WhatsApp Business Model - Why is It Free?

WhatsApp business model- how do WhatsApp make money?

WhatsApp is the world’s largest communication platform with over 2 billion users

Following Facebook and YouTube, WhatsApp is the third most popular social network worldwide.

If WhatsApp decides to charge $10 per month for all users, will you stop using WhatsApp? Will a 10 dollar monthly bill make you to uninstall the instant messaging app from your device? Depending on the value you derive from it, I would imagine that your answer is ‘NO’. Personally, I can’t imagine not having WhatsApp app in my phone for 24 hours. Personally, I can pay as high as $10 per month to keep using WhatsApp.

Come to think of it, what is $50 for an app that has become the de facto platform for all my business needs. People of all professions now consider WhatsApp as their number channel of communication. But it also goes beyond communication. Formal meetings are now held on WhatsApp by various organizations. A full church service now runs on WhatsApp. Paid training take place on WhatsApp. And WhatsApp status and WhatsApp TV has become very powerful channels for promoting one’s brand and businesses.

So if WhatsApp provides such value to people of different classes. If WhatsApp is such an indispensable tool. If WhatsApp has become such a business tool, why then is it still free? When is Meta not placing a fee on it?

What sort of business model is WhatsApp using that makes it possible to offer such premium services completely free?

How does WhatsApp make money from such a business model?

That will be the focus of our discussion today as we seek to understand WhatsApp business model and how they make money.

Table of Contents

What is WhatsApp?

WhatsApp is a free instant messaging platform that allows users to message each other both locally and internationally. Incidentally, WhatsApp communication does not recognize national boundaries. The ease with which you communicate with someone in Australia is the same easy with which you reach the person in Botswana, India or Latvia.

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.

WhatsApp has super features that makes it the number one communication platform in the world. Some of the features include:

Messaging is instant
It is free
It has no ads
WhatsApp messages uses end-to-end encryption

WhatsApp Business Model – How Does It Work?

WhatsApp is a messaging application that allows users to communicate with each other via text, audio, and video. It can be accessed via its tablet and smartphone apps (available on Android and iOS devices) as well as its web application (called WhatsApp Web).

Users can communicate with each other individually or via group chats. A WhatsApp Group can have up to 512 members with an unlimited number of Admins to exercise higher control and moderation.

Apart from text messages, users can also exchange emojis, GIFs, audio messages, pictures, videos, and even share documents. They can, furthermore, react to text messages.

If users feel like sharing their special moments, they can do so via WhatsApp’s Stories (status) feature. Status messages display for 24 hours but only those on your contacts can view it.

Apart from the normal WhatsApp consumer application, it also offers a communication tool for businesses – WhatsApp Business.

With WhatsApp Business, small businesses can:

Set up business profiles with helpful information for their customers (such as an address, email addresses, or a link to their website)
Labeling contacts for better categorization
Autoresponders and quick replies
A kind of newsletter (Broadcasts in WhatsApp terms)

However, the WhatsApp Business tool is for small businesses and it is entirely free. Yet, there is also a provision for multinationals and other businesses that operate on a much larger scale. Those ones can use the WhatsApp’s Business API. The API endpoint allows them to integrate it into their existing business software.

Why is WhatsApp Free?

As much as the over 2 billion WhatsApp users are concerned, it is a free service. But why? Why should such a service be free? Well, it has not always been. When WhatsApp started, it was operating with the freemium business model. What does that mean? You can use WhatsApp free of charge for the first 1 year. And after that you start paying $0.99 per annum.

However, in January, 2016 WhatsApp owners announced that they will no longer charge users for using WhatsApp. Incidentally, in the same blog post announcing no more charges, they also made it clear that there will be no ads either. So that would leave people wondering how they intend to make money from the business. Then, It announced that it would prefer to transfer the cost to big brands who will have to use features such as the WhatsApp API.

Explaining why they have to make it free, WhatsApp said that WhatsApp has become indipensable for most people around the world to stay in touch with their friends and family. “From a new dad in Indonesia sharing photos with his family, to a student in Spain checking in with her friends back home, to a doctor in Brazil keeping in touch with her patients, people rely on WhatsApp to be fast, simple and reliable”.

Another reason WhatsApp is free is because initially, there wasn’t much cost involved in running the application. The primary cost is basically that of sending a verification code to the users.

Finally, WhatsApp wants to give the everyday user a great user-experience and not to make money from ads.

WhatsApp Business Model – The Value Proposition

I think this one is so easy to see. Everyone can attest to the overload of values that comes with using WhatsApp. Moreover, what is really there to lose in using WhatsApp? Yet, WhatsApp has been able to provide strong value propositions that make it difficult to ignore:

Convenience: The user can communicate with anyone else in the world who has access to a smartphone with the internet. And this occurs through an absolutely simple interface and also happens instantly.
Cost: Users can send unlimited number of text, voice, video messages or internet calls, and even share files of different formats at no cost.
Security: All messages sent via WhatsApp are encrypted. This prevents the leakage of information exchanged privately
Constant Upgrade: WhatsApp is constantly upgrading and including new features to make the app better and give users a better experience.
Business: There is an application for companies, by which businesses can be promoted through advertisements. Companies can even create catalogs for release.

