This is a copy of a The Information article, which lives behind a paywall.
Behind Facebook's Mobile Platform, a Driven Young Entrepreneur
By Eric P. Newcomer
Jun. 16, 2014
7:56 AM PDT
When Facebook purchased the mobile services company Parse for $85 million a little more than a year ago, one key to the deal was convincing the Parse team, led by Ilya Sukhar, that it would be able to stay together and keep building its business within Facebook.
Mr. Sukhar, a mobile programming prodigy, had already rejected offers from Apple and Dropbox, which were more interested in the company's four talented founders than its business, according to people who were involved in the conversations. Facebook persuaded Mr. Sukhar and his colleagues that it had much bigger plans.
Parse's customers in the world of mobile app developers were skeptical; Facebook had purchased promising tools before, only to let them languish or scrap them altogether. "There goes another great product," said one developer upon hearing the news.
But when Mr. Sukhar, 29, took the stage at Facebook's F8 conference this past April, it became clear that Facebook's commitment to Parse was serious indeed.
Parse, which offers a set of services that help developers build and operate mobile applications, has not only continued to operate, it's become a linchpin of Facebook's effort to develop a mobile platform strategy that reaches beyond its own mobile apps. The company is now offering Parse services at a discount as it seeks to become a full-service partner for mobile app developers, one that can help them build, distribute and make money on their products.
Mr. Sukhar's team has doubled to 50 people, and he meets regularly with Facebook CEO Mark Zuckerberg. Mr. Sukhar and one of his co-founders, James Yu, have also played an integral role in developing new Facebook features such as Anonymous Login and App Links.
Perhaps most importantly, people inside and outside the company say the Parse unit is doing a lot to make Facebook's culture more friendly to app developers. That's key for a company that has alienated many erstwhile software partners over the years with abrupt changes to the service that sometimes all but destroyed once-popular games and other applications.
Facebook's own applications, ranging from Messenger to Instagram, remain the centerpiece of its mobile efforts. But the Parse-led mobile platform initiatives could help it gain influence over the broader mobile app universe by promoting tight integration of Facebook features and positioning the company as an indispensable partner for technical services as well as advertising and marketing.
And Facebook's new mobile ad network provides a ready means to turn such developer relationships into profits. Mobile accounted for 59% of the $2.27 billion in ad revenue that Facebook recorded in the first quarter of 2014, about double the percentage of a year ago, as ad revenues overall rose 82% year-over-year.
Yet despite all that, Parse itself is hardly central to Facebook's bottom line. Providing infrastructure and technical tools for software developers is a very different type of business than Facebook's consumer-facing Web offerings, and ultimately a much smaller one. Many developers remain suspicious about the depth of the company's commitment to third-party app-builders, given the past history and the simple reality that the needs of Facebook consumers and marketing partners will always come first.
And Mr. Sukhar, friends and associates say, is an entrepreneur by disposition, one who might find big-company life unsatisfying despite his growing power and influence at Facebook. Indeed, key aspects of Facebook's mobile strategy could depend on whether it can turn the young engineer into a true company man.
"He's a hard read, but if I were a betting man I would bet that in five or six years he'll have another very successful startup," says Jake Heller, founder of Casetext and a friend of Mr. Sukhar's since childhood. "I do think he has a sense of loyalty to Facebook and enjoys his work there, but he's an entrepreneur at heart."
'An Insane Work Ethic'
Mr. Sukhar, 29, immigrated to the United States from Russia with his parents-both programmers themselves-in 1989. He graduated from Cornell in 2008 with degrees in mechanical engineering and computer science, and internships at Google and Amazon already under his belt. Level-headed and direct, he's part of a new generation of coders who grew up programming for mobile phones and the cloud.
Sean Knapp, one of the founders of the video infrastructure company Ooyala, hired him right out of college-though only after some internal debate about the wisdom of bringing in someone so young.
"He ended up being one of the best hires that we made," says Mr. Knapp. "He was hyper, hyper motivated. He has an insane work ethic."
It was obvious from the get-go, however, that Mr. Sukhar would not remain at Ooyala forever.
"When you hire people, either they are lifers, they are career company hoppers or they are a person on a mission and they already know what the next two steps are," Mr. Knapp says. Mr. Sukhar was clearly in the third category.
He left Ooyala for a brief stint at Etacts, an email contact manager that was quickly snatched up by Salesforce. By then he had an idea for a mobile app, and applied for a coveted spot with the incubator Y Combinator.
Y Combinator founder Paul Graham wasn't too impressed with the proposal. But he was instantly taken with Mr. Sukhar, and asked him if he'd be interested in a different idea. Mr. Sukhar said he was up for it. He soon teamed up with Tikhon Bernstam, founder of the subscription library site Scribd; Mr. Yu, a former Dolby design engineer and a developer at Scribd; and Kevin Lacker, founder of Gamador and a former Google software engineer. Together, they co-founded Parse. (Mr. Bernstram pitched the company at Y Combinator's Demo Day and was the original CEO.)
The concept for the company was to cut out much of the back-end work involved in building mobile applications. Instead of having to buy or rent servers and operate the complex databases that make apps function, developers could instead turn that work over to Parse. The company also developed tools for tasks such as analytics and push notifications.
The promise was evident from the beginning. Chris Howard, a principal at the Seattle venture firm Ignition, brought Parse in for a meeting in the fall of 2011, and he said his partners made it clear to him that he shouldn't let the Parse team get out of Seattle without a term sheet.
