If WhatsApp is free, how does it make money?

It might sound like a question with an obvious answer. However, someone recently asked me that same question “If WhatsApp is free, how does it make money?”. To my surprise, I didn’t have a clear answer to give them and it took me a while to finally understand myself. So if you’re like me and are not quite sure what the answer is, let’s take a look.

The short answer to the question

For many of us in Zimbabwe, WhatsApp has become our go to app for communication. Sometimes I don’t even realize that there’s a business behind this app that I’ve come to know and love. So how does WhatsApp make money if it is free? The short answer is it is not making that much money currently if any at all. The problem with the short answer is it leaves you wondering how has it been surviving as a business.

So let’s get to the longer answer of why it is where it is at. WhatsApp was founded in 2009 and the original idea was just to show a status like “At the gym” next to a contact in your phone’s address. According to an interview with Forbes, the founder Jan Koum says that people then started to use this status feature to send each other funny messages through the notifications feature of iPhones which had been recently made available.

A chat app is born

From seeing this, the app then evolved to become a chat messaging app. Back in the day, SMSes were king of communication until WhatsApp became a chat app. All of a sudden, you could send more messages to more people regardless of their location for less. The app then began to grow in popularity and by 2013, the app had already started charging people $0.99 per year in certain countries and had more than 250M active users.

At this point in time, WhatsApp had been running on the initial investment they got and the $0.99 subscription fee. We all know that that subscription fee didn’t work here in Zimbabwe and other markets where WhatsApp is popular. However, that revenue source seemed to keep the lights on for them long enough for them to get more funding.

The $19 Billion acquisition

In February 2014, WhatsApp was bought by Facebook for $19 Billion. To some analysts, this seemed too high of a price to pay for a company that was barely making that much money. So why did Mark Zuckerberg buy WhatsApp? According to some business people, he did it because he saw a threat to Facebook Messenger and some say that it was better for him to acquire WhatsApp which was dominating mobile communication than let his competitors get it.

All this while, WhatsApp had built a brand around 2 major things: not violating user privacy and not showing advertisements within the app. Those are some of the two things that can bring revenue to a company with a lot of data, either you share user data with other companies or you sell ads to other companies and show them in your app.

After the Facebook acquisition, many people feared that those 2 things that WhatsApp had promised to never do were going to happen. I mean the company had to start making money in order to justify the $19 Billion valuations that it got from the Facebook acquisition. The company then decided to set the record straight in a blog post saying that they were not going to go against their values. From other interviews, it was revealed that Mark Zuckerberg gave the company 5 years to focus on growing their user base while having the support of Facebook.

The foundation for WhatsApp monetization

2 years later on 18 January 2016, WhatsApp removed the subscription fee which was still active in some countries. A few weeks later, the app reached 1 Billion monthly active users. Clearly, their plan was working but that 5 year period was still getting used up and they had not started working on making money in a way visible to users. That is until August 2016 when they announced an update to WhatsApp privacy policy which would allow them to share some user data with the Facebook group of apps in order to provide better-targeted ads and other features on Facebook and Instagram.

Up to this day, there is no clear revenue source for the app. Some say that they are earning from the data that they are sharing with Facebook but Facebook has made it its job to not clearly show whether WhatsApp is earning from their Ad revenue or not in their financial records. However, recently, some discoveries have been made which indicate to potential ways that it could start making money.

Potential ways WhatsApp will start making money soon

First thing is WhatsApp payments system within the app. It would allow people to do an instant bank transfer and maybe WhatsApp could charge a fee for that. We’ve seen this already done in other chat apps like WeChat and Telegram which are similar to WhatsApp. The second way is an entirely new app. It will be a WhatsApp for business which would allow businesses to directly communicate with their customers in an easier way. The businesses could potentially get charged for sending advertisements etc.

Now the upcoming years leading towards 2019 will see new features and or products coming from WhatsApp which will help them start making money. I would like to hear your thoughts on this. What ways do you think WhatsApp could start making money? What things would cross the line for you if they came to the app in order for it to make money. Let us know in the comments section.