Introduction
WhatsApp is a free cross-platform messaging app predominantly used on mobile devices. Chances are you’ve heard of it. In fact, WhatsApp is the most popular messaging app out there. The app has been downloaded by over 1.5 billion people, 60 billion messages are sent daily, and 450 million people are daily active users. And these numbers are steadily rising. WhatsApp is mainly used for private communications between individuals but is also being used by employers to communicate with their employees and other organizations. WhatsApp gains its appeal by providing a secure, fast and simple user experience. People mainly use WhatsApp to send instant text messages, voice messages, documents, pictures and videos; but WhatsApp can also be used to make voice and video calls.
WhatsApp started as a way to link contacts with status updates (similar to Facebook and Twitter) but ended up becoming an online instant messaging sensation. Jan Koum, a Ukrainian immigrant, founded WhatsApp along with Brian Acton. Both were former Yahoo! employees before coming together in 2007 to create WhatsApp. Koum favored minimalism in their app design, while being very methodical in their approach. Koum incorporated WhatsApp before he had even written any code, and then outsourced the coding to offshore coders to finish the build. Investors recognized the potential in WhatsApp early on, so they had little trouble raising needed capital. Eventually the app launched in 2009 and has been gaining ever since. A lot of their success comes from their uncompromising attitude towards simple solutions without succumbing to industry norms. For example, they said no to adds that clutter the user experience. Koum’s objective is simple: “I want to do one thing and do it well.” Indeed, when it comes to private communication they are doing very well. So well, in fact, that WhatsApp has needed little to no advertising at all. The easy to use user experience speaks for itself. And due to the nature of social networking, one person can compel their circle of friends and family to join WhatsApp, and those people can do the same, creating a word of mouth wildfire effect.
When considering WhatsApp’s competition, their dominance in the mobile communications realm is quite impressive. Facebook, one of WhatsApp’s main competitors, thought the same about WhatsApp and made the move in 2014 to purchase WhatsApp for a historic $19 billion. WhatsApp has since been able to still maintain a good amount of autonomy, but Facebook has been pushing to find ways to monetize the app while keeping it free.
WhatsApp’s business model
Facebook’s strategy in its historic move to purchase WhatsApp was multifaceted. At the time of the acquisition, WhatsApp was the only widely used app that had more daily engagement and a higher daily usage ratio than Facebook. This move can be seen as a defensive, self-preservation effort by Facebook. Since then, WhatsApp has been gaining about 25 million users every month. Now it’s Facebook’s second biggest intellectual property, surpassing Facebook messenger and Instagram. But when Facebook dished out $19 billion to acquire WhatsApp, they surely also had monetization in mind.
The question is, how can Facebook monetize WhatsApp without compromising what many regard as WhatsApp’s main competitive advantage: an ad free, secure, minimalistic and easy to use interface?
Well, at first WhatsApp decided to forego its free to use model by charging every user $1 after a year of using it free. The idea is to get users hooked on the user interface and their unobstructed ability to freely, securely and instantly message the people closest to them. It is tough to switch platforms when everyone you know has been entrenched in this software. What is $1 if it means a years’ worth of undisrupted (and most importantly ad and clutter free!) communication with your favorite people? Under this model, yearly revenue was about $700 million per year at the time, since WhatsApp had about 700 million returning users that year.
In 2016, Facebook revealed that it would end WhatsApp’s era of subscription-based service and moved to a free to use model. They were able to make this move without compromising what made WhatsApp special (still no ads, still had a minimalist design). In its announcement, the company wrote:
“Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from.”
Basically, WhatsApp wants its users to be able to communicate with businesses over the app directly (such as airlines, banks, etc) and is charging the relevant business for this service. So far this seems to be working. WhatsApp is estimated to have revenues upwards of $5 billion.
One-way WhatsApp is charging businesses is by, firstly allowing free 24 hour correspondence between consumer and business, and then charging to continue the conversation. Josh Constine in his article “WhatsApp Finally Earns Money by Charging Businesses for Slow Replies” explains:
“If users get quick answers via WhatsApp, they’ll prefer it to other channels. Once businesses and their customers get addicted to it, WhatsApp could eventually charge for all replies or any that exceed a volume threshold, or cut down the free window.”
