WhatsApp is among the most popular messaging application, having more than 2 billion end-users across 180 nations. The users are about six times the entire population of the United States. This multi-platform messaging application is available everywhere with Wi-Fi connectivity or mobile data connection.
Statistics showed that around one hundred billion messages are sent daily through the application. But one question remains in the mind of people around the globe: How does WhatsApp make money?
Social media outlets like Instagram and Facebook receive ad revenues, but WhatsApp doesn’t show any hint of advertisement in their platform. So, it’s a bit fascinated how Facebook paid about $19 billion to close a deal with WhatsApp, which doesn’t seem to have a way to make a single penny.
WhatsApp History
Former Yahoo engineers Jan Koum and Brian Acton are the men behind this brilliant messaging application. Compared to the traditional pricey SMS services, WhatsApp has no cost.
When the Soviet Union collapsed back in 1992, Koum moved from Ukraine to America with his mother. In order to keep the wolf from the door, his mother took up a babysitting job while Koum worked as a grocery store clerk. Aside from Koum’s bread and butter work at a grocery, he also spends time with computers.
Koum educated himself in programming with all his resources and climbed his way up into Ernst & Young (EY). EY sent him to work at Yahoo’s advertising system, and that’s where he ended up meeting his WhatsApp co-founder, Acton.
Although Acton and Koum are working for Yahoo’s advertising system, they aren’t actually so interested in ads. The two Yahoo engineers eventually followed suit of what they love to do and tried to apply on Facebook. Unfortunately, they didn’t get accepted.
Koum got interested in the potential of the App Store when he first purchased an iPhone back in 2009. This is where the two declined Facebook applicants found their way to success.
By the time they developed WhatsApp, BlackBerry’s BPM was the only free messaging application available in the market. However, this was only limited to BlackBerry users.
Acton and Koum eventually decided to settle on a free messaging app that can be widely accessible to any type of phone despite the several ideas they had in mind and named it WhatsApp, similar to the favorite greeting “What’s up?”
WhatsApp immediately caught the attention of the public, and so with only days after its launch, WhatsApp managed to get 250,000 users around the globe.
The good results that WhatsApp has shown in its early stages made the two founders trust in its potential. So, they convinced their former employees to invest around $250,000 in the company, which they used to expand their team.
But then again, the two founders of WhatsApp hate advertisements! They made a pact not to associate their founded application with ads and any other distractions. So obviously, although the free SMS app is growing drastically, their team isn’t making any money.
To sustain WhatsApp, they come up with the idea of charging end-users $1 every year for full access to unlimited messaging within the platform. Now, WhatsApp isn’t entirely free anymore, but users didn’t mind, and by 2011, it climbed up to the top 20 apps in the United States AppStore.
Two years later, WhatsApp users skyrocketed to more than 200 million monthly active users and, thus, earned $200 million that year. The company has only 50 staff and was valued at $1.5 billion.
Facebook took an interest in the messaging application and created Messenger. However, the application didn’t take off at an insane rate like the other messaging app. Facebook founder, Mark Zuckerberg, decided to get WhatsApp for himself. Acton and Koum didn’t accept the offer immediately, though.
Another offer went in, coming from the search engine giant Google. Zuckerberg got so competitive that he offered WhatsApp $19 billion: $4 billion in cash, $12 billion worth of stocks, and another $3 billion if the founders would remain at Facebook for about four years.
The Vicious Business Model of WhatsApp
It isn’t true that no one gets to be a billionaire overnight because of Facebook’s offer. Acton and Koum did. But it wasn’t all rainbows and butterflies for the two founders because Zuckerberg has different plans for the SMS app— he wants it to be free of charge again. Users who download the application won’t any longer need to pay $1 every year.
In just a matter of three years after Zuckerberg took over, WhatsApp’s users soared to 1.5 billion. Yet, despite the boom in the application’s users, Facebook desired a return for their $19 billion investment, which increased the tension within the company. They wanted to include targeted ads within the app and stamp out the end-to-end encryption that it became known for, which both founders opposed.
The issue got so big that Acton announced that he would leave WhatsApp, giving up $850 million stock compensation to start a non-profit company. This was to show his massive disapproval of Facebook’s management of WhatsApp.
In 2018, various media sources have let the cat out of the bag and broke out the news of Cambridge Analytica, which has acquired the personal information of around 87 million Facebook users from a third-party app.
Because of the unprotected security of Facebook software, it is relatively easy for a third party to collect data from users without their knowledge. This caused a big disappointment for Facebook users, and so many people have stopped publicly supporting Facebook usage. Acton used this unfortunate circumstance to criticize Facebook.
Now, let’s get into the main point. How does WhatsApp make money?
After all the hassles they went through, Facebook eventually decided to make WhatsApp free for consumers but added another feature— the WhatsApp Business. This is where Facebook gets a return from their Brobdingnagian $19 billion investment.
WhatsApp made it their goal to get as many as many people as they can into the platform because businesses follow wherever people are. The goal was to make people engage with airlines, banks, and doctors through the application. Users of business accounts get charged for less than a cent to $0.90 for every message that gets answered within 24 hours.
What entices businesses to get into WhatsApp business accounts is data since the platform provides statistics for business owners to use for their benefit. People with WhatsApp business accounts also have the privilege to build up a catalog within their business profile, allowing them to show off products and services.
There are about 50 million businesses on WhatsApp, and the figure is still growing rapidly. According to Forbes, WhatsApp can tot up to $10 billion to Facebook’s revenue in just a matter of a day. Currently, adverts aren’t still welcome on WhatsApp.
The dark side to this is that WhatsApp gets to have access to its user’s contacts, camera, location, and other personal information. In fact, WhatsApp collects more data on its users than Facebook does.
Although WhatsApp swears not to exploit the data they acquire, Zuckerberg’s past escapades make this promise hard to believe. It seems like the Facebook billionaire actually doesn’t care about data breaches until things go south and start a scandal.
Facebook uses WhatsApp to create more targeted advertisements, giving them the luxury to charge more for their ads. So, although WhatsApp isn’t making tremendous profits, it increases Facebook’s overall revenue.
WhatsApp is set to follow the steps of WeChat, China’s multi-purpose social media, instant messaging, and mobile payment app. It has been working on its payment product since 2018. Despite WhatsApp’s big potential, it’s struggling to become the “next” WeChat because of its tie with Facebook.