Have you ever wondered how does WhatsApp earn money?
The concept of sending text messages through a digital platform is a few decades old. The SMS text message delivery system has been in use for less than 30 years.
In 2009, Brian Acton and Jan Koum founded WhatsApp to overcome the deficits of the traditional text messaging systems like SMS and revolutionize the entire field of text messaging.
WhatsApp has over 2 billion users across the world, with maximum & most active users are present in India.
In five years of its operation, WhatsApp Inc. was bought by Facebook for USD 19 billion due to its tremendous growth potential.
WhatsApp is an online platform for sending a text, audio, location, video messages, and sharing documents. The service is available free of charge to users all around the world.
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Have you ever seen advertisements for WhatsApp?
If you are a new user of WhatsApp, then the answer to the above questions is “NO.” A small annual fee of $1 was applicable for users of WhatsApp until January 2016.
In 2014, at the time of its purchase, the valuation of WhatsApp Inc. was USD 1.5 billion, according to many Venture Capital experts.
Its revenues were around USD 1.3 million in 2014 before acquisition by Facebook Inc.
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It was a place where the suppliers and buyers for a particular product or service transact in the market.
The suppliers set prices of their products and services to gain an advantage over their competitors. There is an exception to this scenario.
WhatsApp Inc. was a novelty service in 2009. It had a potential 3.3 billion users in the market with access to mobile phones.
The demand for mobile users was increasing. More importantly, their needs for technological innovations were increasing.
Therefore, WhatsApp Inc. decided to launch WhatsApp messenger for a nominal fee to gather a maximum possible amount of users.
Whatsapp’s Business Model
A business plan describes a company’s financial, economic, cultural, and social aspects.
A clear business plan helps customers and investors understand the vision of the company. WhatsApp Inc. was clear in its intention.
They intended to revolutionize the field of text messaging on mobile phones.
Before WhatsApp messenger, communication in a non-vocal form was only possible by sending SMS and MMS.
As the years went by, the rates of sending SMS and MMS messages became cheaper.
There are character limitations on the length of an SMS text message. Text messaging is simple to use and useful in situations where talking on the phone is improbable.
The cost and inefficiency of SMS messages was an obstacle in communication.
The founders of WhatsApp messenger were clear in their minds about the mission of their service.
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WhatsApp is an alternative to SMS?
WhatsApp Inc. believes they are an alternative to SMS and MMS message delivery systems.
Their mission statement focuses on building faster and reliable message delivery services across the world for free of charge to the users.
The keywords in their mission statement are fast, reliable, and free of cost.
The older SMS text messaging system was reliant on the reception of a mobile signal to determine the speed of message delivery.
WhatsApp Messenger uses an internet connection for the delivery of messages between users.
There are no restrictions on the length of the messages. The content of the message can include text, voice, image, video, and location data.
The founders of WhatsApp were sure about the quality of their product. They knew that WhatsApp messenger would be accessible in a short amount of time.
At the time of entering the seed funding round, WhatsApp messenger had 250,000 active users.
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A new version: WhatsApp 2.0
It came with a series of new features and improvements. This version underwent continuous improvements and changes. The results were there for everyone to see.
In 5 years of operations, WhatsApp had more than 2.1 billion users around the world.
The founders had the foresight to see this tremendous rise in the number of users.
Therefore, the app was built on a subscription model. The fee was a nominal amount of USD 1 for an annual subscription.
WhatsApp messenger was available for free on a one year trial basis. The users had no hesitation in trying out a service, basically, for free of cost.
The subscription model was a success for WhatsApp Inc. There were more than 700 million users to the WhatsApp messenger service under this model.
WhatsApp’s strategy was quite simple; earning an average USD 1 per user for an entire year would see their revenues soar high every year.
The growth of WhatsApp messenger was meteoric.
WhatsApp Inc. kept receiving funding from Sequoia Capital, but it was time for bigger investments.
The founders of a company aim to grow the number of customers and explore new markets.
The financial bottom line of a company is less important than the top line during the period of growth.
There is a simple justification for following this strategy. A new company relies on external resources.
The operations of the company rely on investors’ willingness to keep investing resources into the product or service.
WhatsApp Inc. had a few other sources for generating income.
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How WhatsApp generate money in their early days?
The WhatsApp text messaging app would ask users to buy stickers from the app.
