WhatsApp is a great application, but have you ever wondered how the company makes money? In this article, you’ll find out all the details about WhatsApp, including what makes it profitable.
WhatsApp has around 2 billion active users per month, making it one of the most popular messaging apps out there. Everyone I know is on it. On the app, you can exchange messages, photos, videos, and contacts.
Many students use it to exchange notes, and many companies use it for meetings and team discussions. It’s a great social hub that you don’t want to miss out on.
What I love about WhatsApp is that it’s completely free. There is no limit to the amount you can share on the app. There are virtually no restrictions. If no one is paying to use it, how does the app make money?
It’s also interesting to note that Facebook bought WhatsApp for a whopping $19 billion back in 2014. Is it really worth all that money? Facebook also doesn’t display any ads. Where are they making a profit?
Curious about these things? I’ve got you covered. I’ll also answer a bunch of other questions you may have about this legendary app. Let’s begin.
How did WhatsApp first get funding for development?
Five ex-Yahoo! friends pooled their funds together to grant the app’s first round of funding. These friends are now considered the app’s co-founders.
Sequoia Capital then invested its second and third round of funding, coming in at $60 million. These funds were the only source of income for the first 50 members of the WhatsApp staff.
Running the app actually didn’t cost much. Most of the costs involved sending verification codes to its users.
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Is WhatsApp even making money now?
Of course, they are. No one would develop an app and manage it for free. People’s time is valuable, and we’re all going to be paying for it one way or another.
Of course, WhatsApp makes money. It’s the #1 messaging app right now. It’s been downloaded close to 5 billion times. If it’s that popular, then it’s easy to assume that they’re making a considerable profit. Well, not really.
The app business is not that lucrative. Sure, you can develop an app and manage it at very low costs than other industries, but it’s a little more complex. Read on to find out more.
So how does WhatsApp make money without displaying ads?
You never see advertisements on WhatsApp, and it’s free to download. There are also no features unlocked through payments. How is this possible?
The main answer is its $1 yearly subscription, but this is only charged in some countries. It’s seldom required to get a subscription to use WhatsApp. Most of the app users are from India, and no one spends a dollar to use it.
The cheap yearly subscription is only applied to rich countries, meaning these folks wouldn’t mind sparing a dollar to use the service. In these countries, you get automatically subscribed for another year if you don’t do it manually. That is if you want to keep using the app.
So WhatsApp is making money using this $1 method. It seems like such a minuscule amount, but those dollars add up with its number of users.
Is WhatsApp making money or losing it?
Yes, WhatsApp is making money, but it’s still taking a considerable loss. Let me paint you a picture. Back in 2014, WhatsApp was making $15 in revenue. However, it was also carrying a $232.5 million net loss. In three years, that loss went up to $400 million. In another two years, it’s up to more than a billion.
Like I said before, the app’s most extensive user base is in India. In 2019, WhatsApp earned only around $1 million in revenue. So, yes, it is making money, but it is still losing it.
When Facebook bought out WhatsApp for $19 billion, it had around 20 million people paying the subscription every year. How come Facebook’s revenue is so high? Why can’t WhatsApp apply the same business model? Let me show you below.
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How do online businesses work?
If WhatsApp is the most used app in the world, why is it still making huge losses? Why is its revenue so low? Can we then conclude that the app business is not as profitable as it should be?
Many economists and analysts all say the same thing: the app business has enormous potential, and it’s the next big thing. Is this even true? If the world’s biggest app is not getting enough profit, what about the smaller, lesser-known apps?
There are so many apps available right now, and you probably think they’re all going to go down in flames. Wrong. Technology-based businesses are the future. Sure, some have failed, but that’s only because technology advances so quickly these days.
In the future, it’s safe to predict that the tech industry will have the most excellent profit range of any other industry. Currently, there are many apps making millions in net profits. So how do they do this despite most of these apps being free?
Unlike WhatsApp, many apps make money from advertising. Let’s take Google as an example. It’s free to use the search engine and their various other applications like Gmail and YouTube, but they have many advertisements. In fact, 97% of Google’s revenues come from advertising alone. That’s more than $100 billion.
Like Google, Facebook is also making money from displaying ads. Every time a user clicks on an ad, Facebook gets the money. So if you’re wondering how a free site or service manages to stay online, it’s usually through advertising.
Some apps straight-up ask you for payment if you want to use them. This may be in the form of yearly subscriptions or one-time fees. The best example of this is Microsoft Windows. You pay for the OS, and you’re free to use it as long as you wish.
There are so many business models that apply online. For this reason, many companies are switching over to the internet to conduct business. It’s actually economical for most companies to take advantage of the internet. On the web, you get exposure, and you don’t have to pay for office space.
