August 17, 2022

Imagineers

Engineer's Line

How does WhatsApp earn Money? For Facebook. Business Model

12 min read

! From ‘Good Morning’ messages of the family, to the fake messages of WhatsApp University, today, WhatsApp has become the most popular messaging app in the world.

They have more than 2 billion monthly active users. This means that 25% of the population of the world uses this one app. But have you ever wondered, since this app is completely free to use, and there are no ads on this app, how does this company WhatsApp earn money?

The Business Model of WhatsApp. This video is powered by Vested Finance. WhatsApp was founded in the year 2009, by two people: Brian Acton and Jan Koum. Before this, the two had worked together at Yahoo! for 9 years.

when they left Yahoo! they were applying for jobs at various companies, they applied to Facebook but were rejected. They applied to Twitter but were rejected from there as well. In fact, in 2009, Brian Acton famously tweeted, in it,

he had written that he had applied for a job on Twitter, but he was rejected, but he wasn’t too disappointed because the commute would’ve been too long. He tweeted something similar after being rejected from Facebook. Ironically, just 5 years after this, Facebook purchased WhatsApp for $19 billion. But before this, it is interesting to know where did they get the idea of creating WhatsApp?

Jan Koum used to frequent gyms, and there he realized that he wouldn’t be able to receive the calls of his friends. He kept on missing calls. That made him think that there should be an app, that would should the status that he was in the gym at the moment, so that his friends could see the status and understand that since he’s in the gym, they shouldn’t call him then.

On this basic idea, he created the app WhatsApp.

It’s interesting to note that this app didn’t have messaging. You couldn’t send messages to anyone. Like you can do so now on WhatsApp. This app was simply WhatsApp.

The word WhatsApp came from the words ‘What’s up?’ Like you ask people, “What’s up? How are you doing?” On this app, you could simply let others know what you were up to. Meaning that you could simply post your status on this app. You could write that you were in the gym.

And the app would notify the rest of your friends, that you’re in the gym. When you change your status, this app notified your friends and contacts. This app was created for doing merely this, initially. But eventually, he realised that some of the users of this app were using the status as messages.

When one would change the status to doing something, their friends might update their status with whatever they were doing. So the first person would update their status yet again, in response. Similarly, people started using these as messages.

Then they thought that it would be better to make the app messaging service. And this idea was a huge success. Because back in 2009, there was only one other app on which one could message others for free. That was the BlackBerry’s BlackBerry Messenger (BBM).

The problem with it was that you had to have a BlackBerry phone. So only the users of BlackBerry phones could use BBM. And WhatsApp filled in a gap here. The users of other phones felt the need for a free messaging app, and WhatsApp became that app. Within days, it was downloaded over 200,000 times.

WhatsApp started receiving funding from investors. WhatsApp’s popularity skyrocketed on its own. Without any marketing or ads. Because users liked it so much that they told their friends about it. Those friends told their friends, and WhatsApp saw organic growth.

As you’d remember, around 2009, these telephone companies used to charge a lot of money for sending each SMS. Calling rates were based on minutes per call. They were quite expensive. And here was a clearcut free option so people started using WhatsApp.

Within the next 2 years, this app became one of the top 10 apps in the AppStore. This was true for almost every country. Except for America. In America, in 2009, most of their telephone companies had flat rates for SMSs, and free calling minutes.

So this wasn’t a great incentive for the Americans to use WhatsApp. They continued with using SMSs. And even today, the USA is one of the worst performing markets for WhatsApp. Can you imagine it? WhatsApp saw its growth due to European, Asian and African countries. Talking about money, initially, there weren’t many expenses to run WhatsApp.

They had a small team, they had built a simple app. They weren’t spending money on marketing or running ads. So the biggest expense of running WhatsApp was actually the cost of sending SMSs.

The verification text that WhatsApp sends when a user joins it, so the one SMS per user they had to send for verification, was their biggest expense at the time. Where could they get money for this?

They had received some investments. With their success, more companies wanted to invest in them. They would give them money in exchange for their shares. But the investments weren’t exactly pouring in. So they came up with a new business model. WhatsApp started charging its users $0.99 about $1 per year, they started charging their users to use this app. You heard it right,

WhatsApp wasn’t a free app anymore. They started charging $1. But despite that, the user experience of their app was so good, and the app worked so smoothly, on top of it, new features were being added, like you could now send photos over WhatsApp. Their growth continued. By 2011.

their app had become the top app in the AppStore. Acton was clear about one thing. He had stuck a note on his table. “No Ads! No Games! No Gimmicks!” He didn’t want to run any ads on WhatsApp. Nor did he want to add features that had no greater purpose. He wanted to keep the app simple and to the point. The app built for messaging.

