarked logo.

"The suit made it pretty personal," says Livingston. "Like, 'We just want to let you know Ted worked at BlackBerry, he signed his employment agreements, he signed his non-disclosure agreement, and he worked with the consumer product management team where BBM was.'" The implication, Livingston says, was that he stole the idea for Kik from BlackBerry, which was then at the peak of its power.

After reading the allegations, Livingston's father called "to do the dad thing," telling Ted: "I know somebody, maybe they can help—but before I go talk to them, there's nothing I should know, right?" Livingston was incredulous; if his own father had to ask, he could imagine what the rest of the Waterloo start-up scene must've been thinking. "I was like, 'Daaad!'" Here, Livingston's voice shakes with shocked laughter, even years later. "Yeah, that's how effective BlackBerry was."

The lawsuit (which was settled in 2013, the terms undisclosed) didn't stop investors from pouring money into Kik. A couple weeks after BlackBerry sued, Kik closed a $5-million round from Silicon Valley investor RRE—cash that would keep it going through the litigation. By early 2011, it had raised an additonal few million, but with a catch: The new infusion would dilute the stakes of either RRE or Kik's employees. To keep everyone happy, Livingston sold some of his shares to RRE instead (though he kept voting control of them), pocketing $1 million in cash at a time when nobody else in the company was anywhere near as liquid. The whole thing made Livingston intensely anxious, so he donated every penny of the sale's proceeds to his would-be alma mater's VeloCity entrepreneurship program, which had helped him launch Kik in the first place.

When he shared his plan with Union Square's Wilson, who was leading the new round of financing, Wilson was horrified. "You don't have to do that," he choked.

Livingston breaks out into his big, jovial laugh just thinking about it. "I love crazy win-win-wins."

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Friend-to-friend chats are just one part of Kik.

The company has 80 partners—among them, Amazon, The Washington Post, MTV, Comedy Central and Buzzfeed—that use its unique "bots" function. These bots (pieces of software) are programmed to chat and behave like real people, and respond to certain commands. There's a movie bot that tells you about upcoming releases and posts trailers in your feed. Strike up a chat with Amazon and the bot will lead you through a simple this-or-that game that includes links to Amazon products.

Snaps, a New York-based mobile marketing company, has run a dozen campaigns on Kik—for brands like McDonald's and Dove Soap—and plans to run two to three times that many in 2016. In a campaign for Burger King's chicken fries, Snaps spread a set of chicken-fry emojis via Kik, which tracked how often users shared them in their private chats. A follow-up survey showed that Burger King's target audience was 55% more favourable toward chicken fries after seeing the emojis and 39% more likely to order them. "We're able to create peer-to-peer interactions—that's the best branding you can get," says Snaps CEO Christian Brucculeri. In other words, getting users to tell their friends about chicken fries is more effective than blasting banner ads all over the place. "Brands are fighting for attention," says Brucculeri, "and Kik gives them a good place to do that."

Kik says half a billion messages have been exchanged between 16 million users and bots; 46% of those users were aged 13 to 19. It's a key demographic, albeit one that doesn't yet have a ton of spending power. It's a long-term play: The more time these kids spend getting to know these brands on Kik, the more likely they are to turn to them when they do have cash.

"We can convert that time into spending power," says Livingston. "That's sort of critical to having this whole ecosystem work. Then we could go to Tim Hortons and say, 'Four out of 10 teenagers who walk in your door already have Kik installed—we should build a really cool interaction together.'"

Eventually, he says, chat could reshape online behaviour and commerce, with all sorts of services—buying food and clothes, banking—built on top of a chat platform. "It could power all the interactions in your life," he says.