How does Google profit off of their search engine? Let’s take a look at a standard insurance website. Its developers likely used the Google AdWord advertising platform. When a user searches “best and cheapest car insurance,” that site shows up as an advertisement on Google. If the user clicks on the ad, that’s a small cha-ching for Google. If enough people do this, that translates to massive revenue.
WhatsApp is still not a good revenue generator. Did you know that WhatsApp gets charged around $0.05-$0.9 per message sent? It seems like this is not a good business model.
Why is WhatsApp making less revenue compared to other popular apps?
According to Jan Koum, the WhatsApp team’s main goal right now is to increase its user base. They want to expand the company, product, and usership, not make money. Why would they not prioritize profit? Isn’t that the point of a business?
Well, Koum clearly thinks that there is a benefit to expanding their user base. Find out below what it is.
Why is Facebook more profitable than WhatsApp?
Facebook is a well-known social networking site, so it has a lot more potential to generate revenue. WhatsApp, on the other hand, is only a mobile app. It’s harder to display ads on mobile devices.
This really is a shame because users spend a lot more time on WhatsApp than any other social network. The average screen time of Facebook users is only 16 minutes per day. If we consider visiting times, it would be highly profitable for WhatsApp to display ads, but they don’t. Why?
Facebook is also for desktops. WhatsApp is meant to be used on mobile devices. Sites for desktops can potentially display more ads based on the amount of space.
Related Reading: How Does Zoom Make Money? Read Here.
What is WhatsApp’s business trajectory?
You might be confused as to why WhatsApp refuses to generate more income despite its immense potential. The main reason why Mark Zuckerberg doesn’t want to change WhatsApp now is that he wants a “cool” app. If they start displaying ads, people get frustrated.
Think about it. You might be chatting with your friends, and a bunch of ads pops up. Wouldn’t that be irritating? Right now, WhatsApp is competing with WeChat, Snapchat, and Line, all of which are ad-riddled. Hence people are flocking to WhatsApp for its clean UX and lack of annoying ads.
It’s a very business tactic because he’s gaining a larger usership. When he thinks enough people have joined his social network, he will start monetizing the app.
Zuckerberg is already ridiculously wealthy, so his goal is not to make more money but to influence people. He also has no pressure to do this because Facebook is doing quite well on its own.
Snapchat is already starting to monetize its features. As a result, only 300 million users have installed the app from the iOS and Play Stores. WhatsApp’s total installs broadly encompass that amount at 2 billion, which is seven times larger than Snapchat.
For now, Snapchat and WhatsApp are raking in $25 billion, so they are pretty much equal in net worth despite the discrepancy between their usership. If WhatsApp starts monetizing its features, the game is clearly over.
Which has the better business model: Snapchat or WhatsApp?
Snapchat was created by 26-year-old Evan Spiegel. He needed the funds to develop the app more, and this can only be done through monetization. Investing time and money in the tech industry is still risky.
You have to keep improving your app because many new ones are popping up left and right. If Spigel didn’t decide to monetize, his app would have been lost in the growing ocean of social apps.
What makes WhatsApp different? Well, it’s backed by the larger company that is Facebook. Owner Mark Zuckerberg doesn’t care about revenues anymore, at least not currently. His main concern is to expand the user base to dominate the market.
Zuckerberg is insanely wealthy, only surpassed by the likes of Jeff Bezos and Elon Musk; he doesn’t care about money anymore. Only about dominating his industry. He has the luxury to wait before he decides to monetize.
With Snapchat, it’s an entirely different story. It can’t take significant risks. Snapchat is loaded with advertisements, even if that tends to annoy people, but the company is still profiting greatly. I like Spiegel’s business model because he understands that he can’t compete with a behemoth like WhatsApp.
Zuckerberg is also doing it right because he has time on his side. These two companies are great examples of how to create business strategies based on the market.
Is WhatsApp really worth $19 billion?
WhatsApp is the new form of SMS, and Facebook wants to bank on that. Many other companies covered it, and that’s why Facebook stepped up and offered $19 billion. It generates tons of engagement, and people like to use it because it’s free for most.
Isn’t it incredible that a little piece of software meant for a smartphone could be worth that much? As I said, the future in tech and everyone is scrambling to get in on it.
Final Thoughts
WhatsApp is a good business model, but smaller app developers can’t adapt it. Unless you’re on the Forbes wealthiest list, it simply doesn’t make sense. If your dream is to make it big in the tech world, then learn code. Develop a great product and it might get purchased by a larger company.
If you’re curious about how WhatsApp makes its money, I hope I answered your questions above. For TLDR folks, yes, WhatsApp is making money but not nearly enough as it should because its goal is not to generate revenue but to expand usership.
