Why Meta Never Monetized WhatsApp And Why That May Be A Fine Strategy

THE STATE OF WHATSAPP

WhatsApp is one of the largest and most ubiquitous social media platforms in the world. With 2.7 billion monthly active users and over 100 billion messages being sent every single day, there’s no question that WhatsApp is extremely successful from a market share perspective, but the same cannot be said from a financial perspective. 

It’s been nearly 10 years since Facebook bought WhatsApp but their revenue doesn’t quite match up with their popularity. In fact, it’s only now that WhatsApp is even crossing the billion-dollar mark in terms of revenue.

Put another way, WhatApp only makes about 40 cents per user per year. For perspective, YouTube has a similar user count of 2.7 billion monthly active users, but they pull in nearly $30 billion in revenue per year or over $10 per user per year. Even TikTok, a platform that’s not known to have the most monetizable of demographics is expected to pull in $13 billion this year. But all of that is nothing in comparison to the true king of social media monetization and WhatsApp’s younger brother: Instagram. 

In 2023, Instagram is expected to pull in $50 billion or over $20 per user. For those of you who haven’t been keeping track, that’s over 50 times more per user per year than WhatsApp, and that’s not too surprising. The reality is that it’s quite hard to monetize a free-to-use messaging platform and believe me, it’s not due to a lack of effort. 

Over the years, Facebook has tried strategy after strategy but all of them end up falling flat because of the tricky game they're trying to play. They don’t want to turn away users by making the platform paid or by showing ads, but at the same time, the platform does eventually have to make money one way or another. 

This pressure has been cranked up to the max with the high interest and high inflation environment where investors expect companies to take a step back from growth and really focus on profitability. So, what really is the long-term financial play with WhatsApp, and will WhatsApp ever be a lucrative business? 

A LIFELONG STRUGGLE

Taking a look back, WhatsApp’s struggle Lifelong Struggle to monetize can be traced all the way back to day one in 2009. From the very beginning, WhatsApp was kept afloat by investors. First, it was the founder’s friends from Yahoo who agreed to invest $250,000 to get the company going. Then, it was $8 million from Sequoia and another $50 million from Sequoia. 

The only way that WhatsApp made money was by charging users a dollar per year but that was mainly just to cover the cost of verification texts, so the actual cost of running the platform and paying engineers had to come out of pocket. WhatsApp was likely hoping that a lot of these financial concerns could be addressed by scale but scale only made things worse. 

In fact, by the time Facebook got involved, WhatsApp had already reached 400 million active users. In the first half of 2014, however, these 400 million users only translated to a mere $15.9 million worth of revenue while the bottom line stood at, wait for it, -$232.5 million. In other words, WhatsApp was burning nearly half a billion per year with 400 million users. 

If these losses were to scale to their current size, WhatsApp would be burning over $3 billion per year. Clearly, the only way to make such a business viable was to get the help of a tech giant like Google or Facebook which could eat up the losses, and that’s why WhatsApp would eventually be sold to Facebook. 

With the help of Facebook, you would think that WhatsApp’s financial situation would get better but the exact opposite actually happened. WhatsApp no longer had to worry about staying afloat and operational but this simultaneously made revenue generation even less of a concern. In fact, Facebook not only neglected to generate more revenue with WhatsApp, but they straight up undid revenue generation efforts that were already in place. 

Also Read:

Why AI Will Never Replace Our Jobs

Why People Are Switching From Android to iOS

Publix Pharmacy vs. Walmart Pharmacy: Which One Is Right for You?

Story of Twilio and how Jeff Lawson Made $72 Billion Sending OTPs

FACEBOOK MAKES THINGS WORSE

Kicking of 2016, Facebook dropped WhatsApp’s Facebook Makes Things Worse annual $1 fee while also promising to stay ad-free. Why you ask? Well, the official reasoning is that WhatsApp wanted users who didn’t have a debit or credit card to be able to stay in contact with their family. 

Reading between the lines though, WhatsApp basically saw the $1 fee as a barrier to gaining market share and utter market dominance, so they dropped the fee. This move was rather questionable though for a few reasons. First of all, it’s only $1 per year, and I think that virtually everyone in the world would agree that that’s a reasonable fee for a messaging platform on a daily basis. 

Second of all, avoiding the annual fee was already quite easy, so users who really didn’t want to or couldn’t pay didn’t have to. And third, WhatsApp has already reduced the cost of messaging by hundreds of folds. 

In fact, Forbes estimates that between 2012 and 2018, free messaging services like WhatsApp and Skype had lost the telecommunications industry a total of $386 billion. At the time, such services had a combined user count of about 2 billion. So, according to this estimate, these services were saving users an average of $32 per year. 

At that rate, even charging $10 per user per year would’ve been reasonable much less $1 per year and this would’ve completely changed the trajectory of the business. Even at $1 per year, WhatsApp would’ve crossed the billion mark in terms of revenue way back in 2015. And if they eventually increment this to $2 per year and then $3 per year, it’s quite possible that WhatsApp would’ve been pulling in north of $10 billion per year in revenue today. 

But, Facebook would end up choosing growth over everything else. It’s possible that Facebook was thinking that they could user data collection as a way to monetize WhatsApp but this led to a whole other slew of issues. 

