A lot of people wonder if apps as easy to download as WhatsApp, are truly free? Trading or the exchange of goods is the oldest form of business. Therefore, a free app like WhatsApp begs the questions: are WE, the customers, the product? How does WhatsApp make money? Let’s find out.
How Does WhatsApp Make Money: Income From The Users
WhatsApp was created in 2009 by Brian Acton and Jan Koum as an alternative to pricey SMS services. The app allows free chats amongst you and your contact book and uploads anything to send to anyone who has the app installed, at no cost. Before they knew it, the app was a hit globally and is now in most iPhones, Android phones, and desktops! Fast forward to 5 years later, Facebook purchased WhatsApp in February 2014 for $19 billion.
Do You Feed Into How WhatsApp Makes Money?
According to the 2014 Facebook Form 10-Q, in just nine months before the date September 30, 2014, WhatsApp generated revenue of $1,289,000.
Later, WhatsApp co-founder and then Facebook Inc. director Jan Koum announced his departure from Facebook. One story is that Koum decided to leave after a disagreement with Facebook over its use of user data and its desire to allow advertisements on WhatsApp. Co-founders Brian Acton and Koum have long been advocates for the privacy of WhatsApp users.
According to stats from February 2020, WhatsApp had 2 billion users and was Facebook’s second-biggest property.
Pre Facebook Rates and Post Facebook “Exemptions”
If you’re wondering how WhatsApp makes money, the short answer used to be $1 at a time. In some countries, the app used to cost about $1 to download while some other countries saw the first year as free, but each subsequent year costs $1 – in other words, WhatsApp was initially based on a subscription model.
As data showed that it has about 700 million users worldwide; yearly revenue can be estimated at $700 million per year at this time.
In January 2016, Facebook showed the world some incredible facts. They revealed in a 10-Q filing that because WhatsApp was monetized in “a very limited fashion,” it may not be generating meaningful revenue in the long term, giving us this inkling that their financial path of income might change. Soon after this, WhatsApp announced in a blog post that the era of subscriptions had come to an end, and the messaging app would now be free to use.
- Facebook wrote: “Starting this year (with the free model), we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from,” Industry speculators have said that part of the rationale behind acquiring WhatsApp was for Facebook to access user’s behavioral data and personal information. The goal is to have people communicate directly not only with friends and colleagues but also their banks, etc. over the app, while businesses pick up information.
- What we need to understand with such a statement is that your location that you share with a delivery agent, or the airline ticket that gets sent from your husband or wife showing your travel preferences, is no longer private anymore. It’s going to companies who you’ll possibly want to BUY from.
- With all user data location being stored, 65 billion messages sent per day, and access to users’ entire contact lists, Facebook has access to a ton of personal information – all of which is uploaded and saved on its servers.
- Founder Mark Zuckerberg has previously promised that this data won’t be used to improve consumer targeting in Facebook ads, but this isn’t the case unless the user changes the settings to not share information with Facebook.
Focusing on Growth
Through global market penetration, WhatsApp and messaging services in general, become indispensable and the user base skyrockets:
- WhatsApp’s financial statements aren’t public (Facebook doesn’t break down its revenue by the company), but Forbes estimated that the potential revenue is around $5 billion and the average revenue per user to be $4 by 2020.
- According to the data collected in February 2020, WhatsApp had over 2 billion users. The app is adding almost a million users per day, mostly in Latin America, India, and Europe. India has the world’s second largest population and these are huge numbers of customers.
- With SMS apps that offer video calls or instant document exchanges, when one person in a social group downloads and advocates using the app, many new users download the app to communicate with the original person. The new users will continue to encourage their family and friends to use the app.
End-to-End Encryption Controversy
Ah, the safety of seeing the words “End-to-End Encryption”! While opening the app or while opening a browser, encryption persuades us to keep continuing with what we are doing in a trustworthy manner. However, it all started with a controversy:
WhatsApp, as well as other messaging providers have been in hot water after issues started to pop up related to terroristic influences. After the news that terrorists used apps to communicate before and during attacks, governments and counter-terrorism agencies wanted the companies behind these apps to legally but unethically share the encryption key to gain access to messages sent and received by the terrorists. The companies, however, refused to oblige.
This also led to WhatsApp’s adoption of end-to-end encryption, which prevents anyone, including WhatsApp itself from access to the data shared on the app. Of course, this is exempt for the sender and receiver.
Whether you believe that end-to-end encryption prevents Facebook or WhatsApp from gaining meaningful financial revenue, the app is not going anywhere and neither is your need for instant SMS apps. If WhatsApp was to go back to charging people, a majority of the users would presumably find another free SMS app where it would again lead to imminent access to the user’s behavioral data and personal information. And if WhatsApp was to start showing you ads that you have to close like Youtube, you the user, will be willing to pay your way out by downloading a premium version that is ad-free.