A user could purchase stickers from the WhatsApp app for use in chats. Stickers are the versions of the emoticons available on the keyboard. WhatsApp had ads in the application for earning money.
The advertisers saw potential in publishing their ads on a platform that had more than 500 million users.
The visibility of the app in different areas across the world was an essential reason behind advertisers paying WhatsApp Inc. to display their ads.
An investor, potential or existing, look at different metrics before investing in a company. The key performance indicators (KPI) of a new company emphasize the ability of the service or product to acquire new customers, retain existing customers, and gain entry into more unique markets.
With all these parameters in mind, Facebook Inc. made a decision to acquire WhatsApp messenger services in February 2014.
WhatsApp’s acquisition by Facebook brought about a change in the business model of the text messaging application.
The subscription model was ineffective from January of 2016. WhatsApp went from charging USD 1 per year to free.
The reason behind Facebook making WhatsApp free
It seems counterintuitive to sell a product or service for free.
Especially, a product with the global appeal of WhatsApp. The next section of the article will describe the new.
WhatsApp text messenger business model after its integration with Facebook internet services.
New business model:-
There is an old adage in the English language which says there are no free meals in this world.
If something seems too good to be true, then it probably isn’t real. The adage revolves around a free meal because it is said to have its roots in pubs and bars.
Bars would have a “free lunch” sign to invite customers. The unsuspecting customers would end up paying a large amount of money over drinks.
There are similar things seen in the new business model of WhatsApp under Facebook Inc.
The secret behind WhatsApp’s new business model lies in its new mission statement under Facebook Inc.
Facebook wants WhatsApp messenger to join its group of Internet services:
Facebook Inc. provides services like Facebook (social media platform), Instagram, WhatsApp, and other iterations of these services. These platforms are all available for the users to use for free of charge.
However, Facebook is still one of the biggest companies in the world, earning more than USD 55 billion in revenues. For all these things to make sense, we must know the concept of digital advertising.
Facebook has been around for more than 15 years now. It is a leading social media platform.
They have always been available for registration free of cost. Facebook hosts more than 2 billion users in the world.
In other words, Facebook has a number of users than the population of China, a country with the largest population in the world.
One of the ways Facebook uses for earning money is from digital marketing. In the year 2017, almost 90% of its revenue came from digital ads.
Did you form a connection between the two statements?
If you did not, then the following section of the article will do so for you.
Digital marketing is a form of marketing. It is common knowledge, now, that marketing is an exercise that a company performs to raise awareness about their products and services.
It is a practice that has been going on for decades. Also, it has been evolving over the years. In the ’40s, 50’s, and 60’s, marketing efforts were local.
With the progress made in the field of technology, marketing has grown to global scales.
It has never been easier for a marketing team to see the results of their campaigns.
When marketing was done through TV and Radio channels, it would take weeks or months for the effect of the campaign to be seen.
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How do Facebook ads work?
An advertisement on the digital platforms collects user’s feedback in a short amount of time.
Facebook was able to come up with a hybrid strategy combining the benefits of traditional and digital marketing. It is common knowledge that Facebook collects information from its users.
This information is useful to connect advertisers with potential customers. In other words, Facebook optimizes marketing campaigns for buyers and sellers.
We have seen that our search results often end up being the ads shown on our Facebook timeline feed.
For example, suppose a user looks at the price of a bus ticket between two cities.
Facebook uses this information to fetch the most relevant ads for the user and displays it on their timeline. It is beneficial for both customer and advertiser parties.
Recently, there was a storm in the media about Facebook’s strategy to provide user data to advertisers.
The Congress in the United States of America had to intervene and interrogate Facebook on their information privacy policies.
In all honesty, Facebook has specific clauses in their terms and conditions agreement about using user information for ads. However, a large number of their users were unaware of these clauses.
The digital ads shown on Facebook made to suit individual users’ requirements are the biggest source of income for Facebook.
The amount of income Facebook generates from digital marketing is unknown because Facebook Inc. presents its total revenue figures without a breakdown.
One can estimate the numbers for themselves, given that Facebook earns more than USD 40 billion in one year, and digital marketing is the largest source of their income.
Facebook uses the same model for all of its subsidiary companies like Instagram and WhatsApp.
WhatsApp’s User Information:-
Data is powerful. Information is subject to monetization. We have undergone an evolution from Neanderthals to our present human form.