Kicking it off in May of 2017, the European Commission fined WhatsApp $122 million. It turns out that WhatsApp was sharing user data such as phone numbers with Facebook in order to retarget these users with Facebook ads. The fine, however, was the least of Facebook’s worries. WhatsApp’s founders started to fear that this was the new direction of WhatsApp, and as a result, they would both quit within the next year, leaving over a billion dollars on the table to do so. 

One of the founders would actually go on to create a rival non-profit messaging platform and that’s what turned out to be Signal. At least with the founders gone though, Facebook could roll out shady monetization strategies with less resistance, or at least that’s what they thought until they got caught up in an even bigger situation. 

In 2018, Facebook got caught up with the Cambridge Analytica scandal, the largest social media scandal of all time. If you’re not familiar with the scandal, Facebook was basically involved in a shady data collection effort that may have influenced the 2016 presidential election. Facebook would end up having to pay a $5 billion fine, the largest privacy-related fine in history by a full magnitude. 

While Facebook was able to afford the fine, its public reputation was permanently damaged. And the last thing they wanted to do with WhatsApp was create some sort of movement against themselves by implementing some sort of shady monetization strategy. 

So, Facebook would lay low when it came to WhatsApp monetization over the next few years leading us to their current monetization crisis. 

A DEAD END

Facebook would eventually come out with a dead-end, rather creative avenue to monetize users indirectly while also remaining ethical, and that avenue was WhatsApp business. WhatsApp business launched at the beginning of 2018 as a way for businesses to leverage the infrastructure of WhatsApp. 

The way it works is that businesses can use the WhatsApp Business app or WhatsApp’s business APIs in order to communicate with customers on a familiar platform. The first 1000 conversations every month are free, but after that, businesses have to pay for every conversation. 

This is primarily how WhatsApp has been generating revenue over the past couple of years, and Zuckerberg is optimistic that WhatsApp business is the future of WhatsApp, and it very well could be. WhatsApp Business could be the feature that takes WhatsApp from what is at best a break-even business and turns it into a lucrative business. 

But with that being said, this still neglects to monetize the bread and butter of WhatsApp: peer-to-peer communication and to be honest, I don’t think that will change. The reality is that if Facebook wants to continue growing WhatsApp’s user base, it cannot make any sort of strong monetization effort. Why? 

Well, because the main competition for WhatsApp is now completely different. When WhatsApp launched, the main competition was regular old SMS texting and expensive phone plans. So, when WhatsApp offered a cheap alternative, people ate it up. 

Today, WhatsApp’s main competition is no longer phone plans, their main competition is Apple and more specifically iMessage. Now, knowing that you might be saying that iPhone users are only a fraction of the global smartphone market and that Android is the dominant player. But here’s the thing, western iPhone users are the only people who don’t yet already use WhatsApp. Everywhere else is already literally 100% saturated by WhatsApp and I’m not even exaggerating. 

In Brazil, WhatsApp’s market share is 98.9%. In India, their market share is 97.1%. In Italy, it’s 97% and it’s the same way basically everywhere else other than a few exceptions. These exceptions include Australia, Sweden, the United States, Canada, and France where WhatsApp’s market share hovers in the 30 to 40% range. Do you know what else these countries have in common? 

Well, these are the few countries around the world where Apple dominates. In fact, in the US, Apple straight-up controls the majority with a 56% market share. And this lines up almost exactly with WhatsApp’s 41% market share within the US. And here’s the thing, Apple never needs iMessage to be profitable. I’m not even sure how you would measure the profitability of iMessage. 

From their perspective, iMessage is simply one facet that sells their actual product which is the iPhone experience. So, they have 0 ulterior motives when it comes to iMessage. It’s in their best interest to keep iMessage as great as possible for free, and that’s what WhatsApp is having to go up against. When it comes to privacy-centric iPhone users, WhatsApp’s association with Facebook itself takes them down a peg. 

If you combine this with some sort of paywall or shady monetization strategy, you basically give up all chances of converting these customers. But let’s even forget about acquiring new users. With Android bleeding market share globally, WhatsApp has to make sure that they don’t end up bleeding users to iMessage which all leaves WhatsApp in a rather sticky situation. 

They’ve sacrificed revenue and profit over the past decade just so that they can maximize market share and eventually monetize. But, now that they’re on the other side, it turns out that they have to continue this arrangement if they want to protect their market share. And instead of monetizing that main consumer use of their platform, they’re having to monetize business use of their platform. 

But hey, maybe that’s not such a bad thing. Unlike Facebook as a whole which very much got bloated, WhatsApp has always been a pretty lean business probably because WhatsApp never generated all that much revenue. In fact, WhatsApp only needed 50 engineers to reach 900 million users. So, it’s likely that the WhatsApp team is still only in the low triple digits. 

So, WhatsApp doesn't need to make billions and billions of dollars to remain self-sustainable or worth pursuing. WhatsApp may never become a cash cow for Meta, but that doesn’t stop WhatsApp from carrying the Meta name, keeping the company relevant, and earning them some goodwill which is definitely valuable. 

Clearly, Facebook has yet to figure out how to monetize WhatsApp’s massive user base, but something that they have figured out is how to monetize their $61 billion cash reserves with the help of high-yielding treasury bills and bonds.