WhatsApp is one of the most historic stories in the history of the internet. Founders Brian Acton & Jan Koum worked at Yahoo once upon a time. Their application for jobs in Facebook was rejected & ironically, in 2014 Facebook handed $19 billion to them to acquire their app WhatsApp which bossed over a billion users and 450 million monthly active users, which till date remains the largest ever acquisition. Derived from the common phrase used to interact “what’s up”, Koum & Acton managed to convince 5 colleagues of their former employers Yahoo & a Russian coder from RentACoder.com, they managed to raise $250,000 and launched WhatsApp in 2009.
The initial programming work of the app was outsourced, but the founders decided to design the logo themselves. In 2009, the app store from apple was relatively new but Koum saw huge future in that. He saw how apps can change the way people use their phones. In the beginning, the app was designed to just show status next to a person’s name in the contact list. The status could be busy, available, battery low etc.
WhatsApp Business Model
WhatsApp’s business model is exceptional and developing. Let’s understand the business model in detail.
Customer Segment: WhatsApp organizer Jan Koum is an immigrant from Ukraine and confronted a typical issue what most emigrants face, not being connected with the people they care about. WhatsApp was worked to take care of this very issue. Its customer segment was very clear – Friends, family staying afar who have cells phones with the internet connection.
Key Activities: WhatsApp was focused on building an incredible product. In a nutshell, that was single most elementary movement they did for the past years. They never went to any brooding, or a stage diversion, or a major media, and so forth. Simply centred around building an extraordinary application that individuals will love to utilize and spread. Zero use on conventional advertising strategies or no enormous PR exercises of any kind.
Key Resources: Of course their awesome dev group (of only 32 developers), and one person Neeraj Arora wearing numerous caps of BDM, PR, Marketing, etc. and a couple of different folks. It’s a super lean team. Another KEY asset is Sequoia Capital’s interest in them.
Key partnerships: WhatsApp did a magnificent job making basic tie-ups associations with 50+ carries around the globe. The application was coming pre-installed on numerous telephones. Additionally, their association with Sequoia Capital was a major lift. These organizations assumed a major part in WhatApp’s spread and feasible development.
Client Relationship: WhatsApp itself was a major client relationship implies for them. Aside from that, reasonable utilization of online life, legit blog posts, customary media appearance that came across their route, and in application notices. That’s it in a nutshell. Today, even a food street guy is additionally using WhatsApp for his order collection and client relationship.
Revenue Streams: WhatsApp has yearly $0.99 membership fees for iOS clients. For others (Android, Windows, and so forth) they don’t have any charges. In this way, that is one income stream there. My different evident figure is BIG DATA. As individuals on WhatsApp share tons and huge amounts of information, that is a goldmine of individuals’ opinions, offers, different preferences. Yet, that is only a figure.
Cost Structure: I think WhatsApp brings about run of the mill costs as any ordinary startup would acquire, for example, settled cost for organization arrangement, legal, beginning setup and furniture, at that point repeating expense of pay rates, utilities, server utilization, programming authorizing charges, and so on, and afterward at last factor costs, for example, business travel, and others. Be that as it may, this greatest thing with WhatsApp is it ran exceptionally lean. With minor 32 engineers, they are supporting 450mn dynamic clients which imply around 14mn clients for each architect, and 99.99% uptime. That is an exceptional lean task I should state.
How does WhatsApp Work?
November 2009 was when WhatsApp was launched for the first time on the app store for iPhone users. Two months later, it was introduced for BlackBerry phones as well. After 9 years, it is hard to find a person who is not using WhatsApp. Rick Reed, a software engineer at WhatsApp explains that the app works peer to peer. It does not connect two devices. Instead, it sends the messages to the recipient’s server. The server sends it to the recipient’s device.
It started with a text messaging service. You didn’t have to activate a pack to send unlimited texts. All you needed was an active internet & this app. This app would create a profile for you based on your phone number & would enable you to send texts for free via the internet. Conversations were pretty much one way on emails & text messages. Chatting platforms like yahoo messenger & other messengers were on computers only & BlackBerry Messenger (BBM) was limited to BlackBerry phone users only. This gave WhatsApp a large field to play on. It won’t be an exaggeration if we say that WhatsApp has literally changed the way people communicate.
