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Did Meta’s $19 billion purchase of WhatsApp pay off?

With over 100 billion messages delivered daily and two billion monthly active users, WhatsApp is one of the biggest and most widely used social networking networks in the world. In terms of market share, WhatsApp is without a doubt incredibly successful. But from a financial standpoint, the opposite is true.

Facebook/Meta purchased the WhatsApp app almost ten years ago, but the software’s revenue still doesn’t completely reflect its level of popularity. Indeed, it’s only recently that WhatsApp’s income has surpassed one billion dollars. Stated differently, WhatsApp’s annual revenue per user is only approximately forty cents.

To put things in perspective, YouTube boasts 2.7 billion monthly active users. However, YouTube earns over $10 per user annually, or close to $30 billion in revenue annually. This year, TikTok, a website whose user base isn’t exactly recognized for being the most lucrative, is predicted to bring in $13 billion.

However, it is all insignificant compared to Instagram, WhatsApp’s younger sibling, which is the real king of social media monetization. Instagram is predicted to generate $50 billion in revenue by 2023, or more than $20 per user. That’s roughly 50 times more per user annually than WhatsApp, for those of you who haven’t been following track, and that should come as no surprise.

The truth is that free-to-use chat platforms are difficult to monetize, and trust me when I say that this isn’t because of a lack of effort. Meta has tried numerous strategies throughout the years, but due of the difficult game they’re trying to play, they all eventually fail.

By making the platform paid for or by displaying advertisements, they hope to retain users. However, the platform will eventually need to generate revenue in some fashion. Due to the high interest rate and the inflationary climate, investors are placing a great deal of pressure on businesses to shift their focus from expansion to profitability.

So what exactly is WhatsApp’s long-term financial game? And can there ever be a profitable WhatsApp business?

Looking back, WhatsApp’s financial struggles began on the platform’s first day in 2009. Did investors support WhatsApp right from the start? Initially, the company’s founders friends from Yahoo agreed to contribute $250,000 to launch the business. Sequoia came next with $8 million, and then the same investor followed with $50 million.

WhatsApp only generates revenue by charging users $1 annually. However, that was primarily done to pay for the verification texts. As a result, the platform’s operational expenses and engineer salaries had to be covered out of pocket. It’s probable that WhatsApp hoped that size would solve a lot of these financial issues.

Scale, however, simply made matters worse. Actually, WhatsApp had already become engaged before Meta did. 400 million active users have already been attained in the first half of 2014. But only $15.9 million in revenue came from these 400 million customers, and their net income was negative $232.5 million.

Put another way, with 400 million users, WhatsApp was losing close to half a billion dollars annually. What would happen if these losses increased to the current level? Would WhatsApp be losing more than $3 billion annually? Clearly, enlisting the aid of a tech behemoth like Google or Facebook, which could absorb the losses, was the only way to make such a venture feasible.

That’s the reason Meta would eventually purchase WhatsApp for a sum of $19 billion. You would expect that WhatsApp’s financial situation would improve with Meta assistance. However, the exact reverse took place. Not only did WhatsApp no longer have to worry about operating and keeping afloat, but this also reduced the amount of care that it had over income generating.

In actuality, Meta not only disregarded the opportunity to increase revenue via WhatsApp, but they also outright reversed earlier attempts at revenue generation.

2016 saw Meta remove WhatsApp’s $1 yearly charge and maintain its ad-free status. You might wonder, why? Officially, WhatsApp intended users to be able to communicate with their families even if they did not own a debit or credit card. However, if one were to read between the lines, WhatsApp essentially perceived the $1 price as a roadblock to market dominance and market share growth.

Thus, they waived the charge. Yet from a financial standpoint, there were several reasons why this decision was dubious. First of all, it costs just $1 annually, and I believe that almost everyone in the world would concur that it’s a fair price for a meshing platform they use on a regular basis.

Second of all, customers who truly didn’t want to or couldn’t pay didn’t have to because it was already very straightforward to avoid the annual cost. Thirdly, WhatsApp has already resulted in a hundreds-fold reduction in communications costs. Indeed, according to Forbes, the telecoms sector lost $386,000,000.00 to free messaging services like Skype and WhatsApp between 2012 and 2018.

At the time, there were roughly 2 billion users of these services altogether. Therefore, based on this assessment, users were saving $32 per year on average thanks to these services. Given this, it would have been feasible to charge even $10 per user annually, let alone $1, and this would have fundamentally altered the course of the company.

Back in 2015, WhatsApp’s estimated revenue would have exceeded $1 billion, even at a $1 annual rate. And it’s highly likely that WhatsApp would be bringing in more than $10 billion if they eventually increased this to $2 and then $3 per year.

Meta would ultimately prioritize growth over all other considerations. Meta might have been considering using data collection as a means of making money off of WhatsApp. However, this set off an entirely new set of problems. The European Commission fined WhatsApp $122,000,000. This was in May of 2017.