He wanted the app to be so good at that one thing that no other app could compete with it. And people keep on using it. Their $1 Business Model was very successful. Within 3 years, WhatsApp became a profitable company.

All the money they earned was spent on their small team. So that new features could be added to WhatsApp. The problems in the software could be rectified. And a reliable messaging app could be created. They claimed that their product was their passion. And that the users’ data wasn’t something that interested them.

That they had no interest in taking users’ data. But after this, Facebook makes an entry in our story. And this Model started crumbling apart from here. Mark Zuckerberg was trying to buy WhatsApp since 2012. But this deal was finalised in February 2014.

WhatsApp is taken over for $19 billion by Facebook. And the employees working in WhatsApp, now became Facebook employees. WhatsApp founders had a meeting with Google CEO Sundar Pichai as well.

But no deal was finalised with Google. Friends, if you’re feeling inspired by WhatsApp’s story, and want to invest in the stocks of big US companies like WhatsApp, then I’d take a small ad break to let you know that an awesome way to do this is through Vested. Vested is a Zero-commission US investing platform.

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Through apps like Vested. On Vested, you can carry out unlimited Zero commission trades. And since this is a new company, they have no account opening fees now. Through this app, you can invest in the stocks of giant US companies like Apple, Google, Microsoft, Tesla, and the stocks of many others.

the first 1,000 people to use the link given in the description to download this app, and to add any funds in your portfolio will get a $10 bonus from Vested. So click on the link given in the description quickly, and check out this app. And I’d like to give you a small tip while investing, don’t invest a lot of money in any one company. Diversify your portfolio, or else if one company crashes, all your money would be lost.

You have to be careful about these things. Invest only after sufficient research once you’re absolutely sure about it. Getting back to the topic. Facebook was so desperate to buy WhatsApp, because WhatsApp was the biggest competition of Facebook Messenger. And by 2014, several other messaging applications had popped up in competition. Like WeChat, Kik, Line and Viber.

Facebook wanted to buy WhatsApp so that there’d be no significant competition after they own both Facebook Messenger and WhatsApp. Apart from this, WhatsApp had access to the user data of so many people, and Facebook realised that they could use this user data to earn more money.

Because Facebook runs its company by selling data. We’ll talk about this in some other video. When we discuss the Business Model of Facebook. After this deal, Acton and Koum, the founders of WhatsApp became billionaires overnight.

If you’re wondering about their reason to sell WhatsApp, Facebook and Mark Zuckerberg had told them that they would allow them to run WhatsApp independently even after the acquisition. That there would be no interference in their work. Thus they agreed to sell it.

It sounds like a good deal. They get the money and don’t even have to compromise on their values. But there is no happy ending in this story. Because there were constant conflicts between Facebook and WhatsApp over the next years.

The team of WhatsApp and its founders and the way Facebook was pressurising them. In January 2016, we get to know that WhatsApp had removed its $1 fees. And WhatsApp became a completely free application again.

The reason behind it is said to be that there are many countries like India where people don’t have credit cards. So they weren’t able to pay the $1 fee, and many people were actually unable to afford it. In this case, making this a free app helps in developing a larger user base, so they decided that since they wanted to expand and have more users for their app, they would have to make the app free to use.

The question then arose, what should be the Business Model? How should they earn money? During this time, it was being said that WhatsApp would try to get into partnerships with businesses and would try to find a source of revenue from there.

At the same time, Mark Zuckerberg was being pressured by his investors because $19 billion had been paid to WhatsApp and so they needed to make some money out of it somehow. Somehow they had to justify the purchase and show that it was profitable.

They had to make WhatsApp profitable quickly. In a way where they could earn more money from WhatsApp. In turn, Mark pressurized the founders of WhatsApp. Fed up with this, the founders of WhatsApp gave up finally in March 2017, they couldn’t take it anymore.

Brian Acton resigned from his job in September 2017. A few months later, Jan Koum left WhatsApp too. Saying that Facebook’s opinion on Data Privacy, and the Business Model that Facebook wants to force on WhatsApp aren’t what he agreed to. And that he couldn’t tolerate those in any manner.

so he was leaving WhatsApp. Friends, you can say that after 2018, Mark Zuckerberg established his control over WhatsApp. Brian Acton went on to establish a non-profit Signal Foundation. With this, we got the new messaging application Signal.

As you know, many people compare Signal with WhatsApp. And believe that Signal is a superior app in many aspects. It protects your Data Privacy, it’s a free application like WhatsApp. most importantly, it is a non-profit application.

This time around, Brian decided that he didn’t want to get entangled in Business Models, because whenever they run after profits, they have to compromise on the principles of the company in some way or the other.

