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How WhatsApp Generates Profits

Introduction

The thing I truly mean is that WhatsApp has had a wild journey. WhatsApp, which was created by two adamantly anti-advertising and pro-privacy entrepreneurs, is now owned by Facebook, the internet giant with the lowest regard for user privacy.

While WhatsApp prospered under Facebook, increasing from 450 million monthly active users at the time of acquisition in 2014 to more than 2 billion monthly active users, the founders ultimately left Facebook over differences over WhatsApp’s monetization strategy; one of them even left before his shares vest.

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This article will chart WhatsApp’s development, including the product, its early monetization techniques, its current operating systems, and its long-term objectives. Because without that background, it would be useless for you to comprehend “How Does WhatsApp Make Money?” we will also explore all of the significant directional adjustments as we go along.

How Was WhatsApp Created?

Jan Kaoum and Brian Acton collaborated at Yahoo from 1998 to 2007 before creating WhatsApp in 2009. They both submitted job applications to Facebook between leaving Yahoo and starting WhatsApp, but both were rejected.

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In January 2009, WhatsApp was established after its founders bought an iPhone and realized the app market was a largely untouched niche with plenty of room for growth. The Apple App Store had only been open for about six months at the time, starting on July 10, 2008.

Even though WhatsApp is now a messaging app, it wasn’t when it first came out. Users could only change their statuses, which other people in their network could see.

WhatsApp became more popular after Apple introduced Push notifications in June 2009, enabling users to receive notifications whenever a network contact changed their status. Users found this feature to be so enjoyable that they started pinging each other using the program, turning it into an instant messaging app.

The number of users reached 250,000 after WhatsApp version 2.0 added the messaging feature, which is today the service’s foundation. WhatsApp was one of the top 20 apps in the Apple App Store at the start of 2011.

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Investors started to pay attention to the software’s developers as its use became more widespread. The founders, however, refused because they wanted to build an ad-free network, and accepting venture financing might have meant that they had to give up their values.

The creators of WhatsApp explained their distaste for advertisements and lack of interest in ad-based revenue in a blog post from 2012 titled “Why we don’t sell adverts.”

Any company that sells advertisements dedicates a significant portion of its engineering staff to improving data mining, creating better code to gather all of your data, upgrading the servers that house all of the data, and making sure that it is logged, collated, sliced, packaged, and distributed. And the final result is a somewhat altered ad banner in your browser or on the screen of your mobile device.

Keep in mind that you are the advertised product.

In our quest to provide rich, reasonably priced, dependable messaging to every phone on the planet, our engineers at WhatsApp devote all of their time to fixing bugs, adding new features, and ironing out the smallest glitches. Both our passion and our goods are this. Your data is missing. We simply don’t care about any of it.

The creators of WhatsApp reluctantly agreed to take $8 million in venture capital funding from Sequoia Capital in April 2011, but only after receiving guarantees that the service would continue to be ad-free.

When WhatsApp reached 200 million active users in February 2013, Sequoia committed an additional $50 million at a $1.5 billion valuation. But how did WhatsApp make money in its early years if there were no adverts and no plans to add them in the future?

In the beginning, WhatsApp relied on a business strategy known as the “freemium” model, in which the software was offered for free for a year to draw users but required a $0.99 yearly subscription fee to remain operational. However, because the service was automatically renewed when their trial term ended, many WhatsApp users have never spent a penny.

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When Facebook (now META) paid $19 billion to purchase WhatsApp in 2014, it had 450 million active monthly users worldwide. In hindsight, the purchase, like Facebook’s acquisition of Instagram, not only assisted Facebook in maintaining its dominant position but also gave the company a significant operational edge going forward. However, Sequoia Capital, which made a $3 billion profit on an investment of $58 million, rather than Facebook, was the first winner of this agreement.

If you’re wondering why WhatsApp’s founder proceeded with the deal, one justification was that Facebook will allow WhatsApp to operate independently and pursue its objective. Following the acquisition, the WhatsApp founders posted the following on their blog:

“Today, we’re announcing a partnership with Facebook that will let us keep working toward this obvious goal. In addition to giving Brian, myself, and the rest of our team more time to work on creating a communications service that is as rapid, affordable, and personal as possible, this will enable WhatsApp to evolve and flourish.

No modifications will be visible to our users.

WhatsApp will continue to run autonomously and independently. You can keep using the service for a reasonable fee. No matter where you are or what smartphone you have, you can still use WhatsApp.

Additionally, never at any time will an advert interfere with your communication. If we had to compromise on the core principles that would always define our firm, mission, and product, our two businesses could not have worked together.

Everyone can now use WhatsApp for free.

The second crucial turning point in WhatsApp’s history came in January 2016, when the service was made freely available to all users. The founders of WhatsApp laid out their new strategy for monetizing the service in the same blog post that announced that there would no longer be any fees for users. Predictably, this strategy excluded using advertisements.

Naturally, some may be curious as to how we plan to support WhatsApp without charging subscription fees and whether the announcement today implies we’ll be introducing third-party adverts. No, is the answer.

We’ll start testing tools this year that let you use WhatsApp to communicate with companies and organizations. This can entail contacting your bank to inquire whether a recent transaction was fraudulent or an airline to inquire about a trip delay.