The closest analog for what Kik has planned is WeChat, a Chinese app that is far more than just a chat platform. Instead of accessing the Internet via browsers or apps like Facebook (which is blocked in China along with most other Western chat apps), WeChat has become the primary online interface for its 600 million active monthly users. Think of it as an all-in-one app, a combination of Facebook, LinkedIn, mobile banking, e-commerce and so on. In 2014, the Japanese investment bank Nomura pegged WeChat's average revenue per user at $7. That's $4.2 billion worth of spending on coffee, cabs, movie tickets, clothes—all without ever leaving the WeChat app. Analysts have suggested WeChat makes up half of parent company Tencent Holdings Inc.'s $180-billion market cap.

For WeChat, China represents a green-field opportunity, with millions of people coming online for the first time through their mobile phones, leapfrogging desktops altogether. It's a chance, says Livingston, to define what being online looks like: "They're saying, 'Hey, you've never bought something online before? Do it this way. You don't have a bank account yet? Do it this way.'"

Here in the West, he says, "you can't really do it with adults, because they already shop on Amazon, they already bank at CIBC, they already get clothing at American Eagle or whatever." The only group that represents the same mostly blank slate is young teenagers. And the 40% of American teens already using Kik represent access to tens of billions of dollars in potential spending. In August, 2015, Tencent became Kik's most recent investor, leading a $50-million round that will help expand Kik's service empire. Banerji says the partnership with Tencent has barely scratched the surface. One day, he hopes Kik will have access to WeChat's users (including its sizable chunk of business accounts), and vice-versa.

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Livingston and his team didn't fully understand where Kik was headed until a year ago. "It felt like we were running through the fog, discovering something new every month, but not really knowing where we were going next," he says. "Then we came out of the fog and it was, like, this is going to be big. We looked around and were, like, Who's going to come out of the fog behind us? And we realized it was going to be Facebook."

Facebook's Messenger launched as a standalone app in April, 2015. Since then, it has amassed more than 700 million users. The company also owns WhatsApp, which has 800 million users, with big concentrations in South Africa, India and Mexico.

Analysts have praised Facebook for moving fast to incorporate peer-to-peer payment technology to Messenger; it even poached PayPal CEO David Marcus to lead the charge. Marcus told Wired U.K. that building services onto Messenger is "one of the biggest opportunities in tech in the next 10 years." It has been slow to introduce ads, however, which are Facebook's major source of revenue on mobile—78% of $4.3 billion in advertising revenue. By some estimates, Messenger accounts for 10% of the company's $307 billion market value, even before a single ad has run on the service.

But here's the problem with making money off chat: It might be the killer app of mobile, but it's a commodity. You send a message to your bestie and she sends you one back. The No. 1 reason Kik's users are on the platform, and it's pretty much the same for all the half-dozen global chat players, is because their friends are there. Introduce too many distractions to that core function and you risk losing them.

It's a lot like selling Coca-Cola. Marketers have spent decades building a culture around what is essentially just brown sugar-water. That kind of brand loyalty can last a long time—if you get your customers young. For many American teens, a Kik username is their first "phone number," logged into the family tablet or hand-me-down phone.

As they move up the chain into more modern hardware, they bring Kik with them. The value in that loyalty is that, while smartphones have become the dominant form of computing, apps are losing ground.

"Over half of U.S. adults download zero new apps per month," says Livingston. That trend stretches as far back as 2014, according to comScore. "App usage is going down, messaging is coming up. There has to be a new platform," says Livingston. "That was always our thought, and WeChat just became a convenient way to explain the potential."

Of course, there's no guarantee Kik will be anything more than a fad. "We're an industry where consumers might be bored of something today and love something tomorrow," says Banerji.

Livingston knows that, of course. It doesn't stop him from suggesting Kik could one day be worth $100 billion. To put that in perspective, he is talking about reaching for the highest market capitalization in the country, on par with TD or Royal Bank. That kind of consumer-technology company has never existed in Canada. Even at its peak, BlackBerry was worth just over $83 billion.

That bravado is what Silicon Valley heavyweights love about Kik and its founder. "Not a lot of people understand Ted," says Banerji. "He's had a hero's journey, and I think if he were in the Valley, he'd be celebrated. But he's not, because he's up there in Waterloo."