That’s why Signal would remain a non-profit app, they wouldn’t worry about making money, they would ensure data privacy of the users, and would provide the users with a truly free messaging app. Thankfully,

we could get an app like this. But this video is on WhatsApp. So what happened to WhatsApp then? What was the Business Model that Mark Zuckerberg cooked up? In 2018, Facebook launched the WhatsApp Business app.

On this app, businesses could create their business profiles. And the verified businesses, can link their websites and Facebook pages, with this business profile. Facebook established a link between Facebook Pages and WhatsApp. People can use the business profiles to go on Facebook through the link.

They created an excellent option of promoting Facebook. The new users to visit the business profiles can now go to the Facebook Page with a click only. Although the WhatsApp Business application is completely free to use, but the Business API, is the source of revenue for WhatsApp.

API is the Application Programming Interface. Basically, a medium through which multiple applications can communicate with each other. Or perform a function or a task.

Let me explain this with an example. When you book a taxi on Uber, you would’ve noticed that the map on Uber, has the watermark of Google. Basically, Google Maps is providing its services to Uber. So that Uber can show a map on its app. Google is obviously not the creator of Uber. Instead, what’s happening here is that Google Maps, is providing its API to Uber.

It’s providing its Application Programming Interface to Uber. Similarly, WhatsApp is selling its API to businesses. If businesses want to interact with customers over WhatsApp, and to automatically respond to the queries, they can do so, But if they use WhatsApp’s API.

they can even send shipping confirmation, appointment reminders and even sell event tickets to their customers. The revenue model is that if the businesses reply within 24 hours, sending the message is free for them. But if they need to reply after 24 hours, they have to pay a small fee then.

The fees are calculated differently for different countries. On this table, you can check out the fees for various countries. In India, it is €0.0038 for the first 250,000 messages. It is basically around ₹0.30. You might ask about the businesses that choose to use these services. Friends, the answer to it are the companies that deal with millions of customers.

Like airline tickets, or travel tickets or movie tickets, or large banks. So the users of WhatsApp Business API are huge companies. Singapore Airlines, Booking.com, Uber, MakeMyTrip, Netflix, these are some of the examples of the users.

Facebook didn’t stop here friends. Facebook is looking for more ways it can earn money from WhatsApp. That’s why they have integrated the option for making payments.

It was started for Indian users, to make P2P payments. They’re launching a service known as WhatsApp Pay from it, they would be able to earn some more money. Although, for normal users, it would be free to use WhatsApp Pay, but for businesses, they would have to pay a flat fee of 3.99% on every transaction.

In November 2020 WhatsApp Pay was launched in India. It was expected that this feature would become very popular. But thankfully, in our country, Unified Payments Interface (UPI) already exists. It doesn’t charge this huge commission from businesses.

This is the reason why WhatsApp Pay could reach only 0.02% of the volume of UPI. In total, 2.6 million transactions have been completed using WhatsApp Pay. Their total worth was ₹1.04 billion. Apart from this, Facebook is considering running ads on WhatsApp.

So that they can earn even more money. It is being planned that the statuses in WhatsApp, would eventually host ads. Friends, if we talk about the total revenue WhatsApp generates for Facebook, we don’t have detailed info available for it. Unlike the other Business Models on which I made videos,.

they had publicly available data. Because WhatsApp is a part of Facebook’s company, Facebook doesn’t show an additional revenue breakdown from WhatsApp. Forbes ran with an estimate in 2017, when WhatsApp had 1.3 billion users.

They estimated that the average revenue per user of WhatsApp, could be anywhere around $4 to $12. The Indian division of WhatsApp earned a total revenue of ₹68.4 million in 2019. But their profit was said to be only ₹5.7 million. They had spent ₹34.3 million on paying salaries to employees.

₹13 million on promoting the business, legal fees and professional fees. In Financial Year 2018, WhatsApp incurred a loss of ₹500,000. For the Indian operations. In India, it is estimated that more than 1 million businesses use the WhatsApp Business app. And worldwide, about 5 million businesses use it.

With more businesses using WhatsApp to sell their products and services, the concept of WhatsApp Commerce is taking shape. Where many such businesses have come up, that sell their products exclusively through WhatsApp.

In April 2020, Facebook made an investment of $5.7 billion in Reliance’s Jio Platforms. After this deal, JioMart, Reliance’s e-commerce platform started using WhatsApp for its transactions.

So basically, WhatsApp is turned into a product on which things can be purchased and sold, on which payments can be made, and on which, you may even see ads in the future.

Apart from these, what does Mark Zuckerberg plan to do with the data? We don’t know much about it.

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