How does Whatsapp make money
“Facebook and Instagram are the storefronts, and WhatsApp is the cash register.” It is how Matt Idema, WhatsApp’s COO, describes the business model of the messaging app.
Under the wing of Facebook, its parent company, the app had left behind when it aspired to generate profits from its users’ annual subscriptions and now focuses on business services and commissions for users. Financial transactions through WhatsApp Business and other features already implemented in countries like India.
Whatsapp is a free application. You can download it for free. Text and call for free. Then, how does it make money out of this?
It’s pretty simple. You get accustomed to it and start paying if for the following year as it’s free for the first year. This only applies to iOS users. But a large proportion of smartphone users in India are Andriod, the question still remains unanswered. Whatsapp doesn’t generate direct revenue as it doesn’t sell ads.
However, Sequoia Capital invested around $8 million in the company, and many other investors are interested in investing in the venture. In India, Reliance Communications has teamed up with WhatsApp for providing a unique scheme for Reliance’s prepaid users — a WhatsApp Plan. So, WhatsApp is making money by tie-ups with popular telecom companies as well.
When companies invest, they obviously expect returns.
Thus, a small business can share its product catalog from the app and interact with its customers, just as a large business can use WhatsApp as a customer service center and for sales and purchases.
According to experts consulted by BBC Mundo, this plan has huge growth potential, but it also reignites the debate over how Facebook uses user data to generate profits.
WhatsApp’s database contains information from 2 billion people. “WhatsApp is free for its users because, in a way, the product is them,” technology analyst Pilar Saenz tells BBC Mundo.
A multi-billion-dollar purchase
The world’s most popular messaging app is present in over 180 countries. It was founded in 2009 and bought by Facebook in 2014 for around $ 20 billion. At the time, attempts were made to charge an annual subscription of one US dollar, but subsequently abandoned the idea because it was deemed “outdated.”
At the time of purchase, Zuckerberg is committed to upholding two pillars of the messaging platform policy: do not include advertising and do not use user data. Then, as Sáenz explains, since 2016, that promise started to break, giving birth to the new model of WhatsApp.
“Facebook made this purchase because it knew it was a huge database and was going to grow. It is why, since 2016, WhatsApp has started transmitting information about its users. This data feeds into Facebook’s business plan,” says Sáenz, who is a project coordinator for the Karisma Foundation. This Colombia-based organization monitors the development of new technologies.
This multi-million dollar purchase of the messaging app was just the start of a bigger project. In most cases, the returns are nothing but their respective share in Whatsapp’s profit.
How does Whatsapp make money in 2023
Facebook has bought Whatsapp for $19B and has a user base of over 800 million. Also, the most downloaded app on the iOS store. Let’s just assume that there are 50 million iOS users which means 50 million USD revenue from iOS users every year. Please keep in mind that the actual numbers are very, very high.
Also, Reliance’s Tie-up in India has come up with a special plan of Rs16 pack which gives you unlimited Facebook and Whatsapp. This could work wonders for Reliance on increasing their user base.
This is Reliance’s ‘return’ in their tie-up with Whatsapp in India. The team has been working on an idea where you could send money to your friends on Facebook and will be eventually launched on Whatsapp. A certain percentage will be taken as a processing fee. They have also poached PayPal’s CEO to work on this project.
Facebook is making two more investments in 2020 to consolidate WhatsApp as its big record checkout. It spent US $ 5.7 billion to buy Indian digital solutions company Jio Platforms and, shortly after, another US $ billion in Customer, an e-commerce company. The goal, according to experts, is to have all the technological environment necessary for WhatsApp to function as a transaction center and, of course, generate more profit.
How does Whatsapp make money in 2023
It’s all about gathering and selling data, the majority of the Facebook users do not have a clue how they are the product. Most of the services which are ‘free’ make users their product and make money out of it.
