Hello, entrepreneur friends! From ‘Good Morning’ messages from family to the fake news of WhatsApp University, today, WhatsApp has become the most popular messaging app in the world, boasting over 2 billion monthly active users, which is 25% of the world’s population. But the question arises: since this app is completely free to use and devoid of ads, how WhatsApp earn money without ads? In today’s article, we will read about a case study of WhatsApp and understand the Business Model of WhatsApp.
So, Join us in this deep dive into the intricate business model of WhatsApp. This article embarks on a comprehensive case study, unraveling the intricate business model of WhatsApp.
- WhatsApp, evolving from a gym status app to a global connector, underscores user-centricity with a freemium model and a relentless focus on user experience for organic growth.
- The introduction of shopping features raises concerns about data usage and targeted advertising, urging WhatsApp to delicately balance convenience and user privacy to preserve its trusted status.
- Transitioning from a subscription model to a free app, WhatsApp now earns money through the WhatsApp Business API and WhatsApp Pay, sans traditional ads.
- Monetization unfolds through business communication and payment services, fueling the platform’s financial success.
- Ongoing privacy concerns pose a formidable challenge, accentuated by recent updates and legal battles, emphasizing the need for transparency and robust data protection measures.
So, to answer your question directly about how WhatsApp earns money without ads?
- WhatsApp does not display ads within the app itself. It makes money by charging businesses for access to the WhatsApp Business API and a small transaction fee on payments made through WhatsApp Pay.
From Gyms to Global Growth and the Invention of WhatsApp:
WhatsApp was founded by two people, Brian Acton and Jan Koum. Before this, the two had worked together at Yahoo! for 9 years. When they left Yahoo!, they applied for jobs at various companies, including Facebook and Twitter, but faced rejections. Ironically, just 5 years after these rejections, Facebook purchased WhatsApp for $19 billion.
You couldn’t send messages to anyone. This app was simply WhatsApp. The word WhatsApp came from the words ‘What’s up?’ Like you ask people, “What’s up? How are you doing?” On this app, you could simply let others know what you were up to. Meaning that you could simply post your status on this app.
But before this, it is interesting to know where they got the idea of creating WhatsApp. Jan Koum used to frequent gyms, and there he realized that he wouldn’t be able to receive the calls of his friends. That made him think that there should be an app that would show a status that he was in the gym at the moment so that his friends could see the status and understand that since he was in the gym, they shouldn’t call him then. On this basic idea, he created the app WhatsApp. It’s interesting to note that this app didn’t have messaging.
You could write that you were in the gym. And the app would notify the rest of your friends, that you’re in the gym. When you change your status, this app notifies your friends and contacts. This app was created for doing merely this, initially. But eventually, he realized that some of the users of this app were using the status as messages.
When one would change the status to doing something, their friends might update their status with whatever they were doing. So the first person would update their status yet again, in response. Similarly, people started using these as messages. Then they thought that it would be better to make the app a messaging service. This idea was a huge success offering a free alternative to costly SMS and call charges. Despite initial challenges in the American market, it witnessed unprecedented growth in Europe, Asia, and Africa, becoming a top-ranking app within two years.
The Evolution of WhatsApp’s Monetization Strategy, $1 Business Model:
Unlike its SMS-centric competitor, BlackBerry Messenger, which was free but had the condition that the user should have a BlackBerry phone, creating a gap for WhatsApp to emerge, WhatsApp remained ad-free. Before venture capitalists and billion-dollar buyouts, WhatsApp was a scrappy startup.
Yes, you read that right – it wasn’t always free! Early adopters enjoyed its clean interface and reliable messaging for a symbolic $1 annual fee. Talk about bootstrapping! This user-centric approach, coupled with organic word-of-mouth, catapulted the app to the top of the App Store, proving that simplicity and user experience can be a powerful currency. Emphasizing user experience and charging a nominal $1 annual fee ensured sustainability. Acton’s staunch commitment to “No Ads! No Games! No Gimmicks!” defined WhatsApp’s ethos.
Initial funding challenges were overcome with a successful $1 business model, making WhatsApp profitable within three years. The focus remained on enhancing features and rectifying software issues to maintain a reliable messaging app. Acton and Koum, guided by passion, claimed disinterest in user data.
Whatsapp Acquired by Facebook for $19 Billion:
Now, Facebook makes an entry in our story. In 2014, Facebook acquired WhatsApp for a staggering $19 billion, bringing it under Zuckerberg’s umbrella. Mark Zuckerberg has been trying to buy WhatsApp since 2012. But this deal was finalized in February 2014. And WhatsApp is taken over for $19 billion by Facebook. And the employees working on WhatsApp now became Facebook employees.
Facebook wanted to buy WhatsApp so that there’d be no significant competition after they owned both Facebook Messenger and WhatsApp.
Apart from this, WhatsApp had access to the user data of so many people, and Facebook realized that they could use this user data to earn more money. Because Facebook runs its company by selling data. We’ll talk about this in some other article. Anyways, After this deal, Acton and Koum, the founders of WhatsApp, became billionaires overnight.
If you’re wondering about their reason for selling WhatsApp, Facebook, and Mark Zuckerberg had told them that they would allow them to run WhatsApp independently even after the acquisition. That there would be no interference in their work. It sounds like a good deal. They get the money and don’t even have to compromise on their values.
But there is no happy ending in this story. Because there were constant conflicts between Facebook and WhatsApp over the next years. The conflicts between Facebook and WhatsApp have arisen over the years, with constant tension regarding data privacy and business models.
