WhatsApp has grown rapidly to become the synonym of Instant Messaging in and around India. Created in 2009 by two former Yahoo employees, Brian Acton and Jan Koum, It is a messaging and Voice over IP (VoIP) service that allows users to send text messages, voice and multimedia messages over the internet. It has had a crazy journey.

It started off with two founders who hated advertising and were staunchly pro-privacy. In 2014 however, it ended in the hand of Facebook – the tech giant that is certainly not revered for user security and privacy. In spite of its growing popularity and user base, the app continues to remain ad-free. How does it manage that? Is it even a profitable venture? Let’s find out.

The Story

It had only been 6 months since the launch of the Apple App store in July, 2008, when two young individuals purchased an iphone and realised the latent potential of the app industry. They hired the app’s developer Igor Solomennikov through RentACoder.com, and WhatsApp was born in January, 2009.

In its early childhood, it wasn’t even a messaging app. All that users could do was updating their statuses on WhatsApp. However, when Apple launched its new push notifications feature, Users quickly started using the app. Igor leveraged this stance and incorporated the messaging function to launch WhatsApp 2.0.

Outside of BlackBerry’s BBM, WhatsApp was unique. It provided free messaging services that allowed users to log in with their phone numbers. It’s version 2.0 was an instant hit. It quickly amassed 2,50,000 active users. Brian Acton convinced a circle of ex-Yahoo employees to contribute $2,50,000 in initial (Seed) funding. It then incorporated multimedia messaging and was launched on Android.

Facebook’s $19 billion acquisition

Venture Capitalist Sequoia Capital invested $8 million in April, 2011 after 8 months of negotiation and a further $50 million in 2013. This helped WhatsApp set a valuation of $1.5 billion, despite almost non-existent revenue figures. Meanwhile Facebook had a constant sharp eye on WhatsApp’s success and saw it as an undeniable threat to its own offering. In February, 2014 Facebook acquired WhatsApp for $19 billion, making it the largest tech acquisitions in history.

With this, questions of privacy and unauthorised sharing of user data with Facebook quickly came to light. At the time of acquisition, the co-founders were promised that they could operate independently and would have zero pressure on monetization in the next five years.

However, disagreements regarding how it was to be monetized led to co-founders Brian Acton and Jan Koum’s exit from the company in 2017 and 2018, respectively. Brian has been a vocal critic of Facebook’s unchecked power since his departure. The Facebook power grab finally came in the form of a WhatsApp Privacy Policy Update in August, 2016, informing users that some of their data would be shared with the parent company, Facebook.

Whatsapp acquisition deal value
Whatsapp acquisition deal value

Let’s talk numbers

Let us quickly delve into some WhatsApp User Statistics. The last officially reported WhatsApp Statistics recorded 1.5 billion active users in Q4 2017 in over 180 countries. It ranks third in terms of downloads, after Facebook and Facebook messenger.

India is WhatsApp’s biggest market with over 200 million active users in 2017. The user-base was expected to have increased to over 300 million by early 2018 and to a much higher overall by mid-2020. The US is marked by a relatively meeker user base of 22.5 million users (July, 2018). User-reported WhatsApp Statistics reported that 82% of Indian Internet users use the app.

Another research showed that WhatsApp’s usage in urban India is higher than that in rural India, which seems to be rising at a faster pace in rural India. Other demographic breakdowns show that the youth (18-35 years) constitute around 55% of its total user base in India.

top social messenger around the world

The Company reached a valuation of $1.5 billion in early 2013 and was acquired by Facebook at $19 billion. However, since Facebook does not release separate figures for WhatsApp, and owing to the fact that WhatsApp’s sources of income cannot be clearly attributed to specific channels, the current valuation and revenue-earning potential of WhatsApp is difficult to arrive at.

How does WhatsApp make money?

WhatsApp was launched by 2 people who remain staunch advocates of user data privacy and who absolutely hated advertisements. They intentionally created the ad-free application focusing just on great user experience and interface. The following blog by the co-founders proves this assertion-

whatsapp against using ads

Given that it does not use advertisements, how does it make money? Well, it uses a combination of tools other than advertisements to do this. Some of these are highlighted below:

Annual Subscription Fee

Up until July 2013, WhatsApp charged iPhone users a one-time fee of $1 to download the app. Later, however, the company made the app free to download and started charging $1 only after the first year. In January, 2016 the company announced that WhatsApp shall no longer charge an annual subscription fee and the service shall be completely free. Hence, in the early stages of it, the Annual subscription fee was its only source of revenue.

WhatsApp for Business API

The WhatsApp Business App helps businesses serve customers on WhatsApp, with provisions to create product catalogues as well as provide customer support. WhatsApp makes money by charging registered businesses for slow replies. Businesses are allowed to respond to messages from users for free for up to 24 hours but are charged a fee per message for delayed responses, which varies by country.

business API
Whatsapp business API

Click to WhatsApp ads

It also makes money through Click to WhatsApp ads, which are ads shown on Facebook, not WhatsApp. They redirect users from Facebook to WhatsApp. It is one of the ways by which Facebook uses WhatsApp to leverage its position.

At an annual Facebook Marketing Summit in Rotterdam, Netherland in 2019, Facebook also revealed about WhatsApp story ads. However, The Wall Street Journal later reported that the concept was being dropped by Facebook due to several reasons. It shall therefore, continue to remain ad-free.

Click to WhatsApp ads

WhatsApp Payments

WhatsApp Pay is a peer-to-peer money transfer feature that is available only in India. It recently received nod from the NPCI (National Payments Corporation of India) and the Reserve Bank of India to start services in India. The rollout, which was expected in 2020 appears to have been delayed due to the unfavourable business environment in light of the Covid-19 crisis.

The Future

WhatsApp is a humble messenger app that has grown rapidly due to its simple, ad-free interface. Questions around data privacy have undoubtedly hurt WhatsApp’s reputation, but the app still boasts of a tremendous user base of billions of users. While it is the golden egg laying goose, advertisements on the app might symbolize killing the goose. Of course, Facebook has big plans for harvesting the Golden eggs without killing the Goose.

It may either involve full-fledged operation of WhatsApp Payments or leveraging Facebook’s position with the help of it. Facebook may choose to allow WhatsApp remain un-monetized in the future and use it to increase of Facebook’s Average Revenue per User / ARPU (which currently stands close to $30 per user).

WhatsApp’s future course of action remains uncertain, but the massive user base gives it a distinguishing edge over any other mobile application and its continued efforts to improve user experience are bound to improve its popularity statistics manifold.