To many of us, WhatsApp is simply an instant messaging platform that we use. After all, it’s popular, easy to use, widely accessible, and most importantly – free.
Yet how can a free service survive in this day and age where everything is so highly commercialized?
To understand this, let’s take a deep dive into some mechanics. Today we’re going to explore how WhatsApp works and how that translates into a revenue stream.
What is WhatsApp?
Founded in 2009, WhatsApp has become the most popular instant messaging platform on earth. It has a tremendous audience size, with over two billion people actively using it each month.
To put this into greater perspective, that’s six times more than the total population of the US.
It is available on multiple formats – PC, Mac, iOS, Android, and even through their website as the WhatsApp Web service. Using any of these platforms, you can quickly and easily send messages to anyone.
Subscription Fees: The Aim to Make Small Money Big
When it was first introduced, WhatsApp intended to charge users a token $1 per download. This was to be followed by subsequent charges of $1 per year for use. This fee model is very popular among mobile application vendors.
When put into perspective, that $1 would translate into a revenue stream of billions of dollars. It was however, very short-lived and in some cases never materialized. Using the Android platform, I was not once charged for using WhatsApp.
This was despite constant reminders that I would soon be required to pay for the service. So what exactly happened that changed WhatsApp into a free service?
Acquisition by Facebook
In 2014 it was announced that Facebook would acquire WhatsApp for $19 billion. At the time, this was the largest sum the social media giant had spent to buy over another company.
This fact is something that’s supremely vital to addressing the question of how WhatsApp makes money. Facebook, as a social media platform, is also a service that is free to use. In contrast to WhatsApp, the company is quite clear on how it generates most of its revenue.
WhatsApp Itself Was Never Worth Much
Since the company was bought over by Facebook, nobody knows how much exactly WhatsApp earns on it’s own. It has been integrated completely into the Facebook revenue stream and is lost somewhere in there.
However, prior to the acquisition, the company never really earned all that much. In fact, despite its 500-odd million active users at the time, its finances were literally bleeding out of every orifice it had and then creating new ones to bleed out of.
This makes the question of why Facebook then turned it into a completely free service seem like a very questionable business decision. Or was it?
Understanding the Money Behind Your Data
Facebook primarily earns money through ad sales. Thanks to its massive database of users, advertisers have access to an instant potential target market. Advertising accounts for almost the entire revenue stream of Facebook.
For the financial year 2018, that was a whopping $55.8 billion.
In order to sell advertisements, Facebook relies heavily on data. This allows advertisers to build highly targeted campaigns catered to their unique blend of needs. The more data Facebook has, the more appeal it offers to advertisers.
This is the biggest factor which led to its purchase of WhatsApp for such a large amount. The $19 billion acquisition fee wasn’t for the company and its operations, but for the huge database of users that Whatsapp had acquired over the years.
How Digital Advertising Works
In the real world, most advertising metrics are estimated to a very wide margin. Locations and mediums of advertising such as billboards and magazines are tagged with ad prices based on estimates of how many people will potentially see the ad.
Unfortunately, this method isn’t very reliable because of this estimation. There is also no means to verify exactly how many people saw the ad. Digital advertising offers a solution to this conundrum, allowing not just highly precise costing, but also specific targeting and easily calculated Return on Investment (ROI) on marketing budgets.
In order to allow advertisers to access the specific markets they need, advertising platforms need information about their users – the more the merrier.
Free No-ads Messaging: At What Cost?
When WhatsApp joined the ranks of Facebook subsidiaries, that meant everything the company had collected about you now belonged to its parent. If you’re thinking this is only a few small details like your name and phone number – think again.
Depending on how you use WhatsApp, you may be giving the app more than you know. For example, your date of birth, location, contact list, and more. Aside from that, it can also gather information about your habits based on usage.
By installing and using WhatsApp, you’re actually agreeing to let them:
- Target ads at you
- Track your messages
- Track your calls
- Track the places you visit
And more. The invasion of privacy that using WhatsApp establishes is comprehensive and unstoppable unless you choose not to use the platform.
Incidentally, this isn’t unique to WhatsApp and Facebook, but even Google, one of the biggest companies in the world, comprehensively leverages its platforms for data with which to sell ads.
Can You Can Protect Yourself?
There are some ways you can help prevent handing over your data to companies (such as by using a Virtual Private Network). However, this is only helpful in general cases mostly.
If you want to use apps such as WhatsApp and Facebook, you’re literally handing your data over to them for free. In the case of commercial services, you’re in fact paying them and giving them your data.
Remember that the value of a company isn’t the cash all in the cash it has in hand – but the entirety of its assets. Today, a big part of that lies in data, of which WhatsApp has loads of. The massive sum spent to buy WhatsApp indicates this.
At the same time, it also goes to show what extent ad-centric companies like Facebook place on the data. As consumers, we all love free stuff. The reason why I’m highlighting this here is simply to remind everyone – sometimes, free really isn’t.