WhatsApp, which started as a simple status-sharing app, has evolved into the world’s most popular messaging platform, boasting over 2 billion active users. It’s hard to believe that one-fourth of the world’s population relies on this free-to-use app for daily communication. However, you may wonder how WhatsApp generates revenue without charging users or running ads. Today, we’ll delve into the fascinating business model behind WhatsApp.
The Humble Beginnings
WhatsApp was co-founded by Brian Acton and Jan Koum, two former Yahoo! employees, who struggled to land jobs at other companies like Facebook and Twitter after leaving Yahoo! Ironically, in 2014, Facebook acquired WhatsApp for a staggering $19 billion. But before we get to that, let’s explore how WhatsApp started.
The idea for WhatsApp came from Jan Koum’s experience at the gym. He often missed his friends’ calls and thought it would be helpful if an app could display a status showing his unavailability, like “In the gym.” Initially, WhatsApp was just a status-sharing app, allowing users to update their friends on what they were doing. The app didn’t even have messaging capabilities. The name “WhatsApp” came from the common phrase “What’s up?”
Soon, users began using the status feature like messages. They would update statuses to communicate, which led Koum and Acton to pivot the app into a messaging platform. At the time, BlackBerry Messenger (BBM) was the only free messaging app available, but it was exclusive to BlackBerry users. WhatsApp filled this gap by providing a free messaging platform for all smartphone users.
The Growth Phase: Organic Success
WhatsApp quickly gained popularity, especially in countries where sending SMS was costly. People eagerly adopted the app, and within days, it was downloaded over 200,000 times. Without spending money on marketing, WhatsApp saw explosive growth, thanks to word of mouth. By 2011, it became one of the top 10 apps in the App Store worldwide, except for the U.S., where unlimited SMS plans made WhatsApp less appealing.
Despite its success, WhatsApp’s expenses were low. The biggest cost was sending verification SMS to new users. To cover these costs, WhatsApp introduced a $1 annual fee, which surprisingly didn’t deter users. The app’s simple and ad-free design made it a user favorite. Acton famously had a note on his desk saying, “No Ads! No Games! No Gimmicks!” His vision was to keep WhatsApp focused on messaging, without unnecessary distractions.
Facebook’s Acquisition: A Turning Point
In 2014, Facebook bought WhatsApp for $19 billion. Facebook saw WhatsApp as both a competitor and an opportunity. WhatsApp had millions of users, and Facebook Messenger was struggling to keep up. Facebook promised Acton and Koum that WhatsApp would remain independent. However, tensions soon arose.
In 2016, WhatsApp removed the $1 annual fee, citing that many users, especially in countries like India, couldn’t afford it or didn’t have access to credit cards. But this decision created a dilemma—how would WhatsApp make money now?
Facebook’s pressure to monetize WhatsApp eventually led to the resignation of both founders. Brian Acton left in 2017, followed by Jan Koum in 2018. Acton later founded Signal, a non-profit messaging app focused on data privacy, in contrast to Facebook’s data-driven business model.
WhatsApp’s Current Business Model
After the founders’ departure, Facebook introduced WhatsApp Business in 2018. This app allows businesses to create profiles, link their websites and Facebook pages, and interact with customers. For large businesses, WhatsApp offers a paid API that allows them to communicate with customers at scale. Companies like Uber, Netflix, and Singapore Airlines use WhatsApp’s API to send notifications, shipping confirmations, and appointment reminders.
The business model is simple: businesses can send messages for free within 24 hours, but they pay a small fee for messages sent after 24 hours. This model has attracted major corporations, especially in sectors like airlines, banking, and e-commerce.
Additionally, WhatsApp has integrated payment services in India, known as WhatsApp Pay, allowing users to make P2P payments. While regular users can use WhatsApp Pay for free, businesses are charged a 3.99% transaction fee.
The Future of WhatsApp
Looking ahead, Facebook is exploring additional ways to monetize WhatsApp. One potential revenue stream is running ads in WhatsApp’s Status feature, similar to Instagram Stories. Although no detailed revenue breakdown is available for WhatsApp, it is estimated that WhatsApp earns anywhere between $4 to $12 per user.
With more than 5 million businesses using WhatsApp globally, WhatsApp Commerce is also on the rise. Companies like Reliance’s JioMart have integrated WhatsApp for transactions, and many small businesses use it as their primary platform to sell products and services.
However, concerns about data privacy continue to loom over WhatsApp. Many users are wary of how Facebook might use their data to generate profit. The controversy around WhatsApp’s privacy policies has led some users to switch to apps like Signal, which prioritize privacy over profits.
Conclusion
WhatsApp’s journey from a simple status-sharing app to a global messaging giant is fascinating. Its early success was driven by its simplicity, ad-free experience, and user-focused design. Today, under Facebook’s ownership, WhatsApp is exploring new revenue streams while balancing its need for growth with user concerns about privacy. Only time will tell how WhatsApp will evolve in the years to come.
Thanks for reading, and stay tuned for more insights in our next blog post!