How does WhatsApp make money
How does Whatsapp make money
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.
In most cases, the returns are nothing but their respective share in Whatsapp’s profit.
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.
How does Whatsapp make money in 2020
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.
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.