WhatsApp is a messaging application for mobile devices (and also desktop software) that allows users to send text and media messages, make voice and video calls, and share files. Since it launched, it has become one of the world’s most popular messaging apps and became even more popular and commonplace when Facebook purchased it in 2014. One of its major selling points is that there is no cost to download or use the app, making it far more cost-effective than a paid service.
Now, WhatsApp is Facebook’s second most popular service, after the main Facebook platform itself. Facebook’s next most popular services are its Messenger platform and Instagram. Despite its popularity and the fact that it is free, however, it is a product that needs to make money or somehow justify itself in order to remain viable. So how Facebook earn revenue off of WhatsApp and keep it going?
1. WhatsApp for Business API
The first is the WhatsApp for Business API. An API (application programming interface) is commonly created for a program or software that allows other companies to incorporate that software into their own systems. Many companies utilize the WhatsApp Business API to bring WhatsApp functionality into their communication channels. This is a popular option for companies with large user bases, and allows them to communicate on channels that these companies are already using. Companies like Netflix and Uber were early adopters of this API.
While the WhatsApp for Business app itself is still free to use, WhatsApp does charge for access to the API. Furthermore, they installed a feature within the API that charges the company additional fees if they delay in responding to a customer message through the API (usually 24 hours). This has the potential to benefit all parties: the business itself does not want to incur fees for late replies, the end-user receives timely service, and WhatsApp generates additional revenue if messages are not promptly processed.
For larger companies like Netflix and Uber, using WhatsApp as even one of their messaging platforms has the potential to generate large amounts of revenue for WhatsApp. It is estimated that users send over 65 billion messages per day, and handling even a fraction of that volume through a proprietary API would certainly require a revenue-driven gateway for business use. These costs could then cover the individual users who get the app free, maintaining the free-to-use platform that is so popular with most customers.
2. Click to WhatsApp Ads
Another revenue stream comes from Click to WhatsApp ads. These ads are displayed on Facebook and send users to WhatsApp. This likely contributes more significantly to the $5 billion in revenue, since ads are a primary way that free apps make money.
It is important to remember that, while subscription fees were required to use the app, WhatsApp was previously free of ads of any kind. That was critical to the mindset of its founders, and until they sold WhatsApp to Facebook, they maintained that standing faithfully. The app began running ads only after Facebook acquired it, and the founders had left the company. Despite anyone’s best intentions, most apps nowadays run ads in some form or fashion, and it is generally an accepted business practice.
3. Payment Processing and Money Transfer
Starting on November 6, 2020, WhatsApp enabled users in the Indian market to send money through WhatsApp. This payment processing service is similar to PayPal or Venmo. After WhatsApp is testing and vetted in the Indian market, it plans to offer its payment processing worldwide. This has the opportunity to generate larger amounts of revenue in the future if users choose to consolidate their activity onto one app rather than have a separate app for messaging and for sending money.
WhatsApp currently has an estimated 2 billion users. If the average user has the potential to bring in $4 annually (see below explanation of Previous Model), this leads to a revenue potential of $8 billion. Since they are only generating $5 billion from ads and business-level upgrades, this could lead to running the service at a loss.
In the technology world, this is not necessarily a bad thing. Facebook and many other apps are free to use, but they make up their revenue in other ways besides subscription or access fees. However, running a product at a loss for too long can cut into profits or operating margins. Tech companies need to continue to find ways to fund their services.
Another key point to remember is that, in addition to selling its products and services, one of Facebook’s primary goals is gathering data about its users. They use this in order to target both services and ads in the best ways for each user, and capturing a massive user base like WhatsApp can be crucial in selling their other products and services to such a vast market. While users can prevent the apps from sharing information with each other, the default setting is usually left open, meaning that data and preferences from one usually find their way to the other.
1. Ads in the Status Section
WhatsApp is testing the rollout of ads within the status section, making ads even more present than before. This will operate much like ads do on Facebook, Instagram, and other popular apps.
There are some privacy concerns with sharing user data in order to generate these ads, but the ads themselves will not be too intrusive on the user’s main screen. You will need to swipe up in order to view the full ad.
2. User Metrics
WhatsApp is starting to provide a suite that includes insight into user metrics, which are very valuable to businesses in understanding user behavior patterns. This attractive tool would be an additional charge on top of free access to the basic package.
WhatsApp announced on October 22, 2020, on its blog that it will enable users to make purchases directly from within their WhatsApp chat through Facebook Shops, which is an online store launched in May. This feature is projected to be available sometime in 2020, though the year is rapidly drawing to a close.
4. Facebook Hosting Services
Also on its October 22, 2020 blog entry, WhatsApp announced it would be offering Facebook hosting services to businesses. This would be Facebook’s entry into the cloud computing sector, and it would offer businesses that use its customer service messaging tools the ability to store their messages on the servers of the biggest social media company in the world (Facebook).
Currently, WhatsApp only has tens of thousands of businesses, but 175 million people interact with a business every day on WhatsApp. This offering is expected to be live sometime in 2021. In case you didn’t catch it, this means that Facebook would have access to all the data in the messages hosted on its servers.
5. More Charges for Business Customers
In the coming months, WhatsApp intends to start charging business customers for some of the services they use on WhatsApp. At this time, it isn’t public which services will remain free and which will going to have a charge.
Previous Model: Subscription
In its original format, WhatsApp was a pay-to-use app. It cost $1 to download, then an additional $1 per year to use. This was considered a nominal fee at the time, and since users were willing to pay that low price, the business moved forward under that model. Its growing popularity increased not only its revenue, but also its share of the market.
Facebook noticed its popularity and purchased WhatsApp in 2014 for $19 billion, one of the largest app purchases at the time. Soon thereafter, it removed the $1 download and use fees and made the service completely free. The initial idea behind this was that consumers would communicate directly with businesses using the app, and the businesses would pick up the cost rather than charging consumers direct usage fees. Those fees are estimated to be about $4 per user annually, with the potential overall annual revenue estimated to be around $5 billion.
WhatsApp is getting better and bigger. As of the summer of 2020, Forbes told the world that WhatApp would be coming to the iPad and users will be able to link four devices to a single account for seamless cross-platform access. Even if it loses money right now, WhatsApp is worth the investment in the long run. Its ever-growing user base makes it nearly essential to most users, and opportunities for advertising and business revenue will continue to grow.
There is even talk of interoperability with being able to message Messenger accounts. When apps like WhatsApp and Facebook become household names, other businesses will follow close behind to ensure that they can capture some of the precious exposure to be found on those platforms. WhatsApp is poised to take advantage of this in powerful ways moving forward.
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