how-does-whatsapp-make-money

How Does WhatsApp Make Money? Why WhatsApp Will Become A Super App

Founded in 2009 by Brian Acton, Jan Koum WhatsApp is a messaging app acquired by Facebook in 2014 for $19B. In 2018 WhatsApp rolled out customer interaction services. WhatsApp might be transitioning toward a set of features from video chats to social commerce that might transform WhatsApp into a Super App.

WhatsApp origin story

Brian Acton and Jan Koum, 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.

WhatsApp is a pun on the phrase What’s Up, which started as an alternative to SMS. 

Advertising is a broken business model, according to its founders 

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 the company would be acquired by the largest digital advertising network after Google in a couple of years.

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.

Suppose Facebook isn’t planning to monetize WhatsApp directly in the long term.

What plans and how will it integrate with its overall products in the long run? 

Other handpicked related business models: 

Related Business Models

Mark Zuckerberg Empire

who-owns-facebook
Mark Zuckerberg is the principal shareholder of the company. Not only he retains ownership and control of the company. Facebook, like Google, has issued two kinds of common stocks, Class A and Class B. Where the holders of Class B common stocks are entitled to ten votes per share, and holders of our Class A common stocks are entitled to one vote per share. Mark Zuckerberg has a total voting power of 57.9%. 

Attention-Merchants Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

facebook-business-model
Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

Facebook ARPU

facebook-arpu
The ARPU, or average revenue per user, is a key metric to track the success of Facebook – now Meta – family of products. For instance, by the end of 2021, Meta’s ARPU worldwide was $11.57. While in US & Canada, it was $60.57, in Europe, it was $19.68, in Asia $4.89, and in the rest of the world, it was $3.43.

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organizational structure is organized around the leadership of Mark Zuckerberg and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Metaverse Supply Chain

facebook-metaverse

Google Business Model

hidden-revenue-model-google
A hidden revenue business model is a pattern for revenue generation that keeps users out of the equation, so they don’t pay for the service or product offered. For instance, Google’s users don’t pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.

TikTok Business Model

tiktok-business-model
TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

instagram-business-model
Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

how-does-youtube-make-money
YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it generated more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

how-does-twitter-make-money
Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

Leave a Reply

Scroll to Top
FourWeekMBA