WhatsApp Nears a Billion Users: Is It Finally Time to Make Money?

Given the number of competing services adding users when you're free is not exactly easy, but it's a different challenge when you actually have to make money.

WhatsApp's global reach gives it some advantages. Whether it can figure out how to capitalize on them is another question. That said, being owned by Facebook, a company that also endured skepticism when it made that transition, suggests that it will get lots of experienced help. JL

Cade Metz reports in Wired:

WhatsApp has a greater global reach than nearly any other app. A lot of companies are global. And these companies may be willing to embrace this kind of messaging because WhatsApp gives them more efficient access to more people than any other medium. The company can refine this kind of communication—and eventually charge a fee for it.

Jan Koum is disappointed.

Koum is the CEO of WhatsApp, the mobile messaging startup Facebook purchased for no less than $19 billion in February of 2014, and this morning, at a conference in Munich, the Ukrainian-born engineer and entrepreneur is due to make a rare public appearance. He’s disappointed because his company’s mobile app has only reached about 990 million people. On stage in Germany, he was hoping to announce a billion.
But as disappointments go, it’s a small one. WhatsApp—a quick, easy, inexpensive way to trade text messages and photos—is now the second-most popular app on Earth (not counting the apps Google and Apple bundle with their own mobile operating systems). Only Facebook’s own app reaches more people. Since Facebook purchased WhatsApp—and many questioned whether Mark Zuckerberg and company had grossly overpaid for the startup—the audience has more than doubled for Koum’s creation, which he developed in 2009 with his old colleague Brian Acton.

Now that WhatsApp has reached (almost) a billion people, it's ready to explore new ways of making money.

“On the one hand, this is a huge number,” Koum says, sitting in the company’s Mountain View, California offices, before flying to Munich. “On the other hand, it’s a little embarrassing. We’re about 10 million short.”
Continued growth, it turns out, was one of the main reasons Koum agreed to the Facebook acquisition. The deal allowed WhatsApp to concentrate on growth without worrying too much about revenue. Even though Facebook pays the bills, the company is pretty autonomous, working out of a nondescript building in downtown Mountain View, California, that doesn’t even bear the company’s name. But now that WhatsApp has reached (almost) a billion people, Koum and his 120-person operation are finally ready to explore new ways of making money.

A Business Built on Business

Previously, WhatsApp was free for a year, after which the company would charge a mere $1 annually. Koum and company are now dropping the $1 fee completely. And in the months to come, they’ll begin experimenting with ways of generating revenue via the myriad businesses that use the messaging app. WhatsApp grew to prominence a kind of de facto social network—a way for people to communicate with friends and family, all without paying steep texting fees to phone companies, which can be especially high overseas. (Most of WhatsApp’s users aren’t in the US.) But WhatsApp is also used by shops and restaurants and other businesses to communicate with the world at large, and, now that his app has grabbed a truly global audience, Koum believes the company can refine this kind of communication—and eventually charge a fee for it.
“We’re done really well in the consumer space, but there is whole other aspect of communication as you go through your day: You want to communicate with businesses,” he says. “We’ve taken SMS technology for consumers and improved it. Now, we want to do the same with commercial messaging.”

Koum likes to cite restaurant reservations as an example. Rather than picking up a phone or visiting some other app, you could just send a WhatsApp message to reserve a table and get your confirmation—the same app you likely used to make dinner plans with your friends in the first place. “Maybe [the restaurant replies] with three different options and I just tap on a button and the reservation is made.”
The move is part of a larger trend across the sprawling universe of mobile messaging apps. Facebook also offers its own Facebook Messenger, and under the guidance of former PayPal CEO David Marcus, it too is expanding mobile messaging into businesses, including airlines (checking flight statuses), online retailers (tracking orders), and Uber (getting a ride). Here in the States, the idea is still trying to find its feet—Facebook opened Messenger to business developers about nine months ago—but in China, a very different tech market, an app called WeChat, from tech giant Tencent, is well down the road toward replacing apps with messaging, offering services from hailing taxis to ordering takeout to paying your bills.
“This is going to evolve into a preferred way that consumers engage with brands,” says Julie Ask, an analyst with tech research firm Forrester, who has tracked the messaging trend. “And from there, it will move from things like content and coupons, to things that are more transactional, more oriented towards customer service.”

App-solete

It’s unclear whether the idea will quickly take off in the US, where we can easily handle the same tasks in other ways. Do you really need to deal with Uber drivers through Messenger when you can reach them through the Uber app and the occasional SMS message? Nonetheless, Ask believes that even US consumers will ultimately embrace the idea of doing more with fewer apps. “It will be more convenient to use one or two apps, rather than hopping in and out of five or six,” she says. “We’ll transition towards Facebook and Facebook Messenger and WhatsApp as places to get other stuff done.”
But the US isn’t really the market that matters to WhatsApp. While Facebook Messenger is more popular in the US, WhatsApp is dominant in places like India and Brazil and Africa. That’s why Facebook has two messaging apps: each is chasing the same goal, just in different places.WhatsApp took over so many foreign markets because it provided locals with the first truly viable way of quickly and cheaply communicating over the Internet. In these places, WhatsApp didn’t just remake online communication. It defined this communication. Now, because it’s so popular in places like India—and because there aren’t an enormous array of alternatives—WhatsApp has a good chance of becoming a hub for business services, just as WeChat is in China. “There’s a playbook to follow,” Ask says.
And as Koum points out, WhatsApp has a greater global reach than nearly any other app. This gives Koum and company additional leverage. “A lot of companies are global,” he says, such as airlines and banks and car rental outfits. And these companies may be willing to embrace this kind of messaging because WhatsApp gives them more efficient access to more people than any other medium.

Plugging into Facebook

Koum isn’t ready to say what form the company’s experiments will take. That’s typical of his company, which spends very little time talking to the press or discussing its future plans. But he will say he believes that dropping its $1-a-year fee will just help WhatsApp grow even faster. Even such a small fee, Koum says, can hamper expansion. “For people in India or Brazil, it’s very hard for them to pay. They don’t necessary have credit cards or the infrastructure to make payments.”
In the meantime, WhatsApp is working to expand the use of encryption on its service, an effort to protect user privacy. And it is moving beyond texts, photos, and videos to offer voice calls. Like Facebook and WeChat, WhatsApp is already more than messaging app. The question is just how much farther it will go.
As it expands, Koum and his small crew largely operate outside of the Facebook empire. But they have plugged into Facebook’s vast technical infrastructure, which now has a global reach of its own. Most notably, WhatsApp benefits from Facebook’s content delivery network, or CDN, a network of machines buried inside the world’s internet service providers that lets Facebook get closer to its users. Now, WhatsApp can do the same.
Gaining access to Facebook’s powerful infrastructure comes at a time when WhatsApp multimedia used has, as Koum puts it, “gone through the roof.” And handling photos and video is a Facebook specialty. Facebook’s network, Koum says, makes WhatsApp faster. “And we don’t have to manage thousands of machines and hire 20 engineers to run them.”
And so it would seem that Facebook and WhatsApp are joined in a virtuous circle. Facebook provides WhatsApp with the financial and technical support it needs to grow. WhatsApp, in turn, gives Facebook access to an audience of nearly a billion. If WhatsApp can now turn that reach into revenue, the whole world becomes a brighter place for Facebook.