When Apple launched push notifications, WhatsApp was quick to launch text messaging services and sighting the popularity of the app, in December 2009, Whatsapp enabled users to send pictures to each other as well. Today, you can send unlimited text messages, pictures, videos, geographic locations & many more things via WhatsApp. You can also create a group of selected contacts. You can make phone calls & video calls on WhatsApp. You can also use WhatsApp from your computer by scanning a barcode.
How does WhatsApp Make Money?
WhatsApp is ad-free to date. Most of the money that the founders made initially was through the price on which WhatsApp was put on. There was an initial fee to buy the WhatsApp app on app store & an annual fee of $1 for Android users. Until the takeover from facebook happened, especially in the initial years, this was all WhatsApp’s income as most of the programming was being outsourced for a fixed price. It was free for many countries for the first year. Then the user had to pay $1 every year. This was kind of a loophole as many people from other countries changed their country selection in the app store or play sore & downloaded WhatsApp for free. If you multiply that with 450 million users (before acquisition), it adds up to a decent amount of money.
A major source of WhatsApp’s funding in the early days was the investment made by Sequoia capital. They invested about $8 million for more than 15% share in the company back in April 2011. Sequoia invested another $50 million in February 2013. There’s an interesting story revolving WhatsApp’s current parent company Facebook’s CEO Mark Zuckerberg & Sequoia capital.
Back in 2004, when Zuckerberg was about to give up on Facebook & was looking for investors for another called WireHog, Sequoia capital contacted him & asked him for a presentation. Since Zuckerberg had already partnered with Sean Parker, the brains behind Napster, he thought Sequoia won’t like it since Sequoia had invested in Parker’s ideas & that resulted in a bad loss. Having no hopes of any further establishment, Zuckerberg deliberately came late for the meeting, that too in his pyjamas & presented a ppt titled “top 10 reasons why should you not invest” & that had some funny points. That didn’t go well with the Sequoia group. Ironically in 2014, life took a full circle on Zuckerberg who had to pay $6.4 billion to Sequoia who were 40% stakeholders of WhatsApp which he took over for worth $19 billion.
The acquisition probably ended all of WhatsApp’s financial woes. Zuckerberg claimed that it was the only app more successful & reached out to more people than Facebook itself. The $19 billion acquisition of a company having just over 50 employees raised a lot of eyebrows and dropped a lot of jaws. Why would the social media giant invest so much on an app that doesn’t even charge for downloads anymore? Why would Facebook buy WhatsApp which doesn’t show any ads & has almost no source of income? The reasons are more than one.
Having that many active users, it is going to get you something fruitful eventually. With inter-linking with Facebook & Instagram, the app would return a lot more than just money. In Zuckerberg’s own words, “Once we get to being a service that has a billion, two billion, three billion people one day, there are many clear ways we can monetize”. After all, having founded the world’s best social media platform Facebook and having acquired world’s best photo sharing platform Instagram, it was time for Mr Zuckerberg to acquire the world’s best instant messaging app. Combining all three of them, Mr Zuckerberg will have over 2 billion active users.
The Future of WhatsApp
They still face major competition in China, Japan & Korea where WeChat is massive. China has banned Facebook & WhatsApp sighting security reasons. Iran has banned it from their hatred for American capitalism. These are huge markets that WhatsApp is currently missing on, especially China. The acquisition may not be the solution here as the problems are with the ideologies. But the lack of grip in these countries is pretty much cancelled out by the massive usage in big countries like India.
WhatsApp has changed the way people communicate. A lot of businesses depend on WhatsApp today. A lot of companies have partnered with them to offer customer care on WhatsApp. Travel companies are sending confirmation details on WhatsApp. One thing is for sure, the app has a lot of potentials. If it survived all these years without disrupting ads, then it can surely survive in the coming future as well. May be strategic partnerships could be the new key to get monetization rolling. Now that stories are also on WhatsApp, they can include sponsored stories that would pop up between stories of our friends, much like how it happens on Instagram & SnapChat. While there seems to be no financial disadvantage to WhatsApp, on a longer run, it would be much helpful if it started earning some money.
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