WhatsApp Business Model – How Do They Make Money?

The big question, if for all the services WhatsApp is free to all users, then how does it make money? Well, the fact that WhatsApp has over 2 billion users means it is a very big market already. But to be honest, it has been a sort of headache for Facebook (the now parent company of WhatsApp) and a company that makes 99.9% of its revenue via ads to come up with the best way to tap into the unlimited revenue potential of this huge market. In fact, the original founders of WhatsApp; Jan Kaoum & Brian Acton had to leave the company over disagreement of this same monetization strategy. So you can agree with me that it has not been an easy nut to crack.

However, they are founding a way nonetheless. And though many more strategies will open up in the future, but for now 3 of them are active. So below are the 3 ways WhatsApp currently make money from it’s current business model:

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What is Business Model and How Does it Work?

1. WhatsApp for Businesses

The regular WhatsApp is free. WhatsApp Business is also free especially for small businesses. However, big brands that has to deal with millions and hundreds of thousands of customers can sign up for WhatsApp Business API for sales and support. It originally encouraged businesses to use the platform and provide quick responses. However, WhatsApp would charge businesses if they fail to respond within 24 hours.

This can either be user-initiated or business-initiated.

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. It is also important to understand that the fee varies by country.

Now you might be thinking it is possible to evade this payment part. So you wonder if the businesses can’t just use their WhatsApp for Business application to manually reply late to the customer inquiries instead of paying for the API. Unfortunately they can’t, despite how simple this solution sounds. First, it doesn’t suite businesses dealing with millions of users (airline tickets, travel tickets, movie tickets, banks, etc.).

Moreover, you cannot use API on any number already associated with WhatsApp. You will need a fresh number to install the API.

They also have the free tier conversations where the first 1,000 conversations in a month are free after which the rest will be paid for.

2. WhatsApp Pay

WhatsApp Pay is a payment feature through which WhatsApp users can make payment to companies without having to leave the app. With this, users can send money to friends, family, and businesses for free. It works in a similar way as Paypal or Venmo. The service is free for users. But businesses receiving the payment are required to pay a flat rate of 3.99% fee 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 though.

3. Indirect Revenue from ‘Click to WhatsApp ads’

Apart from WhatsApp For Business & WhatsApp Pay, WhatsApp also makes money through Click to WhatsApp ads. These aren ads shown on Facebook, not WhatsApp, but these ads redirect users from Facebook to WhatsApp.

Since these ads are not shown in the WhatsApp app, attributing the revenue of these ads entirely to WhatsApp might be considered incorrect, but it is one of the ways in which Facebook leverages WhatsApp to increase revenue – Facebook owns WhatsApp.

WhatsApp Business Model – The Customers

If you are womdering if any business would be willing to pay for WhatsApp API owing the the much that is available for free then you are in for a surprise. There are over 500 companies currently using the WhatsApp Business API. In fact, it was less than one year after the service was launched before big brands such as Uber and Netflix signed up. But it is not just Uber and Netflix.

Here are the major brands that use WhatsApp Business API:

Uber
Netflix
Wish
Booking.com
BookMyShow
RedBus
Decathlon
Bankia
RACC Mobility Club
Citibank
Twilio
Zendesk and many more

How Much Money Does WhatsApp Make?

WhatsApp revenue is just a negligible part of Facebook’s revenue. But it has grown rapidly in the past four years. And bulk of WhatsApp revenue comes from the business model around WhatsApp Business. The WhatsApp Business API is very popular in places like Brazil, India, and Indonesia.

In a Jan 2016 post, Forbes had predicted that WhatsApp’s average revenue per user would be $4 by 2020, which could yield revenue of around $5 billion for Facebook. And in November 2017, Forbes upped the revenue estimates for WhatsApp, ranging from $5 billion to $15 billion, with the average revenue per user ranging from $4 to $12.

But WhatsApp is actually doing much better than that. For instance, in 2021, the app generated $8.7 billion in revenue. This represents 58.1% growth from the $5.5 billion in 2020. And almost all of the revenue are from the WhatsApp for Business.

WhatsApp Business Model - Revenue Growth in 4 years — WhatsApp Business Model – Revenue Growth in 4 years

With WhatsApp’s earning potential far from being realized even as of now, the product can be expected to have an increased contribution to its parent company’s baseline revenue in the coming years. The truth is that no one can bet on the height that WhatsApp can get to.

In terms of regional distribution, Asia contributes the bulk of WhatsApp revenue as at today. Thanks to India the region (Asia-pacific) contributes about 38% of the company’s revenue in 2021. Not unsurpringly, the North America has not contributed that much because the company is yet to open up the WhatsApp Pay in US and Canada.

How Many Users Does WhatsApp Have With This Business Model?

Currently WhatsApp has nearly 2.3 billion users across 180 countries globally. The rapid gwowth has seen it jump from 103 million in 2012 to 2.289 billion in 2021.

WhatsApp Business Model -Users Growth Since 2012

Finally, India (390 million), Brazil (148 million) and Indonesia (112 million) remains the top three countries with the highest WhatsApp users in the world. United States with 98 million users is the highest in America. While Egypt and Nigeria with 55 million and 40 million respectively lead the line in Africa.