New Business Models Emerge:
The team of WhatsApp and its founders and the way Facebook was pressurizing them. In January 2016, we got to know that WhatsApp had removed its $1 fee. And WhatsApp became a completely free application again.
The reason behind it is said to be that there are many countries like India (the biggest market for WhatsApp) where people don’t have credit cards. So they weren’t able to pay the $1 fee, and many people were actually unable to afford it.
In this case, making this a free app helps in developing a larger user base, so they decided that since they wanted to expand and have more users for their app, they would have to make the app free to use.
The question then arose, what should be the Business Model? How should they earn money?
Mark Zuckerberg’s pressure for profitability led to conflicts, resulting in Acton and Koum resigning in 2017. Fed up with this, the founders of WhatsApp gave up finally in March 2017, they couldn’t take it anymore. Brian Acton resigned from his job in September 2017. A few months later, Jan Koum left WhatsApp too. Saying that Facebook’s opinion on Data Privacy, and the Business Model that Facebook wants to force on WhatsApp aren’t what he agreed to. And that he couldn’t tolerate those in any manner. And so he was leaving WhatsApp. They didn’t compromise on their values for profit (a lesson to be learned by entrepreneurs).
Friends, you can say that after 2018, Mark Zuckerberg established his control over WhatsApp. Brian Acton went on to establish a non-profit Signal Foundation. With this, we got the new messaging application Signal.
With Facebook at the helm, WhatsApp’s revenue strategy pivoted. The $1 fee vanished, and new streams emerged, including the WhatsApp Business API, charging businesses for automated customer interactions. The API allows businesses to utilize WhatsApp for customer communication, with fees for messages sent after 24 hours.
WhatsApp API (source of revenue for WhatsApp):
In 2018, Facebook launched the WhatsApp Business app, offering businesses the ability to create profiles and link them to Facebook pages. While the app remains free, the WhatsApp Business API generates revenue, allowing businesses to automate customer interactions and pay fees for messages sent beyond 24 hours.
API is the Application Programming Interface. Basically, a medium through which multiple applications can communicate with each other. Or perform a function or a task.
Let me explain this with an example. When you book a taxi on Uber, you would’ve noticed that the map on Uber, has the watermark of Google. Basically, Google Maps is providing its services to Uber. So that Uber can show a map on its app. Google is obviously not the creator of Uber.
Instead, what’s happening here is that Google Maps is providing its API to Uber. It’s providing its Application Programming Interface to Uber.
Similarly, WhatsApp is selling its API to businesses. If businesses want to interact with customers over WhatsApp, and to automatically respond to queries, they can do so, But if they use WhatsApp’s API, they can even send shipping confirmation, and appointment reminders and even sell event tickets to their customers.
The revenue model is that if the businesses reply within 24 hours, sending the message is free for them. But if they need to reply after 24 hours, they have to pay a small fee then. The fees are calculated differently for different countries. You might ask about the businesses that choose to use these services.
Friends, the answer to it is the companies that deal with millions of customers. Like airline tickets, travel tickets, movie tickets, or large banks.
So the users of WhatsApp Business API are huge companies. Singapore Airlines, Booking.com, Uber, MakeMyTrip, and Netflix, are some of the examples of the users.
The Whatsapp Pay and Looming Cloud of Privacy:
Facebook’s pursuit of WhatsApp’s profitability led to the introduction of WhatsApp Pay in 2020. While free for users, businesses pay a fee for transactions. The integration raises questions about privacy and the future trajectory of WhatsApp’s revenue streams.
Facebook is exploring additional revenue sources for WhatsApp, introducing WhatsApp Pay for peer-to-peer payments. While regular users can use WhatsApp Pay for free, businesses are required to pay a flat fee of 3.99% per transaction. Launched in November 2020, WhatsApp Pay faces competition from existing alternatives worldwide.
The precise revenue breakdown of WhatsApp within Facebook is not publicly disclosed. Forbes estimated in 2017, with 1.3 billion users, that WhatsApp’s average revenue per user could range from $4 to $12.
WhatsApp Commerce is gaining traction globally as more businesses use the platform for exclusive product and service sales. Facebook’s $5.7 billion investment in Reliance’s Jio Platforms in April 2020 led to JioMart, the e-commerce platform, utilizing WhatsApp for transactions. This positions WhatsApp as a platform for purchases, sales, payments, and potential advertising in the future.
With more businesses using WhatsApp to sell their products and services, the concept of WhatsApp Commerce is taking shape. Where many such businesses have come up, that sell their products exclusively through WhatsApp.
In April 2020, Facebook made an investment of $5.7 billion in Reliance’s Jio Platforms. After this deal, JioMart, Reliance’s e-commerce platform started using WhatsApp for its transactions. So basically, WhatsApp is turned into a product on which things can be purchased and sold, on which payments can be made, and on which, you may even see ads in the future.
Apart from these, what does Mark Zuckerberg plan to do with the data?
A Look Ahead: What’s Next for WhatsApp?
With WhatsApp Commerce gaining momentum, the app has transformed into a potential shopping platform. However, concerns about ad integration and data privacy linger, challenging the app’s traditional focus on personal communication.
The Legacy of WhatsApp: A Story Still Unfolding
From a modest gym status app to a global messaging giant, WhatsApp’s narrative embodies innovation, resilience, and adaptation. While uncertainties persist about its future monetization and privacy balance, one undeniable truth remains: WhatsApp has revolutionized communication, leaving an indelible mark on the digital landscape.
Accusations surrounding Facebook’s data usage for monetary gains linger, casting a shadow on WhatsApp’s future. Time will unfold the ultimate fate, but I trust you found the case study of WhatsApp intriguing and informative.