It has come to light that WhatsApp was providing Meta with user information, including phone numbers, in order to retarget these users with Meta advertisements. Still, Facebook had other concerns besides the penalties. The founders of WhatsApp began to worry that this was the company’s future course, and as a result, they both decided to leave the company within the following year, taking a loss of over $1 billion in the process.

In fact, one of the creators, Brian Acton, would go on to establish a competing platform for charitable messaging. And it proved to be the signal in the end. But at least Facebook could now implement dubious revenue techniques with less opposition since the founders were no longer there. That was their initial assumption, however, until they became embroiled in a more serious circumstance.

In the year 2018, Meta would become entangled in the biggest-ever social media scandal, the Cambridge Analytica incident. In case you are not acquainted with this controversy, meta was essentially a part of a dubious data-gathering endeavor that could have perhaps impacted the 2016 presidential election. The $5 billion punishment that Meta ultimately had to pay would be the biggest privacy-related payment in history.

Meta was able to pay the penalties, but the harm to their brand was irreversible. Furthermore, they had no intention of using WhatsApp to foment discord among their own supporters by employing a dubious monetization technique. Therefore, over the following few years, Facebook would keep quiet about the monetization of WhatsApp, which is what led to their current monetization problems.

Eventually, Meta would offer a really inventive way to subtly monetize users while still upholding moral standards. And WhatsApp business was that path. WhatsApp Enterprise was introduced at the start of 2018 as a means for companies to take advantage of WhatsApp’s infrastructure. Businesses can use WhatsApp business, which is how it operates.

Use WhatsApp’s business APIs to interact with clients on a recognizable channel. Businesses must pay for each chat after the first 1000 that occur each month at no cost. For the last few years, WhatsApp has mostly relied on this method of income generation. Zuckerberg (Zuck) believes that WhatsApp business will be the company’s future, and it’s possible that this business will transform WhatsApp from, at most, a breakeven operation into a successful one.

Nevertheless, this still fails to commercialize the mainstay of WhatsApp’s peer-to-peer communication. Frankly, I don’t think this will ever alter. The truth is that Meta cannot effectively monetize WhatsApp given its rapidly expanding user base, even if they so choose.

Why? Well, because WhatsApp’s primary rival is suddenly entirely different. When WhatsApp first began, costly phone plans and traditional SMS texting were its main rivals. People embraced WhatsApp’s low-cost alternative when it became available. The primary competitors of WhatsApp these days aren’t phone plans. Their primary rival is Apple, more precisely, Zeitgeist.

After reading that, you may be thinking that Android is the industry leader and that iPhone consumers make up a small portion of the worldwide smartphone market. The problem is that everyone else is essentially completely saturated with WhatsApp; only iPhone users in the West are still using it.

WhatsApp has a 98.9% market share in Brazil and a 97.1% market share in India. in the country of Italy. 97% is the percentage. And virtually everything else operates in the same manner, aside from a handful of instances. These exceptions include the following countries: Australia, Sweden, the US, Canada, and France, where WhatsApp’s market share is between 30% and 40%.

What else do these nations have in common, you ask? These, then, are the select few nations where Apple is the market leader worldwide. Indeed, in the United States, Apple commands a 56% market share, easily dominating the competition. Furthermore, this corresponds almost exactly with WhatsApp’s 41% US market share. And here’s the thing: Apple can profit without ever using imessage.

I’m not even sure how you would calculate Message’s profitability. From their point of view, the iPhone experience is their real product, and messaging is only one aspect that sells it. Thus, they don’t have any hidden agendas when it comes to messaging. It is in their best interest to maintain the highest quality of imessage at no cost.

And that’s what WhatsApp has to contend with in terms of iPhone users who value their privacy. Due to WhatsApp’s affiliation with Facebook, it is less competitive. And you essentially forfeit all possibility of converting these visitors if you pair this with a paywall or dubious monetization scheme.

Forget about gaining new users, though, as WhatsApp needs to ensure that they avoid losing subscribers in the process. The Android platform has a bleeding market share worldwide. And as a result, WhatsApp finds itself in a difficult position. Over the past ten years, they have forgone income and profit in order to increase their market share and eventually become profitable.

Now that they are on the opposite side, however, it appears that they must maintain this agreement in order to safeguard their market share. Additionally, they must monetize the platform’s corporate use rather than just its primary consumer use. Having said that, though, perhaps it’s not such a bad thing unless Meta which has become extremely bloated is taken into consideration.

WhatsApp has always had a lovely design. Slim down your company. Most likely due to the fact that WhatsApp never made a lot of money. Actually, WhatsApp could achieve 900 million users with just 50 developers. Thus, the number of engineers at WhatsApp is probably still in the low triple digits. Thus, WhatsApp doesn’t need to generate billions upon billions of dollars in revenue in order to be self-sustaining or worthwhile.

Even though WhatsApp may never be a moneymaker for Meta, it nevertheless maintains the Meta brand, bringing value to the business and building goodwill. which is all unquestionably worthwhile. It’s obvious that Meta still doesn’t know how to make money off of WhatsApp’s enormous user base.

In my upcoming posts, I’ll talk about LinkedIn, which is one social networking platform that genuinely generates a ton of money in secret.

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