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About: How Does WhatsApp Make Money? WhatsApp Business Model Explained     Goto   Sponge   NotDistinct   Permalink

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Founded in 2009 by Brian Acton, Jan Koum WhatsApp got acquired by Facebook on February 2014 for $19B. In 2016 it was integrated more and more in Facebook products and business model which allowed WhatsApp to focus more on interactions between its users and businesses. In 2018 WhatsApp rolled out customers' interactions services, and it started to make money on slow responses from companies. We don't know precisely how much revenues WhatsApp makes as it is not specified in Facebook Inc. financial statements.   WhatsApp origin story Koum and Brian Acton who had previously spent 20 years combined at Yahoo founded WhatsApp in 2009. As reported on CNBC Jan Koum affirmed: "It started with me buying an iPhone; I got annoyed that I was missing calls when I went to the gym."  That's how they managed to build an app that made them show their status, and he added: "We didn't set out to build a company. We just wanted to build a product that people used." In 2009 WhatsApp got its first seed round for $250k. In a few years, WhatsApp became a hit and in 2011 and 2013 WhatsApp got $60 million from Sequoia Capital with the first round of $8 million and the second round of $52 million. The name WhatsApp is a pun on the phrase What's Up, and it started as an alternative to SMS.  Advertising as a broken business model  As reported on the WhatsApp blog by its founders Koum and Brian Acton: When we sat down to start our own thing together three years ago we wanted to make something that wasn't just another ad clearinghouse. We wanted to spend our time building a service people wanted to use because it worked and saved them money and made their lives better in a small way. We knew that we could charge people directly if we could do all those things. We knew we could do what most people aim to do every day: avoid ads. Advertising isn't just the disruption of aesthetics, the insults to your intelligence and the interruption of your train of thought. At every company that sells ads, a significant portion of their engineering team spends their day tuning data mining, writing better code to collect all your personal data, upgrading the servers that hold all the data and making sure it's all being logged and collated and sliced and packaged and shipped out... And at the end of the day the result of it all is a slightly different advertising banner in your browser or on your mobile screen. Remember, when advertising is involved you the user are the product. This showed how reluctant they were about advertising as a business model. The paradox though is that in a couple of years the company would be acquired by the largest digital advertising network, after Google. The Facebook acquisition  It was June 18, 2012, almost two years before WhatsApp got sold to the most profitable advertising network on earth, Facebook Inc. In a previous post they said: So first of all, let's set the record straight. We have not, we do not and we will not ever sell your personal information to anyone. Period. End of story. Hopefully this clears things up. On February 19, 2014, when Facebook acquired WhatsApp. As reported on Facebook financial statements Facebook "paid approximately $4.6 billion in cash and issued 178 million shares of Class A common stock in connection with the acquisition of WhatsApp" this is how it was announced on WhatsApp blog: Almost five years ago we started WhatsApp with a simple mission: building a cool product used globally by everybody. Nothing else mattered to us. Today we are announcing a partnership with Facebook that will allow us to continue on that simple mission. Doing this will give WhatsApp the flexibility to grow and expand, while giving me, Brian, and the rest of our team more time to focus on building a communications service that’s as fast, affordable and personal as possible. Here’s what will change for you, our users: nothing. WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you’re using. And you can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product. WhatsApp founders remarked once again that its business model would not change toward anything related to third-party ads. Things would start to change in a couple of years. The freemium business model Once WhatsApp had financial support to keep growing, it started to leverage the freemium business model to gain traction even more. As explained on their blog: That's why we're happy to announce that WhatsApp will no longer charge subscription fees. For many years, we've asked some people to pay a fee for using WhatsApp after their first year. As we've grown, we've found that this approach hasn't worked well. Many WhatsApp users don't have a debit or credit card number and they worried they'd lose access to their friends and family after their first year. So over the next several weeks, we'll remove fees from the different versions of our app and WhatsApp will no longer charge you for our service. Naturally, people might wonder how we plan to keep WhatsApp running without subscription fees and if today's announcement means we're introducing third-party ads. The answer is no. Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you wantto hear from. That could mean communicating with your bank about whether a recent transaction was fraudulent, or with an airline about a delayed flight. We all get these messages elsewhere today – through text messages and phone calls – so we want to test new tools to make this easier to do on WhatsApp, while still giving you an experience without third-party ads and spam. WhatsApp started to focus more on communication between businesses and its users to create a line of products that could be monetized by selling services to companies using WhatsApp features. Facebook takes over The time came when Facebook finally started to take advantage of WhatsApp data to sell more of its ads. As reported on the WhatsApp blog: The updated documents also reflect that we’ve joined Facebook and that we've recently rolled out many new features, like end-to-end encryption, WhatsApp Calling, and messaging tools like WhatsApp for web and desktop. But as we announced earlier this year, we want to explore ways for you to communicate with businesses that matter to you too, while still giving you an experience without third-party banner ads and spam. Whether it's hearing from your bank about a potentially fraudulent transaction, or getting notified by an airline about a delayed flight, many of us get this information elsewhere, including in text messages and phone calls. We want to test these features in the next several months, but need to update our terms and privacy policy to do so. That policy change created a set of backlashes that remain as concerns. As pointed out on Facebook financials for 2017: The Irish Data Protection Commissioner has challenged the legal grounds for transfers of user data to Facebook, Inc., and the Irish High Court has agreed to refer this challenge to the Court of Justice of the European Union for decision. We also face multiple inquiries, investigations, and lawsuits in Europe, India, and other jurisdictions regarding the August 2016 update to WhatsApp’s terms of service and privacy policy and its sharing of certain data with other Facebook products and services, including a lawsuit currently pending before the Supreme Court of India. If one or more of the legal bases for transferring data from Europe to the United States is invalidated, if we are unable to transfer data between and among countries and regions in which we operate, or if we are prohibited from sharing data among our products and services, it could affect the manner in which we provide our services or adversely affect our financial results It is important to remark that the terms of service changes applied to things like: Enable you to communicate with businesses on WhatsApp. For example, if you visit a business's Facebook page, you might see a button that lets you easily open a WhatsApp chat with them. However, it is undeniable that in 2016 it finally started a process of monetization that revolved around data sharing between WhatsApp and Facebook products. In 2017 the WhatsApp founders left Facebook and $1.3B in stock options, presumably because desperate to leave the company. As reported by bizjournals, "Jan Koum and Brian Acton have more recently clashed with Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg, and quit the company, leaving hundreds of millions of dollars worth of unvested stock options on the table. Acton, who quit in November 2017, walked away from $900 million in unvested shares, while Koum, who will exit Facebook in August, will leave $400 million in unvested shares, the Wall Street Journal reports." Following Cambridge Analytica scandal, in March 2018, Brian Acton also launched a hashtag campaign - #deletefacebook - which in a way backfired on him: It is time. #deletefacebook — Brian Acton (@brianacton) March 20, 2018 Do we know how much money WhatsApp makes? As part of Facebook Inc., we don't know exactly how much money WhatsApp generates. That's also because Facebook is not obliged to report the breakdown of its revenues. However, it is undeniable that WhatsApp is a valuable asset in Facebook. As reported by Investopedia "according to the 2014 Facebook Form 10-Q, in the nine months preceding September 30, 2014, WhatsApp generated revenue of $1,289,000." WhatsApp becomes a solution provider: A quick glance at customers' interactions management    In August 2018 on its blog, WhatsApp reported the creation of new tools to allow businesses to connect to users which included three kinds of interactions: Request helpful information Start a conversation Get support In this way, businesses will start paying for certain interactions with users to manage their customers' interactions.   As reported on the WhatsApp website: From time to time, a business may use a solution provider to help provide the tools it needs to send and receive messages from you. Businesses rely on these solution providers to store, read and respond to your messages. The business you're communicating with has a responsibility to ensure that it handles your messages in accordance with applicable law and its privacy policy. For more information on the provider's privacy policy, please contact that business directly. While the app is free of charges, some services will be paid. For instance, if a business that uses WhatsApp will reply to a customer later than 24 hours, it will pay a fixed charge based on the country. Summary and conclusions WhatsApp started as an alternative app that could be used to give statuses updates and message. It gained traction until it was acquired for $19B by Facebook. Starting in 2016 WhatsApp changes its terms of service to integrate its services with Facebook business products. This created some concerns about the data shared between WhatsApp and Facebook. In 2018 both WhatsApp founder presumably left Facebook due to conflicts with Mark Zuckerberg. Still, in 2018, WhatsApp launched a new service that allowed businesses to reply to customer support request for free for the first 24 hours. After that, the company would be charged. It is clear to me that Facebook, although it tried, to get as much data from WhatsApp in order to sell more advertising, it had also lawsuits due to that process. Thus, that makes it harder and harder to integrate WhatsApp into the Facebook advertising network. Therefore, the future seems more focused on building specific messaging services for businesses. Will this turn out to be a profitable industry for Facebook? Other handpicked related business models:  What Is a Business Model? 30 Successful Types of Business Models You Need to Know What Is a Business Model Canvas? Business Model Canvas Explained The Power of Google Business Model in a Nutshell How Does Google Make Money? It’s Not Just Advertising! How Does PayPal Make Money? The PayPal Mafia Business Model Explained How Does WhatsApp Make Money? WhatsApp Business Model Explained How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained The Google of China: Baidu Business Model In A Nutshell How Does Twitter Make Money? Twitter Business Model In A Nutshell How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained