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How WhatsApp earns Money? | Secret Business Model of WhatsApp | Dhruv Rathee - YouTube
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Hello, friends!
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From 'Good Morning' messages of the family,
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to the fake messages of WhatsApp University,
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today, WhatsApp has become the most popular messaging app in the world.
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They have more than 2 billion monthly active users.
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Meaning that 25% of the population of the world
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use this one app.
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But have you ever wondered,
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since this app is completely free to use,
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and there are no ads on this app,
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so how does this company WhatsApp earn money?
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In today's video,
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come let's understand the Business Model of WhatsApp.
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This video is powered by Vested Finance.
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WhatsApp was founded in the year 2009,
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by two people: Brian Acton and Jan Koum.
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Before this, the two had worked together at Yahoo! for 9 years.
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And when they left Yahoo!
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they were applying for jobs at various companies,
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they applied to Facebook but were rejected.
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They applied to Twitter but were rejected from there as well.
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In fact, in 2009, Brian Acton had famously tweeted,
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in it, he had written that he had applied for a job at Twitter,
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but he was rejected,
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but he wasn't too disappointed because the commute would've been too long.
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He tweeted something similar after being rejected from Facebook.
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Ironically, just 5 years after this,
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Facebook purchased WhatsApp for $19 billion.
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But before this, it is interesting to know
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where did they get the idea of creating WhatsApp?
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Jan Koum used to frequent gyms,
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and there he realised that
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he wouldn't be able to receive the calls of his friends.
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He kept on missing calls.
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That made him think that there should be an app,
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that would should a status that he was in the gym at the moment,
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so that his friends could see the status and understand
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that since he's in the gym, they shouldn't call him then.
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On this basic idea, he created the app
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WhatsApp.
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It's interesting to note that this app didn't have messaging.
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You couldn't send messages to anyone.
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Like you can do so now on WhatsApp.
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This app was simply WhatsApp.
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The word WhatsApp came from the words 'What's up?'
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Like you ask people, "What's up? How are you doing?"
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On this app, you could simply let others know what you were up to.
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Meaning that you could simply post your status on this app.
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You could write that you were in the gym.
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And the app would notify the rest of your friends,
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that you're in the gym.
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When you change your status, this app notified your friends and contacts.
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This app was created for doing merely this, initially.
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But eventually, he realised that
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some of the users of this app
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were using the status as messages.
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When one would change the status to doing something,
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their friends might update their status with whatever they were doing.
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So the first person would update their status yet again, in response.
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Similarly, people started using these as messages.
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Then they thought that
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it would be better to make the app a messaging service.
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And this idea was a huge success.
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Because back in 2009,
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there was only one other app on which one could message others for free.
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That was the BlackBerry's BlackBerry Messenger (BBM).
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The problem with it was that
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you had to have a BlackBerry phone.
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So only the users of BlackBerry phones could use BBM.
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And WhatsApp filled in a gap here.
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The users of other phones
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felt the need for a free messaging app,
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and WhatsApp became that app.
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Within days,
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it was downloaded over 200,000 times.
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WhatsApp started receiving funding from investors.
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WhatsApp's popularity skyrocketed on its own.
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Without any marketing or ads.
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Because users liked it so much that they told their friends about it.
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Those friends told their friends,
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and WhatsApp saw organic growth.
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As you'd remember, around 2009,
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these telephone companies used to charge a lot of money
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for sending each SMS.
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Calling rates were based on minutes per call.
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They were quite expensive.
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And here was a clearcut free option
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so people started using WhatsApp.
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Within the next 2 years, this app became one of the top 10 apps in the AppStore.
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This was true for almost every country.
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Except for America.
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In America, in 2009,
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most of their telephone companies had flat rates for SMSs,
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and free calling minutes.
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So this wasn't a great incentive for the Americans
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to use WhatsApp.
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They continued with using SMSs.
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And even today,
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the USA is one of the worst performing markets for WhatsApp.
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Can you imagine it?
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WhatsApp saw its growth due to European, Asian and African countries.
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Talking about money,
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initially, there weren't many expenses to run WhatsApp.
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They had a small team,
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they had built a simple app.
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They weren't spending money on marketing or running ads.
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So the biggest expense of running WhatsApp
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was actually the cost of sending SMSs.
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The verification text that WhatsApp sends when a user joins it,
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so the one SMS per user they had to send for verification,
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was their biggest expense at the time.
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Where could they get money for this?
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They had received some investments.
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With their success, more companies wanted to invest in them.
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They would give them money in exchange for their shares.
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But the investments weren't exactly pouring in.
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So they came up with a new business model.
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WhatsApp started charging its users $0.99
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about $1 per year,
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they started charging their users to use this app.
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You heard it right, WhatsApp wasn't a free app anymore.
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They started charging $1.
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But despite that, the user experience of their app was so good,
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and the app worked so smoothly,
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on top of it, new features were being added,
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like you could now send photos over WhatsApp.
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Their growth continued.
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By 2011, their app had become the top app in the AppStore.
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Acton was clear about one thing.
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He had stuck a note on his table.
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"No Ads! No Games! No Gimmicks!"
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He didn't want to run any ads on WhatsApp.
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Nor did he want to add features that had no greater purpose.
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He wanted to keep the app simple and to the point.
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The app built for messaging.
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He wanted the app to be so good at that one thing
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that no other app could compete with it.
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And people keep on using it.
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Their $1 Business Model was very successful.
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Within 3 years,
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WhatsApp became a profitable company.
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All the money they earned was spent on their small team.
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So that new features could be added to WhatsApp.
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The problems in the software could be rectified.
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And a reliable messaging app could be created.
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They claimed that their product was their passion.
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And that the users' data wasn't something that interested them.
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That they had no interest in taking users' data.
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But after this, Facebook makes an entry in our story.
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And this Model started crumbling apart from here.
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Mark Zuckerberg was trying to buy WhatsApp since 2012.
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But this deal was finalised in February 2014.
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And WhatsApp is taken over for $19 billion by Facebook.
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And the employees working in WhatsApp,
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now became Facebook employees.
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WhatsApp founders had a meeting with Google CEO Sundar Pichai as well.
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But no deal was finalised with Google.
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Friends, if you're feeling inspired by WhatsApp's story,
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Only a few years ago, this process used to be very difficult
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Through this app, you can invest in the stocks of giant US companies like
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And I'd like to give you a small tip while investing,
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Diversify your portfolio,
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or else if one company crashes, all your money would be lost.
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You have to be careful about these things.
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Invest only after sufficient research once you're absolutely sure about it.
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Getting back to the topic.
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Facebook was so desperate to buy WhatsApp,
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because WhatsApp was the biggest competition of Facebook Messenger.
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And by 2014,
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several other messaging applications had popped up in competition.
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Like WeChat, Kik, Line and Viber.
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Facebook wanted to buy WhatsApp so that
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there'd be no significant competition after they own both Facebook Messenger and WhatsApp.
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Apart from this, WhatsApp had access to the user data of so many people,
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and Facebook realised that they could use this user data to earn more money.
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Because Facebook runs its company by selling data.
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We'll talk about this in some other video.
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When we discuss the Business Model of Facebook.
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After this deal, Acton and Koum, the founders of WhatsApp became billionaires overnight.
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If you're wondering about their reason to sell WhatsApp,
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Facebook and Mark Zuckerberg had told them that
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they would allow them to run WhatsApp independently even after the acquisition.
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That there would be no interference in their work.
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Thus they agreed to sell it.
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It sounds like a good deal.
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They get the money and don't even have to compromise on their values.
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But there is no happy ending in this story.
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Because there were constant conflicts between Facebook and WhatsApp over the next years.
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The team of WhatsApp and its founders
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and the way Facebook was pressurising them.
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In January 2016, we get to know that
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WhatsApp had removed its $1 fees.
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And WhatsApp became a completely free application again.
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The reason behind it is said to be
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that there are many countries like India where people don't have credit cards.
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So they weren't able to pay the $1 fee,
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and many people were actually unable to afford it.
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In this case, making this a free app helps in developing a larger user base,
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so they decided that since they wanted to expand and have more users for their app,
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they would have to make the app free to use.
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The question then arose, what should be the Business Model?
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How should they earn money?
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During this time, it was being said that
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WhatsApp would try to get into partnerships with businesses
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and would try to find a source of revenue from there.
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At the same time, Mark Zuckerberg was being pressured by his investors
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because $19 billion had been paid to WhatsApp
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and so they needed to make some money out of it somehow.
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Somehow they had to justify the purchase and show that it was profitable.
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They had to make WhatsApp profitable quickly.
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In a way where they could earn more money from WhatsApp.
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In turn, Mark pressurised the founders of WhatsApp.
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Fed up with this, the founders of WhatsApp
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gave up finally in March 2017,
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they couldn't take it anymore.
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Brian Acton resigned from his job in September 2017.
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A few months later,
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Jan Koum left WhatsApp too.
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Saying that Facebook's opinion on Data Privacy,
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and the Business Model that Facebook wants to force on WhatsApp
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aren't what he agreed to.
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And that he couldn't tolerate those in any manner.
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And so he was leaving WhatsApp.
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Friends, you can say that after 2018,
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Mark Zuckerberg established his control over WhatsApp.
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Brian Acton went on to establish a non-profit Signal Foundation.
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With this, we got the new messaging application Signal.
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As you know, many people compare Signal with WhatsApp.
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And believe that Signal is a superior app in many aspects.
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It protects your Data Privacy,
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it's a free application like WhatsApp.
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And most importantly, it is a non-profit application.
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This time around, Brian decided that
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he didn't want to get entangled in Business Models,
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because whenever they run after profits,
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they have to compromise on the principles of the company in some way or the other.
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That's why Signal would remain a non-profit app,
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they wouldn't worry about making money,
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they would ensure data privacy of the users,
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and would provide the users with a truly free messaging app.
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Thankfully, we could get an app like this.
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But this video is on WhatsApp.
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So what happened to WhatsApp then?
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What was the Business Model that Mark Zuckerberg cooked up?
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In 2018, Facebook launched the WhatsApp Business app.
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On this app, businesses could create their business profiles.
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And the verified businesses,
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can link their websites and Facebook pages,
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with this business profile.
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Facebook established a link between Facebook Pages
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and WhatsApp.
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People can use the business profiles to go on Facebook through the link.
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They created an excellent option of promoting Facebook.
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The new users to visit the business profiles
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can now go to the Facebook Page with a click only.
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Although the WhatsApp Business application is completely free to use,
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but the Business API,
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is the source of revenue for WhatsApp.
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API is the Application Programming Interface.
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Basically, a medium through which
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multiple applications can communicate with each other.
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Or perform a function or a task.
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Let me explain this with an example.
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When you book a taxi on Uber,
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you would've noticed that the map on Uber,
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has the watermark of Google.
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Basically, Google Maps is providing its services to Uber.
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So that Uber can show a map on its app.
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Google is obviously not the creator of Uber.
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Instead, what's happening here is that Google Maps,
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is providing its API to Uber.
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It's providing its Application Programming Interface to Uber.
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Similarly, WhatsApp is selling its API to businesses.
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If businesses want to interact with customers over WhatsApp,
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and to automatically respond to the queries,
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they can do so,
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But if they use WhatsApp's API,
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they can even send shipping confirmation, appointment reminders
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and even sell event tickets to their customers.
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The revenue model is that
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if the businesses reply within 24 hours,
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sending the message is free for them.
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But if they need to reply after 24 hours,
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they have to pay a small fee then.
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The fees are calculated differently for different countries.
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On this table, you can check out the fees for various countries.
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In India, it is €0.0038
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for the first 250,000 messages.
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It is basically around ₹0.30.
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You might ask about the businesses that choose to use these services.
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Friends, the answer to it
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are the companies that deal with millions of customers.
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Like airline tickets,
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or travel tickets or movie tickets,
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or large banks.
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So the users of WhatsApp Business API are huge companies.
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Singapore Airlines, Booking.com,
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Uber, MakeMyTrip, Netflix,
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these are some of the examples of the users.
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Facebook didn't stop here friends.
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Facebook is looking for more ways it can earn money from WhatsApp.
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That's why they have integrated the option for making payments.
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It was started for Indian users,
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to make P2P payments.
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They're launching a service known as WhatsApp Pay
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from it, they would be able to earn some more money.
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Although, for normal users, it would be free to use WhatsApp Pay,
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but for the businesses,
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they would have to pay a flat fee of 3.99% on every transaction.
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In November 2020 WhatsApp Pay was launched in India.
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It was expected that this feature would become very popular.
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But thankfully, in our country, Unified Payments Interface (UPI) already exists.
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It doesn't charge this huge commission from businesses.
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This is the reason why WhatsApp Pay could reach only 0.02% of the volume of UPI.
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In total, 2.6 million transactions have been completed using WhatsApp Pay.
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Their total worth was ₹1.04 billion.
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Apart from this, Facebook is considering running ads on WhatsApp.
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So that they can earn even more money.
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It is being planned that the statuses in WhatsApp,
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would eventually host ads.
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Friends, if we talk about the total revenue WhatsApp generates for Facebook,
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we don't have detailed info available for it.
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Unlike the other Business Models on which I made videos,
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they had publicly available data.
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Because WhatsApp is a part of Facebook's company,
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Facebook doesn't show an additional revenue breakdown from WhatsApp.
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Forbes ran with an estimate in 2017,
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when WhatsApp had 1.3 billion users.
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They estimated that the average revenue per user of WhatsApp,
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could be anywhere around $4 to $12.
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The Indian division of WhatsApp earned a total revenue of ₹68.4 million in 2019.
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But their profit was said to be only ₹5.7 million.
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They had spent ₹34.3 million on paying salaries to employees.
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₹13 million on promoting the business, legal fees and professional fees.
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In Financial Year 2018, WhatsApp incurred a loss of ₹500,000.
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For the Indian operations.
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In India, it is estimated that more than 1 million businesses use the WhatsApp Business app.
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And worldwide, about 5 million businesses use it.
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With more businesses using WhatsApp to sell their products and services,
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the concept of WhatsApp Commerce is taking shape.
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Where many such businesses have come up,
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that sell their products exclusively through WhatsApp.
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In April 2020, Facebook made an investment of $5.7 billion in Reliance's Jio Platforms.
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After this deal, JioMart, Reliance's e-commerce platform
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started using WhatsApp for its transactions.
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So basically, WhatsApp is turned into a product
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on which things can be purchased and sold,
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on which payments can be made,
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and on which, you may even see ads in the future.
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Apart from these, what does Mark Zuckerberg plan to do with the data?
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We don't know much about it.
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But we do know that there was a recent controversy surrounding the privacy policy of WhatsApp.
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People are uncertain about the future,
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about how WhatsApp data would be used.
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Many people accuse Facebook of trying to use the data to earn more money.
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Time will tell.
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But I hope that you found the story of WhatsApp to be interesting.
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And informative.
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Let's meet in the next video.
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Thank you very much!
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