how-does-whatsapp-make-money

How Does WhatsApp Make Money? WhatsApp Business Model Explained

Founded in 2009 by Brian Acton, Jan Koum WhatsApp got acquired by Facebook on February 2014 for $19B. In 2016 it was integrated more and more in Facebook products which allowed WhatsApp to focus more on interactions between its users and businesses. In 2018 WhatsApp rolled out customers’ interactions services, and it started to make money on slow responses from companies. We don’t know precisely how much revenues WhatsApp makes as it is not specified in Facebook Inc. financial statements.  

WhatsApp origin story

Koum and Brian Acton 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.

The name WhatsApp is a pun on the phrase What’s Up, and it started as an alternative to SMS. 

Advertising as a broken business model 

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

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.

 

Published by

Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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