Constine noted that charging businesses to have prolonged, reactive conversations may be decent revenue stream. But the bulk of WhatsApp’s revenue will come from automated notifications such as receipts, boarding passes, shipping confirmations, etc. Something like a shipping confirmation requires multiple days’ worth of communication since it entails not only a confirmation that an item was ordered, but also that the item was shipped and delivered. This kind of communication is called “application-to-person” or A2P. The A2P market is expected to each $70 billion by 2020, according to Zion Market Research.
Facebook is also launching a “new display ads products”. Unlike Facebook messenger which crams ads into your sacred screen real estate, WhatsApp will be used in conjunction with Facebook for businesses to reach individuals. Businesses can buy ads on Facebook that when clicked on, will launch a conversation in WhatsApp with them. It is a sneaky effort to incorporate ads in WhatsApp without compromising any screen real estate, but these days might be coming to an end soon.
According to Constine, WhatsApp is planning on running ads on their app similar to how Snapchat runs ads on a separate, dedicated page on the app. A WhatsApp spokesperson said:
“WhatsApp does not currently run ads in Status though this represents a future goal for us, starting in 2019. We will move slowly and carefully and provide more details before we place any Ads in Status.”
Koum’s vision of an ad-free space is slowly fading away and it begs the question if ad-free software of this nature is even viable. This comes in wake of Facebook’s 20% ($120 billion) market cap drop due to Facebook’s reduced revenue. Facebook is forced to find new streams of revenue, and WhatsApp represents just that for them.
Why should businesses use WhatsApp?
Chances are your customers are already using WhatsApp. A Nielsen’s Facebook Messaging Survey showed that a surprising amount of people are willing to engage with businesses in app. 67% of mobile messaging app users expect to use these messaging apps to engage with businesses in the next two years. Furthermore, 53% said they were more likely to make a transaction with businesses they can directly message. These numbers are higher among younger people between 18 and 29.
As mentioned before, WhatsApp has a very high engagement ratio. 98% of messages sent thru mobile devices are opened. This means information sent through WhatsApp is highly likely to be consumed. When it comes to word of mouth marketing, WhatsApp is a powerful tool to spread information on a product or service since WhatsApp is becoming a key way of sharing content between individuals. 84% of content sharing online happens on private channels like WhatsApp.
WhatsApp is a great way to reach and maintain relationships with potential customers, especially since emerging generations are demanding a more personalized treatment online.
How are businesses using WhatsApp?
Many business sectors can take advantage of WhatsApp’s directness by integrating WhatsApp in their communication and marketing. This has been extensively done in Europe, namely in Germany and Austria.
Media outlets such as Tv broadcasters and radio stations are using WhatsApp as another channel to broadcast their content. Since new content is broadcasted by the hour, it makes sense to utilize WhatsApp to reach consumers nearly instantly. Many German media outlets such as OÖNachrichten and Wien Heute Express are utilizing streams through WhatsApp. Sport outlets are doing the same by sending out match details, live score tickers and betting odds to their subscribers. Shopping outlets have a lot to gain by this. They can offer deals and marketing campaigns directly to their WhatsApp subscribers. Additionally, consumers can contact relevant consultants on products that they have questions on. When it comes to traveling, following a WhatsApp service like TUI Austria will keep you up to date on weather info, local events and holiday offers. The list of sectors goes on and on. Whether it is real estate, health and fitness, or if you’re looking for a job; WhatsApp has services for all of the above and more.
