WhatsApp was the brain child of Brian Acton and Jan Koum who brought their idea to life in 2009. The instant messaging application that we know today was very different back in the day. It was initially started as an application to put up current status.
The application was then rebooted as WhatsApp 2.0. It was reintroduced as an instant messaging app. This IM application took off and is currently one of the most popular apps of its kind.
WhatsApp and the Acquisition
After the initial commercial success, Facebook saw the potential of WhatsApp. Facebook took the reins of WhatsApp on February 19th, 2014. Facebook acquired WhatsApp for whopping $19 billion. It was a risky move from Facebook but it paid off.
The user base of WhatsApp only grew after the acquisition by Mark Zuckerberg. WhatsApp is currently used by over 1 billion users worldwide. These huge numbers show that Zuckerberg made the right move when he acquired WhatsApp.
You must be wondering though, how does WhatsApp make money? Do they have a revenue model? They have a revenue model but it has changed over the years.
The application was free for its users for most of the time during the early years. Later, they began to charge a subscription fee as low as $0.99 per year to its user. This subscription fee was charged in most regions for some time.
However, they got rid of the subscription fee and it was announced that WhatsApp was free to use for everyone. So, how were they making money? We are going to find this out when we talk about the revenue model of WhatsApp.
WhatsApp Revenue Model and the No Advertisement Policy
The founders Brian Acton and Jan Koum hated advertisements. Hence, when they made WhatsApp, they decided to leave out the advertisements as well. Instead, they focused on the user experience and other aspects of the app.
However, they needed funds to support the app and keep it afloat. So, the founders decided to charge a small sum of $0.99 from their users for one year worth of subscription.
They did not want WhatsApp to be the platform that would contain loads of advertisements. This is because advertisements in an IM app are disruptive and affect the UI experience. One of the major reasons for its success is the fact that the application had no advertisements.
Early Days of WhatsApp Revenue Model
WhatsApp went out in the market to get investment. In their first round of funding, they were able to raise $250k. This sum came from friends who had previously worked for Yahoo! and these friends were brought on board as co-founders.
As time progressed, more funding came in their way. WhatsApp reached out to Sequoia Capital for the second and third round of funding. These rounds of funding proved to be fruitful. They were able to raise $60 million from these two funding rounds.
Sequoia Capital invested $8 million in 2011 during the second round of funding. Moreover, they invested $52 million in 2013 during the third round.
At that time, this funding was the only revenue generated by WhatsApp. This funding was the income of the 50 members who were working together at WhatsApp Inc.
The expenditures of the IM application were minimum because the primary cost of WhatsApp was sending verification code to its users.
Hence, the team at WhatsApp decided to waive off the subscription fee.
The Idea of the Founders
Founders of WhatsApp were not focused on milking money out of the application when they made the app. They had long term targets and were more focused on creating a network of users instead.
The idea was to grow a loyal customer base first and then expanding the services of the application. It would be easy to make money off the application when you have already created a huge user base.
The idea to use a network effect worked in their favor and WhatsApp caught the eye of Mark Zuckerberg, the CEO of Facebook. Facebook bought WhatsApp after scoping the messaging app for a little over two years.
Moreover, Zuckerberg brought the team of WhatsApp under the payroll of Facebook. Jan Koum also serves on the Facebook’s board of directors.
The Post-Facebook WhatsApp Revenue Model
Facebook uses WhatsApp to generate user data so that it can be used for different purposes. The user data can be manipulated or sold for profit. Furthermore, they added a new feature called WhatsApp Business which helps in revenue generation.
WhatsApp Business and the Revenue Model
WhatsApp Business was created by Facebook to cater the growing market of entrepreneurs. The business on WhatsApp can be verified and get in touch with their customers. Features such as links to website and Facebook page, autoresponders etc. made it popular among businesses.
The WhatsApp Business application is free to use. However, to use the WhatsApp Business API, you need to pay for it first. It is their first ever revenue generating feature.
WhatsApp Business does not allow the businesses to send messages unless a customer contacts them first. This step helps to avoid spam.
Furthermore, WhatsApp charges entrepreneurs for late replies to their customers. To reply to any message that is older than 24 hours, the businesses pay a fee for each reply.
You can pay using WhatsApp too
Also, WhatsApp allows you to complete P2P payments as well. As of now, this feature is only available in India. It is planned that after the pilot run, this feature will be released to other markets as well. WhatsApp charges a small fee for all transactions.
WhatsApp has come a long way since their inception in 2009. They are now the most popular IM application that is currently owned by Facebook. After the acquisition, the app has grown and it now caters to 1 billion users worldwide.
They used to charge $1 subscription fee from their users in the beginning but this fee was later waived off. The app is now free to use but the app makes money through WhatsApp Business API and Payments. Other sources of revenue generation are indirect. It is used by Facebook for user data generation.