WhatsApp was created as a status update application (hence the name WhatsApp) by Jan Koum and Brian Acton in the early months of 2009. It was further updated to WhatsApp 2.0 and transformed it into an Instant Messaging Application and the real story began.
This Facebook-owned IM program now supports more than 1 Million users worldwide. Yet the question of how WhatsApp makes money has been in everyone’s minds since the start, as WhatsApp proudly expresses its views against native advertising and hasn’t paid its users for a long time. There are definitely some major plans in developers ‘minds (and Facebook) with respect to their revenue model.
So let’s try to understand some points which are the probable models for WhatsApp to generate revenue.
- Initial revenue generation:
WhatsApp have received decent funding in its first, second and third round by various investors.
- WhatsApp was originally created on 4 February 2009 by Jan Koum.
- Brian Acton persuaded five of Yahoo!’s ex-colleagues to invest an additional $250,000 in a Seed Round in Oct 2009.
- WhatsApp had received $8 M Series A from Sequoia Capital in April 2011.
- In July 2013 Sequoia received a follow-on support. The sum was $52 M as the value of a Sequence B. Whatsapp at this point is $1.5B.
- Acquiring by Facebook:
The founders ‘plan was to put the company as a synonym for instant messaging. It allowed them to capitalize on the impact of the network.This technique of first building a network and then making money has proven fruitful. After two long years of being wooed by Facebook CEO Mark Zuckerberg, Facebook bought WhatsApp for $19 billion in February 2014 and all the employees were placed on Facebook payrolls including Koum. WhatsApp had 450 million monthly active users worldwide.
- WhatsApp business:
Facebook had new ambitions for WhatsApp. The company launched WhatsApp Business App which allows users to create their business profile on WhatsApp and become a verified business. In addition to other essential links to their website or facebook page, checked businesses can build their business profile, set up autoresponders, even connect their landline numbers to WhatsApp and even incorporate the WhatsApp for Business API with their product offerings.
Now the WhatsApp Business program is free to download and use for all businesses. Nevertheless, WhatsApp makes money for the Business API by WhatsApp.
- WhatsApp for Business API:
Through releasing its first revenue-earning product – WhatsApp Business API, the company has extended its market functionality. Now, if you don’t know what an API is and how it functions, I would recommend you read our article on API economy first.
WhatsApp API enables businesses to integrate WhatsApp for Business with their systems to automatically reach out to customers through notifications and handle their queries.
The business had limited the ability to send messages to avoid ad spam. Businesses can only send messages to people who first contacted them, but the API can also help them give their customers confirmations of delivery, appointment notifications or tickets for events programmatically. The company is already working successfully with clients like Booking.com, Wish, etc.
- Making money by slow replies:
Only a month after the launch of the WhatsApp Business API, big tech companies like Netflix, Uber & Wish & 100 others had already started testing the service. WhatsApp is making money by paying for slow replies to registered businesses. Businesses are able to reply to user messages for up to 24 hours free of charge but are charged a fee per message for delayed answers, which varies by region.
- WhatsApp Status feature:
The company has started letting businesses use the status feature, where text, images, videos and animated GIFs can be shared for 24 hours, advertising and promoting their business.
- Whatsapp Pricing:
When WhatsApp first launched, they used to charge a $1 subscription per year (sometimes offering free the first year). WhatsApp has been completely free for all since 2016, however. (Similar to Discord) As of 2018, WhatsApp is making very little revenue relative to its user base, as the app remains free of advertising. (Facebook announced that WhatsApp made subscriptions at about $1.2 M in 2014).
- From Database Management:
The revenue generation for Whatsapp, according to our assumption, is primarily through database management. Both whatsapp messages are continually backed up on Whatsapp servers. Our conversations reflect our interests, our likes, our dislikes and our desires largely represented. Where relevant custom-made products can be sold after data processing, this information is invaluable to big corporations.
Let’s think a little deeper into this! This could happen.
- WhatsApp Advertisements:
WhatsApp also makes money by subscribing to WhatsApp advertisements, which are not advertisements seen on Facebook, not WhatsApp, but those ads switch users from Facebook on WhatsApp. Since these ads are not seen in the WhatsApp app, it would be incorrect to attribute the revenue from these advertisements exclusively to WhatsApp, but it is one of the ways Facebook leverages WhatsApp to increase revenue.
Future Strategy
- WhatsApp Payment:
Mark Zuckerberg also announced his future plans to bring the WhatsApp payments feature to the rest of the world pretty soon during the recent F8 conference. This will open gates to several more businesses that depend on the company’s network effect capitalizing platform.
WhatsApp intended to implement a payment method (P2P payments) within the Indian users platform that would further improve its market share and make it a popular platform for sending money (just like Venmo in the United States). In the company’s biggest market, this would further help WhatsApp industry.
As for revenue, No one knows precisely how much money WhatsApp produces besides Facebook, as the parent company does not disclose the revenue breakdown of the various products it runs.
Forbes had projected in a Jan 2016 post that the average revenue per user for WhatsApp will be $4 by 2020, which could generate revenue of about $5 billion for Facebook by 2020. Yet the projections were off as they predicted that WhatsApp will cross a total of 1.3 billion monthly users by 2020 — which WhatsApp had acquired midway through 2017.
Forbes upped the revenue forecasts for WhatsApp in November 2017, ranging from $5 billion to $15 billion, with the average revenue per user from $4 to $12.
Despite WhatsApp’s earning potential far from being recognized even now, the company can be expected to make an improved contribution in the coming years to its parent companies ‘baseline sales.