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WhatsApp Business Model: How WhatsApp Makes Money & Why WhatsApp is Still Free?

WhatsApp is an American freeware, that offers instant messaging and calling services all over the world. In 2014, after being purchased by Facebook, WhatsApp was included into the Facebook ecosystem. It is the most popular and largest instant messaging app with more than 2 Billion users worldwide. According to a tweet from the head of WhatsApp, Will Cathcartin’ in December 2020, every day more than 100 Billion messages are being sent on WhatsApp. WhatsApp does not charge any subscription fee or provide in-app purchases along with no third-party ad. So, how does WhatsApp make money and are able to continue providing its services?

WhatsApp Overview

WhatsApp was founded in February 2009 by Brian Acton and Jan Koum. Initially, WhatsApp was created to offer a medium of individual status updates. In November 2009, it officially launched as a chat app service on the iOS platform. In August 2010, WhatsApp released an Android version of the app as well. Following that, WhatsApp started growing rapidly and within 2 years, in October 2012, it hit the milestone of 100 million active monthly users. A year later, in December 2013, the number reached 400 million. The simple user interface, end-to-end data encryption facility, and reliably fast chatting experience have helped WhatsApp gain a lot of new users every year. 

Though WhatsApp started its journey as a $1 dollar subscription model, it never forced customers to pay the subscription fee. When the subscription period ended, they let their customers continue using WhatsApp. Apart from that, they were mainly dependent on third-party funding. According to Crunchbase, WhatsApp received $250,000 as a seed funding in 2009. After observing the user growth and potential, an investment company named ‘Sequoia Capital’ invested $8M in 2011 and $52M in 2013 on WhatsApp. 

In order to stay ahead of the competition, Facebook purchased WhatsApp for $19 billion in Feb 2014. By doing so, Facebook became the owner of the world’s two leading chatting platforms: Messenger and WhatsApp. The initial reason behind the acquisition of WhatsApp by Facebook was not monetizing it. Since WhatsApp was creating waves and gaining the traction of many users, Facebook acquired it, so that it can bring the world’s most popular messaging app users under its own ecosystem, and eventually minimized the competition. 

According to Statista, as of July 2021, WhatsApp has more than 2 billion users worldwide and Facebook’s Messenger comes next with more than 1.3 billion users. Meanwhile, the Chinese messaging app “WeChat” came in the 3rd position with 1.2 billion users at that time. 

Among WhatsApp’s users, India has the most active WhatsApp user community consisting of nearly 400 million monthly active users. 

Apps like WeChat and Line generate revenue in multiple ways including advertisements, games, online payments, and in-app purchases. Anyone can access the revenue information of those companies. But, as Facebook doesn’t disclose the breakdown of revenue by its subsidiaries, it is not quite clear how much revenue WhatsApp generates. But according to an estimation of Forbes in 2017, WhatsApp can generate $5B to $15B if they utilize all the possible ways to make money. But all the numbers are estimated, as WhatsApp’s revenue data has not been revealed publicly. 

In terms of the user base, WhatsApp has become the second biggest subsidiary of Facebook, followed by messenger and Instagram.

How WhatsApp Makes Money?

  • $1 fee: Until July 2013, WhatsApp charged a one-time payment of $1 to download the app on iPhone, and for the Android platform, it charged a $1 fee annually after one year of a free trial. From that time, WhatsApp omitted the download fee for iPhone users and started charging a fee of $1 after a one-year free trial. Although, they made it completely free for existing iPhone users for a lifetime. Apart from that, in both the Android and iOS platforms, they never forced the subscription fee. Rather, they let users continue the service. In January 2016, WhatsApp officially announced to omit the subscription fee and made it completely free.
  • Collecting Consumer Data can be a source of revenue: There is a saying that “If you are not paying for the Product, you are the Product”

Facebook is accused of using users’ personal data and many lawsuits have been filed in different countries around the world regarding that issue. When Facebook purchased WhatsApp in 2014 for $19B, many experts concluded that Facebook will start collecting users’ personal data from this platform for sure. Otherwise, there would be no reason for investing such an astronomical amount of money to acquire a service that has no revenue model. Facebook collects people’s behavioral data, personal information, location data, and contact list from WhatsApp. Facebook then aligns those data with other market data in order to identify a clearer image of the individual’s personality. That helps Facebook to show more personalized ads and sell relevant products.

For example, when someone installs WhatsApp, he has to allow WhatsApp to add the entire contact list. WhatsApp analyzes those contact numbers linked to Facebook and Instagram accounts. That is how WhatsApp knows who his friends are and makes a clear image of his social life. So, they can now target them with more specific ads. WhatsApp even collects location data to show location-wise ads on Facebook or Instagram.

In January 2021, WhatsApp users were asked to agree on a new version of their privacy policy. In this policy, they are asking to share users’ device ID, amount of time spent in WhatsApp, and last online time with Facebook. In addition to that, business organizations can keep logs of conversations with their customers. They may use this in their marketing on Facebook. Although most people don’t care about data privacy, if someone does care, it’s a fact that they should be concerned about.

According to experts, retaining users in the Facebook ecosystem is more profitable than charging a subscription fee of $1/year or creating another medium of revenue source. Nowadays, data is considered the most valuable resource in the digital industry. What Facebook is earning today from WhatsApp’s user data, is way more than other revenue sources. That’s why they removed the subscription fee and made it more user-friendly so that people use WhatsApp more frequently to communicate within their community. Even though, WhatsApp refutes the allegation saying that they cannot collect personal data from the user’s conversation as it uses an ‘end-to-end encryption’ chatting system. But WhatsApp is not an open-source app and no one knows except Facebook about what technology they use to access user’s data.

  • WhatsApp Business: In January 2018, WhatsApp launched a separate app called ‘WhatsApp business’. The app connects businesses and customers to interact personally. Businesses can showcase their product catalog, answer customers’ queries, provide location updates and working hours information through the app. Netflix, Wish, Uber, Saudi Investment Bank, Audi, Travelsmart and many other companies are using WhatsApp business to interact with customers. It’s a new way for WhatsApp to make money because WhatsApp charges when businesses fail to reply to their customers on time. Registered businesses are allowed to reply to their customers free of cost in the first 24 hours. After that, WhatsApp charges for every reply made by the businesses.
  • WhatsApp Pay: ‘WhatsApp Pay’ is an in-chat payment feature introduced by WhatsApp in February 2018. It’s a feature introduced only for Indian users to send money to the people in their contacts list. WhatsApp partnered with the National Payments Corporation of India (NPCI) and enables a real-time transactions system with over 227 banks. WhatsApp Pay was launched in Brazil in May 2021, allowing transactions with one another and making payments on purchases from local businesses. The payment service is kept free to use. However, Facebook charges businesses a processing fee of about 3.99% to receive the payments from customers.

Conclusion

WhatsApp had a plan to introduce ads in the status section in January 2020, but in April, Mark Zuckerberg suspended the decision and opted out from including ads in the status section. But the report said that they will introduce ads in the status section in the future. WhatsApp is now in the investment phase of its business. Currently, the main focus of WhatsApp is to add more and more people to the platform which will eventually open the opportunity to generate tons of cash in the future.

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