Information was the key to the growth of mankind. We have learned to create life on Earth and nurture it.
Sharing information for centuries and adding more information for helping future generations. Data is the most powerful resource in the world.
The users share more than 5 billion photos and videos on WhatsApp messenger every day.
WhatsApp does not share user information with other companies directly.
However, there is a feature in WhatsApp, which allows Facebook to access information from WhatsApp messenger.
This feature shares information with Facebook on default mode. Users must manually deactivate the feature to stop Facebook from accessing their data from WhatsApp messenger.
WhatsApp messenger follows Facebook’s business model. It collects information from users for Facebook to use for digital marketing on their social media platform.
Data Privacy issues:-
There have been assurances made by Facebook about data privacy issues on WhatsApp.
WhatsApp messenger is a text messaging app that contains confidential chats between friends, family members, and businesses.
Compromising the information available on WhatsApp for digital marketing is a growing concern for many users.
WhatsApp ensures an end to end encryption of text messages and media files.
According to WhatsApp policies, the information sent by users is available to the sender and the receiver.
However, in the 2018 Congressional hearing, news broke out about a large amount of user information that was made available by Facebook from WhatsApp to advertisers.
Their business plan revolves around acquiring more users. There are some markets with higher growth potential than others. India, for example, is one of the biggest markets for WhatsApp messenger.
WhatsApp has more than 500 million active users in India.
In terms of WhatsApp’s user database, India has more than a 10% share of all the users.
It is clear that WhatsApp has a successful growth strategy, especially in India and South America.
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WhatsApp’s potential to earn more:-
We have seen the different factors behind the success of WhatsApp. These factors help us to understand the widespread appeal of WhatsApp.
WhatsApp will be able to generate income without relying on user’s data for digital marketing through the use of these new services.
In January of 2018, it came out with WhatsApp Business. WhatsApp Business is a platform for small scale business owners to communicate with their customers.
It allows business owners to create their profile describing important information like product information, store location, etc.
The information is useful for customers to learn more about businesses. It provides insightful analyses to the business owners about their customers.
WhatsApp came out with its API for medium and large scale business owners.
Business owners can customize WhatsApp Business API to improve communication with their customers and market their products or services by sending push notifications to the customers.
A critical aspect of WhatsApp Business API is Facebook displaying ads for the businesses on their social media platform.
In other words, large or medium size companies can advertise on Facebook. The link in the ad will redirect the users to WhatsApp Business API for communicating with the businesses.
According to WhatsApp, there are more than 100 companies willing to test the business API features, including Uber.
According to a few experts, WhatsApp is planning to introduce ads in its Status feature for businesses.
It is clear that WhatsApp is heading towards monetization by hosting businesses on its platform.
WhatsApp plans on becoming an intermediary between businesses and customers to start earning more revenue.
WhatsApp’s Future options for monetization:-
In addition to all the above sources of income, WhatsApp has the potential to unlock many features to increase its earnings in the future.
WhatsApp can introduce games on its platform for the users. It can also add payment services on its online platform.
For example, users can pay their electricity bills or recharge their mobile phone data plans through WhatsApp in the future.
It can form partnerships with other companies, and earn money for their services in connecting businesses with their customers.
WhatsApp can be a useful platform for people to book cab rides or order food from restaurants.
WhatsApp, according to its COO, will start monetizing businesses to increase revenues. It has shown no signs of slowing down in terms of the number of active users signing up to the text messaging service.
The number of WhatsApp users will keep on increasing in the future.
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WhatsApp is a lucrative platform with immense potential for generating revenue.
Facebook paid more than ten times of the market valuation to buy WhatsApp Inc. In my opinion, the decision to buy Whatsapp wasn’t a panic buy.
Facebook took advice from experts in valuations under consideration.
WhatsApp comes with a built-in audience of 2.1 billion users. These users, including people like us, are reliant on WhatsApp for maintaining contact with friends, family, and business leads.
The users have no complaints about WhatsApp because it is available for free of cost to use.
WhatsApp’s new plan, under the ownership of Facebook Inc., is to convert the number of users into currency.
There are steps being taken in the direction of monetizing different aspects of the text messaging service.
There are plans to introduce the QR code scanning system in WhatsApp for adding new contacts. There will be provisions for sorting contacts by the frequency of interactions.
WhatsApp will generate income by selling API, and related services to business owners for improving communication with their customers.