How does WhatsApp make a profit

Mobile communication - Why is Whatsapp actually free?

Last week, Whatsapp co-founder Jan Koum announced that he was leaving the company. Instead of technology, he wants to devote himself to other things in the future: playing his collection of rare, air-cooled Porsches or Ultimate Frisbee. Koum can afford it: When Facebook took over Whatsapp in 2014 for the price of 19 billion dollars, he and the second founder Brian Acton became a multimillionaire in one fell swoop.

Jan Koum gave no concrete reasons for his departure. But insiders want to know that he fell out with Facebook about the future direction of WhatsApp. That means: Koum did not agree with how Facebook wants to make money with WhatsApp in the future. Because to this day, the world's largest news app doesn't earn anything from its users. There are various reasons for this - and some ways that could change in the future.

1. Facebook can afford it

Even a company like Facebook does not simply pay a takeover of 19 billion dollars out of the postage. But with an annual turnover of 40 billion dollars, Facebook didn't have to worry about being ruined by the purchase - especially since most of the sum was not transferred in money but as share capital. In short: Facebook could afford Whatsapp. And Facebook can also afford not to make any money from the service.

Because WhatsApp is probably not particularly expensive to run. At the time of the takeover, only 50 employees were working for the app. It is not known how much it is today and what WhatsApp costs. Facebook does not show the service separately in its annual figures. However, it can be assumed that Whatsapp is not a particularly large budget item in Facebook's cost accounting.

2. Better us than anyone else

When Facebook took over Whatsapp, the news service was growing rapidly. At that time, a good 1 million new users are said to have been added every day. Today Whatsapp is the most widely used messaging app in the world with around 1.5 billion monthly users. Facebook's own messenger app follows only in second place with a good 1.3 billion.

The takeover was also about incorporating a company that Facebook threatened to outperform in the important field of mobile Internet use. And also about preventing Whatsapp from falling to a competitor such as Google or Microsoft. Achieving this was more important to Facebook than a lucrative business model for the app. True to the motto: We'd rather not earn money with WhatsApp than that someone else would compete with us.

3rd subscription? No thanks. Growth? Yes gladly

Before it was acquired by Facebook, Whatsapp made money with a subscription fee of $ 1 a year, which was due after the first year of use. If all users had to pay today, the app would earn an impressive 1.5 billion dollars a year.

“Should” and “would”: Facebook canceled the fee in 2016 - probably to allow the number of users to continue to grow unchecked. There is nothing to suggest that Facebook intends to reintroduce the subscription fee in the future.

4. Better corporate customers than advertising

The two Whatsapp founders have always fought against advertising being displayed in Whatsapp. Nobody knows whether Facebook will continue to adhere to this principle now that after Brian Acton Jan Koum will also leave the company. However, it can be assumed that aggressive advertising will continue to be avoided in order not to annoy users (see also: 1. Facebook can afford it).

Nonetheless, certain forms of advertising may also become possible with WhatsApp in the future: Facebook has long been trying to make the service useful for corporate customers. A bank could, for example, provide customer service there, inform an airline about delayed flights, or an online retailer could send its customers links to bargain offers (if they have registered for such a service). Facebook would then collect a fee from the company for this.

Not least these plans led to the departure of Jan Koum, it is said. Because in order for the options described above to work optimally for corporate customers, Whatsapp would have to provide them with more user data than before and possibly also weaken the strong encryption of the messages.

Today it is the case that WhatsApp messages are protected with end-to-end encryption. That means: Nobody except sender and recipient can read the content. Whatsapp itself does not sell any user data. And user data such as telephone numbers may no longer be shared with the parent company Facebook; court judgments in different countries and the new European data protection regulation require it.

5. China shows how it's done

Anyone looking for possible business models for Whatsapp can look to China. WeChat is the third most popular news app in the world there. With a good 1 billion users, WeChat is behind Whatsapp and Facebook's Messenger, but unlike Whatsapp, WeChat is already generating billions in sales - and advertising only makes a small contribution to this.

The reason: The service launched in 2011 lets its users do much more than just exchange messages. In the app they can also play games, order taxis, book trips or transfer money. With these services alone, WeChat is said to have made around 5.5 billion dollars in sales in the first half of 2017.

No wonder, Facebook is also testing similar business ideas for Whatsapp, for example with the offers for corporate customers described above. And Facebook is also interested in the ability to transfer money in the app. A test is already running in India.

If, in the future, Facebook could divert a small percentage of each transfer for itself - like credit card companies do - a lot of money would come together very quickly. With WeChat, around two thirds of users should use the corresponding offer. If there were just as many on Whatsapp, that would correspond to a user base of 1 billion people.

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