"We hustled to lead the Series A and I was super impressed with how sharp the team was, and then how quickly they got the service built and how quickly they were able to ramp up," says John Connors, managing partner at Ignition.
After the Series A round, Parse landed two blue-chip suitors, according to two investors: Dropbox and Apple. But Parse decided not to do a deal with either company. Mr. Bernstam soon left over what one person described as differences over the company's direction. Mr. Sukhar replaced him as CEO.
Parse was also in communication with Facebook executives Doug Purdy and Bret Taylor, then Facebook's chief technology officer. At the time, Facebook was grappling with the transition to mobile. There were fears that the company's web developers wouldn't transition easily to working with mobile phones and cloud servers.
"We thought Parse had a very interesting perspective on this and the approach they were taking was pretty unique," Mr. Taylor says. He visited Parse in 2012. He said he was "fairly upfront" about the company's interest.
A year later, after Mr. Taylor had left Facebook, the deal was signed. Messrs. Sukhar, Yu and Lacker joined the company along with their two dozen or so employees. Facebook promised them autonomy, support-and $85 million. (It was a stock deal, and thus the actual payout has been worth almost twice that due to a big rise in Facebook's share price.)
The appeal of Parse for app developers has only become more evident since the acquisition. One big benefit is that when the requirements change anywhere along the complicated chain of technologies that make mobile apps function, Parse is there to adjust. When Apple recently announced that it had developed its own programming language for iOS, for example, Parse announced a service for integrating the new technology just three days later.
"If you look at even this past week, Apple announced CloudKit which is a pretty neat similar thing to Parse, but it's iOS only and you can't get data out, you can't integrate other login systems," Mr. Sukhar said in a recent interview. "I think Facebook and Parse are the only cross platform solution that's really dedicated to being kind of a neutral party."
Parse doesn't charge anything until an app gets big-a boon for smaller developers. The company says it's grown 300% since the Facebook acquisition, from 65,000 applications to 260,000.
Ryan Matzner, director at the app developer Fueled, said about 25% of the applications his firm builds use Parse. "Parse is a great tool where whenever possible we can save time on having to build a fully custom back-end," Mr.Matzner says. "We're billing at $175 an hour-it really just comes down to, if it saves us time, that pays for itself for our clients."
The handful of competitors in app services have mostly moved in different directions in the face of the Parse's growth. Kinvey, for one, specializes in serving large companies, and CEO Sravish Sridhar says he's happy to get out of the way of Parse and Facebook. "They've been able to cut prices. In that sense it's good that we didn't stay in the indie developer [market]. It's hard to compete with Parse on price for those use cases," Mr. Sridhar says.
Building a Mobile Platform
It's not hard to understand why Facebook would want to purchase Parse, especially for a price that pales next to the company's $1 billion purchase of Instagram, $2 billion purchase of Oculus VR or the $19 billion purchase of WhatsApp.
Facebook on the Web was a powerful distribution platform for online games and content. But the mobile Internet is an archipelago of disconnected mobile applications, and Facebook brass has struggled with the question of what a Facebook mobile platform strategy might look like.
How could the company make Facebook matter to mobile developers? How could it hook its claws into these third-party mobile applications? Mobile advertising has been one massively successful answer to those questions: Facebook's app install ads in particular have proven to be an excellent way for many developers to gain real estate on mobile phones.
But offering ads is not enough. Facebook is competing against Apple and Google, which both control their own mobile operating systems and their own app stores. They not only get a 30% cut of app store revenues, they're also able to collect huge troves of data about how people use their smartphones.
Facebook had to find a way to insert itself. At this year's F8, it finally articulated its mobile platform strategy: help developers to "build, grow, monetize," or in Facebook symbology as depicted on a wall inside Parse's building "# ^ $".
With Mr. Sukhar serving as both director of product for the mobile platform and CEO of Parse, the unit is both producing its own products and helping to create new Facebook features. Mr. Sukhar was the product manager for App Links, a project to create an open-source deep linking standard that lets mobile applications more directly connect with each other. Mr. Yu was the product manager for the much-touted Anonymous Login, designed to encourage more consumers to sign into apps with their Facebook accounts.
The team has also lobbied for Facebook to adopt a more developer-friendly approach. "I've been pushing for a lot of transparency with developers both in like more routine things like bugs and postmortems and communication of expectations to some of the stuff that you saw at F8," Mr. Sukhar says.
All the outward signs are that Parse is operating effectively within Facebook. It just opened an office in London and Mr. Sukhar has been traveling the globe to evangelize Parse services. Meanwhile he's also climbed the ranks within the company, and reports to Mike Vernal, the vice president of engineering.
The big test for Parse, though, will come in whether its services prove sufficiently unique and powerful over the long run to make Facebook an indispensable partner for app developers. The business benefits for Facebook, after all, are less in the revenue that app services generate directly than in encouraging developers to integrate more Facebook features-which the social network can then make money on through mobile advertising.
One measure of that strategy may end up being whether Facebook can hang onto Mr. Sukhar himself. If and when he gets the startup bug again, investors will be waiting.
"Selfishly, I invested in his first company, so I want to rip him out of there," says Raymond Tonsing, managing director at Caffeinated Capital.
"I would hire the team in a second if they left," says Mr. Connors.