Making money by just gathering some personal information about you and showing accurate advertisements on your laptop’s browser. If one would read the privacy agreement of those applications (which we hardly do) they would be surprised to see what they are accepting before they use those ‘free’ services.
In short, you agree to trade your personal details, likes, relationships, etc for using those ‘free services’ which are not actually free. Believe it or not, here’s the ‘behind the scenes’ how their algorithm works?
Buying Whatsapp for $19 billion was the smartest move Facebook made. I’ll keep it short. They collect your data, understand your likes, and sell stuff to you through their advertisers.
Don’t hesitate to try it.
Have a conversation about buying new J’s with someone on what’s app. You will be surprised to see the deals on J’s from Amazon or another marketplace very next day.
Who’s the buyer?
Let’s say you’re on a limited budget and you open up a business, you want only the people who are interested in your services to know about your business when you advertise it online, there’s no way you can get information about individuals who are interested in your services. But Facebook is known for knowing one better than his/her spouse.
So you can go to Facebook open up a page ask them to advertise your campaign only to those people who are actually interested in it. Saving you some money and making Facebook a 100% profit. By selling something they got it for free.
This is how it works. And now you know why Mark Zuckerberg’s net worth is doubling almost every 2 years.
The world’s largest customer service center
A particularity of WhatsApp is to leave advertising outside the application, unlike other platforms of its parent company which play the role of “showcase” of products and services.
“Unlike Twitter, Google, Instagram, or Facebook itself, WhatsApp does not include advertising and therefore does not generate direct income,” Cristian León, director of programming for Asuntos del Sur, an organization for the media, told BBC Mundo. Innovation and policy-based in Argentina.
The expert adds that, moreover, the messaging platform is a “closed” application. A developer cannot easily access their code to develop other technologies or complementary services that bring income to WhatsApp. , which can be done on Telegram, one of its competitors.
“So what is its commercial value? Its intrinsic value necessarily resides in its data. It is a rich source of marketable information with telephone numbers, timetables and times of use, geolocation, etc. And finally, some companies use WhatsApp to sell their products, and that use that data to profile potential customers,” adds León.
In 2017, announced the release of WhatsApp Business, a service for small and medium-sized businesses that the company says allows them to “communicate with customers, promote products and services, and answer questions during the process. shopping experience “.
The app already has millions of users, is free, but many of its services are not. However, an expert cited by Forbes magazine points out that it can generate billions of dollars every quarter thanks to its database and integration with Facebook.
How does Whatsapp make money in 2023
Pilar Sáenz stresses that this innovation and the recent investments made by Facebook aims to make WhatsApp the largest customer service center on the planet, where one can book plane tickets, order pizza, or rent. A car.
“It is proposed as a mechanism allowing small businesses to use WhatsApp to have more direct and personalized contact with their customers, to have a shopping catalog, or to schedule automated interactions. It’s not free,” she explains.
However, the expert adds that the business plan does not end there since Facebook has developed a programming interface (better known as an API) so that large companies can integrate the messaging application with their customer service channels.
How does Whatsapp make money in 2023
As a result, it is increasingly common for a business page hosted on the social network founded by Zuckerberg to feature a button that allows the interested person to contact the business directly through WhatsApp.
“This API provides integration between the company’s information system and the messaging platform. It’s a middle-level customer service center model that Facebook wants to provide, and that’s why they want to change the terms. To use WhatsApp,” he says.
In January of this year, the messaging app’s privacy policy announced a change that gave Facebook greater access to user data and their interactions with businesses. The measure was supposed to come into effect from February, but it was postponed to April due to criticism.
“We are talking about a customer service center with a lot of data from billions of people where companies pay for the service. You can see that they are planning to grow this business model,” concludes Saenz.
Like other tech companies, WhatsApp does not make public the annual revenue it receives for its services.
And that’s not all
If WhatsApp is fast becoming the cash register of the Facebook conglomerate in India, it’s almost a credit card.