WhatsApp advantages
WhatsApp entered an already populated instant messenger market. Chats like Skype, Facebook chat, and BB messenger have all been around since before WhatsApp’s inception. But WhatsApp beat all these chats in terms of market share. What keeps people from using other messengers? Well it isn’t what WhatsApp does that puts them apart. Rather, its how they do it. WhatsApp’s user experience is simple and intuitive. This increases the recall value of the app and keeps people engaged. It is the user experience that keeps people around. The app was bound for success once the user experience was simple and attractive enough for seniors and youngsters alike. Many other messengers had moved towards ads within their apps as a revenue stream, but WhatsApp made it clear that they would not move that route. Additionally, WhatsApp stuck to its core function: messaging. As the app expanded its features, these expansions complimented the apps ability to send messages (whether by adding video calls or send receipts).
WhatsApp has broad cross platform support. Whether on iOS, android, windows 10 or windows phone (and many, many more) WhatsApp has got you covered. This availability is key since WhatsApp relies on a broad network for its users to communicate through.
WhatsApp and other messaging companies have recently been pressured by governments to increase their security after finding out that terrorist organizations are using these channels to communicate and further their agendas. Governments wanted to gain access to the encryption keys of these companies so that they can essentially spy on terrorists. Many companies, like WhatsApp, refused. WhatsApp specifically adopted a “end-to-end” encryption on their messages to prevent any outside entity (including WhatsApp) from accessing the data shared between communication channels.
Conclusion
In conclusion, WhatsApp is here to stay but is facing challenges regarding its values and identity. Will WhatsApp preserve its commitment to security, simplicity, and an ad-free user experience. Will Facebook’s fiscal demands forgo these values championed by Koum? Whatever may happen, it will have a lasting impact on how companies handle instant messaging for years to come.
Questions
- What sets WhatsApp apart from competing messaging apps? How has WhatsApp been able to maintain very high engagement rates?
- How has WhatsApp been able to be profitable? What revenue stream has WhatsApp used in the past? How have they changed?
- What are some concerns WhatsApp faces? Do these concerns endanger WhatsApp’s core values? Do you think WhatsApp should reconcile these values?
- What are some ways businesses can use WhatsApp to gain/engage customers?
Citations
Brantley, Wade. “The Power of Simplicity: A WhatsApp Case Study.” Business 2 Community, 23 Aug. 2014, http://www.business2community.com/startups/power-simplicity-whatsapp-case-study-0983034.
Brown, Morgan. “WhatsApp, The Anti-Marketing Growth Phenomenon.” GrowthHackers, 2015, growthhackers.com/growth-studies/whatsapp.
Constine, Josh. “WhatsApp Finally Earns Money by Charging Businesses for Slow Replies.” TechCrunch, TechCrunch, 1 Aug. 2018, techcrunch.com/2018/08/01/whatsapp-business-api/.
Levy, Dan. “The $70bn WhatsApp Business Story Nobody’s Talking About.” Marketing Tech News, 4 Sept. 2018, http://www.marketingtechnews.net/news/2018/sep/04/70bn-whatsapp-business-story-nobodys-talking-about/.
“Marketing Through WhatsApp – The Need-to-Know Case Studies and Best Practice.” We Are Adam, 9 July 2018, http://www.weareadam.com/blog/marketing-through-whatsapp-the-need-to-know-case-studies-and-best-practice/.
Page, Vanessa. “How WhatsApp Makes Money.” Investopedia, Investopedia, 12 Mar. 2019, http://www.investopedia.com/articles/personal-finance/040915/how-whatsapp-makes-money.asp.
Schwarz, Sonja. “Best Practice: The 8 Best Examples of Successful WhatsApp Services.” Blog, 6 Feb. 2017, blog.atms.at/best-examples-successful-whatsapp-services.
Srivastav, Mithil. “Product Strategy Done Right: WhatsApp Case Study.” Medium, HDFC RED, 15 Dec. 2016, medium.com/hdfc-red/9-product-strategy-commandments-6993a76e8e5d.
“WhatsApp Marketing for Business: A Guide for Getting Started.” Hootsuite Social Media Management, 11 Apr. 2018, blog.hootsuite.com/whatsapp-marketing/.
Yang, Jingwen. “A Case Study – WhatsApp Records Capture.” Digital Preservation Coalition, 27 Oct. 2018, dpconline.org/blog/idpd/whatsapp-records-capture.
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