WhatsApp is a free messenger service that is used by over 2 billion people around the world. Because it’s free for consumers, it begs the question, how does WhatsApp make money? The Facebook subsidiary makes money through WhatsApp for Business and WhatsApp Pay.
WhatsApp was founded in 2009 by Brian Acton and Jan Koum. It’s a free secured messenger service that allows domestic and international communication among users on a secured network. It’s currently headquartered in Menlo Park, California with Facebook (FB) — now Meta Platforms, Inc. — as the parent company.
Facebook acquired WhatsApp in 2014, making it the largest subsidiary of the company next to Instagram and Facebook Messenger. WhatsApp does not trade independently.
Tip: As a subsidiary of Facebook (Meta Platforms, Inc.), investors would buy Facebook stock (FB) to take advantage of the growth of the parent company with the subsidiary as part of that growth.
As a messenger service, WhatsApp is robust. Users can send text messages, voice messages, make both voice and video calls, share images and documents, and share one’s location. Essentially, anything a user needs to communicate with another is available via WhatsApp.
Users like the platform because it is free with no ads and offers end-to-end encryption, with the company stating that it is not able to read or capture messages.
The product of WhatsApp is simple: a robust personal messaging service. How it makes money is a little different than many others in the arena. WhatsApp started as a ‘freemium’ service, where users were able to send messages for free for the first year and then renew at an annual $0.99 fee. They have shifted from this business model and stayed away from in-app advertising. Instead, they make money through WhatsApp for Business and WhatsApp Pay.
There are a number of competitors in the market, all who have different business models for revenue generation. Some of the top competitors are LINE, Kakao, Kik, and Skype.
LINE makes money from in-game purchases and other services such as stickers. Kakao generates revenues from advertising. Kik gives users rewards for watching advertisements. Skype is a subscription service for worldwide calling.
Note: Both Acton and Koum have left WhatsApp after disagreements with Facebook over the way the app would be monetized.
While the service is free for consumers to use, businesses can sign up for WhatsApp for Business to use the platform for sales and support. The WhatsApp Business API is used by major brands such as Netflix, Uber, and Wish. It originally encouraged businesses to use the platform and provide quick responses. WhatsApp would charge businesses for delayed responses. So while the business could respond for free within 24 hours, it would be charged a fee for responses later than that.
The new business API for WhatsApp for Business applies charges based on a messaging tier. The charges are:
First 250,000 messages: $0.0085 per message
Next 750,000 messages: $0.0083 per message
Next 2 million messages: $0.0080 per message
Next 3 million messages: $0.0073 per message
Next 4 million messages: $0.0065 per message
Above 10 million messages: $0.0058 per message
Essentially, the more messages a company sends, the cheaper the rate is.
WhatsApp Pay is a payment feature similar to PayPal. Users can send money to friends, family, and businesses for free. The party receiving the money is charged 3.99% per transaction. Like other money sending services, this app connects to a linked bank account where the funds are taken from or deposited. This service is currently only available in India and Brazil on specific devices.
Tip: Look for WhatsApp to expand WhatsApp Pay in the near future.
You can’t invest in WhatsApp on its own but you can understand how the messenger giant makes money for its parent company, Facebook. WhatsApp is becoming a larger revenue source as it competes to maintain its market share on secure messenger services.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