We want to investigate new technologies to make it simpler to transmit these messages on WhatsApp while preserving a spam-free experience because we all now receive them elsewhere, such as via text messages and phone calls.

Facebook Starts Using WhatsApp Data
2016 was an eventful year for WhatsApp. Following the adoption of end-to-end encryption in April 2016, when WhatsApp made its services free for consumers, no one, not even WhatsApp, could access the content of users’ chats.

When WhatsApp’s privacy policy was updated in August 2016 to let users know that some of their data will be shared with Facebook, the Facebook power grab was complete.

WhatsApp outlined the justification for the updated privacy policy in a blog post.

We’ll be able to track statistics like how frequently people use our services and battle spam on WhatsApp by working with Facebook more closely.

Additionally, if you have a Facebook account, Facebook will be able to send you more relevant adverts and more accurate friend recommendations thanks to the integration of your phone number with their systems. For instance, rather than an advertisement for an unknown firm, you might see one for a business you already do business with. You can get more details here, such as how to control how your data is used.

The privacy change was more about Facebook trying to profit from the acquisition than it was about WhatsApp’s capacity to track user metrics and fight spam, as WhatsApp had operated independently for two years after being acquired by Facebook and had no ambitions to run adverts.

End-to-end encryption is still in place, and neither Facebook nor WhatsApp will be able to access user messages, according to WhatsApp.

The founders of WhatsApp depart

In addition to being reassured that they could conduct business as usual after Facebook acquired WhatsApp in 2014, Zuck also assured the founders that they would not be subject to monetization pressure for the ensuing five years. Conflicts over WhatsApp’s monetization strategy developed as a result of the necessity to commercialize emerging earlier than expected.

Brian suggested moving toward a metered-user model, in which users would be charged after sending a certain number of messages, even if Facebook intended to integrate commercials in WhatsApp, an application that had been vehemently anti-ads.

After Facebook rejected his offer, Brian quit the company in September 2017 without even waiting for his shares to the vest, forfeiting $850 million. Following suit, Jan Koum left when his vesting period had passed in April 2018.

How does WhatsApp currently make money?

WhatsApp’s main sources of income are WhatsApp for Business and WhatsApp Pay. Additionally, “Click to WhatsApp” adverts that send Facebook users to WhatsApp create indirect revenue for WhatsApp. Since giving up its initial freemium model, WhatsApp has avoided using in-app adverts.

To better understand WhatsApp’s existing revenue sources, let’s look at them individually.

WhatsApp for Business

Businesses may better serve their consumers by creating product catalogues and providing customer service on WhatsApp thanks to the WhatsApp Business App.

The WhatsApp Business App is otherwise free to use, however, WhatsApp monetizes it using the WhatsApp for Business API. Major technological firms including Netflix, Uber, Wish, and a hundred more started testing the WhatsApp Business API just one month after its release.

Initial fees for slow replies were how WhatsApp made money off its WhatsApp for Business API. Business responses to user messages were free for the first 24 hours, after which they were subject to a per-message fee that varied by nation.

The first 1,000 chats with the new WhatsApp for Business API are cost-free, but after that, businesses must pay a per-conversation fee that varies by country.

Payments via WhatsApp

WhatsApp Pay is a continuation of WhatsApp’s strategic trend, which it has shown in recent years, of monetizing the platform through businesses. Companies must pay a flat transaction fee of 3.99 per cent even though WhatsApp Pay is a service that is free for end users. Only Brazil and India currently offer WhatsApp Pay support.

Revenue from “Click to WhatsApp” Ads that aren’t Direct
In addition to WhatsApp For Business and WhatsApp Pay, WhatsApp also makes money from advertising that links Facebook users to WhatsApp but is not displayed on Facebook or WhatsApp itself.

Because these advertisements are not displayed within the WhatsApp app, it would be inaccurate to attribute the revenue from these advertisements solely to WhatsApp; however, Facebook uses WhatsApp in this manner to generate income.

How much money does WhatsApp make?

Facebook is the only company that is aware of the precise revenue that WhatsApp generates because the parent company withholds the revenue breakdown of its various products.

According to Facebook’s 2014 Form 10-Q, WhatsApp generated a pitiful $1.28 million in revenue in the nine months before September 30, 2014. However, this was in the past, before WhatsApp began charging users $1 after the first year.

In a January 2016 article, Forbes predicted that by 2020, WhatsApp’s average user income would be $4, bringing in an estimated $5 billion in revenue for Facebook.

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The forecasts, however, were incorrect because they stated that WhatsApp would have 1,3 billion monthly active users by 2020, a figure WhatsApp had already surpassed by the middle of 2017.

Whatsapp’s Business Model

In November 2017, Forbes raised its revenue projections for WhatsApp from $5 billion to $15 billion, with an income per user range of $4 to $12.

Business product on How WhatsApp Generates Profits

The product’s contribution to the base revenue of its parent company is likely to increase in the upcoming years because WhatsApp’s earning potential is still far from being realized.

REFERENCES:
www.seekingalpha.com
www.investopedia.com
www.feedough.com
www.quora.com
www.productmint.com

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