The application adds 400,000 new accounts per month. It has 200 million active users in this Asian country where, in addition to WhatsApp Business, functions such as online payments, direct purchases, and monetary transactions between users are operational. For two years.
And the courier company acquires direct income for each of these financial transactions. Zuckerberg himself said in 2020 that India represents a “huge opportunity” and added that other countries are in his sights. One of them is Brazil, where transaction services through WhatsApp are being rolled out bit by bit.
According to experts, this new business model of the application is reminiscent of how its competitor in China, WeChat, went from a simple messaging system to a platform where you can shop, offer products and more. You can pay by credit card and even meet people. A similar project to Tinder.
Ironically, WeChat was originally called the “Chinese WhatsApp.”
How did Facebook completely change the business plan for the messaging app it bought for billions of dollars six years ago? “This huge business potential that they seek to tap is due to the interoperability that generates between WhatsApp, Facebook, and Instagram.
You have the data, the tools for socialization, profiling, and user segmentation, and with that, you have built an ecosystem that allows WhatsApp to be monetized, ”concludes Mr. León. Therefore, the expert concludes that the real wealth of WhatsApp lies in the data of its users.
Conclusion:
WhatsApp is an instant messaging app available on different mobile platforms even on desktop. It’s one of the highest downloaded apps in the play store.
The company started by brian acton and Jan Coum in 2009, both were Ex yahoo employees, left yahoo in 2007 and had applied for a job on Facebook but rejected.
I will explain the revenue model in two parts. First, before acquired by Facebook, second, after acquired by FB.
Before acquisition by Facebook
When founded in 2009 Whatsapp was an instant hit and the number of downloads went up exponentially in a short period of time. But the founders hadn’t servers which could store data of huge amount, generated daily. So they couldn’t have continued the app without generating any revenue.
So they set a price of $1 for some countries and for some other countries it was free for the first year but chargeable $1 for renewal from the second year onwards.
They were generating good revenue from this. Back then WhatsApp had 40-50 employees. No one was a very big consultant there and neither of them was hugely paid.
After the acquisition by Facebook
Facebook acquired WhatsApp in February 2014 for whooping $19 Billion which was the biggest tech deal to date. Fortune of WhatsApp changed after that.
WhatsApp founder Brian Acton had a strong resistance to the concept of Ad in WhatsApp. He believed people used WhatsApp to see messages only and not unsolicited ads.
When Fb acquired WhatsApp, the revenue of the later was just $100 Million and the valuation stood at just $1.5 Billion but FB acquired it for humungous $19 Billion.
But why on earth someone would do that?
Because the Facebook people were smart and the WhatsApp founders knew that FB would pay them any demanded figure.
The reason behind this is Whatsapp was the biggest thorn in the path of FB’s messenger app.
How does Whatsapp make money
But the twist was in the condition set WhatsApp before the acquisition. And it was, WHATSAPP WILL BE ALWAYS AD FREE.
So the biggest truth is FB GENERATE NO DIRECT REVENUE FROM WHATSAPP.
SO what were those $19 Billion for?
Fb uses the data from messages in WhatsApp to increase the reach of its Ads. To know it in detail one can visit the website of WhatsApp.
Let me make it easier to understand with the help of an example.
Suppose I am a connoisseur of smartphones. I share pictures and texts of various smartphones in WhatsApp, I put those in my status.
Facebook analyzes these data to show me ADs of smartphones on my FB wall( WhatsApp and FB are synchronized by my mobile number).
Whatsapp database has over 1 Billion users so it is able to know the interests of 1 Billion users. This is how FB reaches to me directly with the ads of its clients.
However, WhatsApp gives you the choice of not sharing its information with Facebook.
WITHOUT GENERATING ANY DIRECT REVENUE, FACEBOOK IS IMPROVING ITS AD SYSTEM BY ACQUIRING WHATSAPP.
I hope these answers helped you understand how FB is benefited by WhatsApp.
How does Whatsapp make money in 2023