How Whatsapp Makes Money – Whatsapp’s Revenue Model
Whatsapp was launched by Jan Koum and Brian Acton in early months of 2009 as a Status update application (hence the name Whatsapp). This application was further updated (Whatsapp 2.0) which transformed it into an Instant Messaging Application and started the real story. This Facebook owned IM Application now provides service to more than 1 Billion users all over the world.
Now, answering the question.
How Whatsapp Makes Money
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The founders hated advertisements, so they created a platform which doesn’t entertain any third party advertisements.
They wanted to create something for the users, not for the big companies to place ads. But at the same time, they had to pay their bills too. So they decided to come up with the paid version of the application.
Earlier Revenue Generation Strategy
Whatsapp got its first round of funding of $250k by five ex-Yahoo! friends who were granted a co-founder status and stake.
The second and third round of funding was carried by Sequoia Capital which invested a total amount of $60 million ($8 million in 2011 and $52 million in 2013) in Whatsapp Inc. This was the only source of income for the 50 staff members of Whatsapp. There wasn’t much expenditure involved in running the application; the primary cost included sending verification code to the users. This is why Whatsapp always used to wave off the $1 subscription fees. It only wanted to increase its user base to carry out some future partnership plans (read more about Facebook & Whatsapp’s relationship).
This strategy of creating a network first and money after actually proved to be fruitful. After two long years of being wooed by Facebook’s CEO Mark Zukerberg, Whatsapp was acquired by Facebook, on February 2014, for $19 billion and all the employees were put to Facebook payrolls including Koum, who is now a part of Facebook’s board.
(Read – Facebook Business Model)
New Revenue Generation Strategy (Facebook’s Strategy)
The acquisition resulted in a complete transformation of revenue generation strategies of Whatsapp. Whatsapp is now used as a user data generation factory, according to Whatsapp’s new terms, by Facebook. Revenue generation is carried out by Facebook’s user targeted advertisements on Facebook.com which ,after using Whatsapp users’ account information, can now target ads more appropriately.
Future Strategies for Whatsapp Revenue Model
Will this system of revenue generation continue for long?
Facebook has new plans for Whatsapp. There will be partnerships with the businesses like banks, ecommerce stores, and other business service providers which communicate to the users usually through text and calls. That is, this new partnership will result in businesses contacting you through Whatsapp messenger.
And this is how Whatsapp makes money.
Fun Fact: Google offered to pay Whatsapp in exchange for right to be notified if the messaging app entered into acquisition talks with other companies. (source)
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