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Why is WhatsApp Worth $19B? How do Apps Even Make Money?

Some build apps for fun. Others for financial gain. No matter your interest in apps, here is something for you: Facebook just purchased WhatsApp…for $19 billion. $19 billion—yes, with a “b”!

What? Why? How is it possible for an app to be worth so much?

WhatsApp was built to be a “better SMS alternative,” according to the company’s website (and SMS stands for short message service; better known as text messaging). The app allows for cross-platform messaging – across the globe – with users not having to pay for the texts they send and receive. Instead, WhatsApp “uses the same internet data plan that you use for email and browsing.”

Sounds cool. Sounds neat. But does it sound like $19 billion?

Summarizing the details of a recent Forbes.com post, WhatsApp is worth the price tag to Facebook because: it will help the social network grow globally, it is the new SMS, it will be (and has already been) coveted by other companies, and it “is the only app we’ve ever seen with higher engagement than Facebook itself,” according to Mark Zuckerberg.

Moving away from WhatsApp in particular, and just looking at the transaction on a very basic level…$19 billion for an app; a little piece of software downloaded on your mobile device. What else could you buy for that sum of money instead? How about the most valuable sports franchise in the world, Manchester United (valued at $2.23B by Forbes.com), along with Real Madrid ($1.88B), the New York Yankees ($1.85B), the Dallas Cowboys ($1.85B)…get the picture? It’s easier to wrap your head around the value of these teams. Man U has over 650 million fans, the Yankees own a piece of the most profitable regional sports network in the country. Value here is more tangible.

But how does an app make money?

Most apps generate revenue through the following:

1. Purchases: Just like other products, apps earn money when they are purchased. $.99 per purchase might not sound like a whole lot, but it adds up (Angry Birds sells for $.99, just saying). Then of course you look at an app like Minecraft: Pocket Edition that sells for $6.99 and made $1 million in iOS App Store revenue—on Christmas day alone.

2. The “freemium” model: Even apps that are free to download make money. This freemium model allows users to download the app for free, but will then charge for extra features, lives, power-ups, and other in-game resources. Think Candy Crush and Clash of Clans.

3. Advertisements: You’ve probably noticed advertisements on your favorite apps. (How can you ignore them?) Just like ads in magazines, on TV, etc. companies pay for their products and services to be seen within mobile apps.

All of this considered, there is one big thing missing. I mean, WhatsApp earns $.99 per download on iOS and $.99 per year on other platforms (after the first year). Even with a large user base, the company’s revenue might only be hundreds of millions of dollars. There is a large, unfilled gap between hundreds of millions and $19 billion.

So why was so much offered for WhatsApp? Because that is how much the app is worth to Facebook. 450 million users, growth opportunity, future prospects, keeping the app out of the hands of competitors. All of these things have a price tag.

Something to keep in mind when building apps. There are many ways to monetize your creations, but who knows the value others will place on them.

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  • mike banks

    Well done! Something, know matter what that something is, is worth exactly what someone is willing to pay for it! WhatsApp may not be worth $19 billion to others, but it is to Mark Zuckerberg! I like the way you put this concept into perspective.

  • Kia

    oh yes, a beautiful addition to Zuckerberg’s 800 page pdf on 450 million users he so loves to share.

  • Hariom

    how i can earn money at watsapp

  • Jaime

    I don’t get this. 1) I didn’t pay any penny in getting whatsapp. 2) I have never been charged anything by whatsapp. Not a single penny, even after the alleged ‘freemium’ period (i.e. one year). 3) I have never seen any adverts on whatsapp.

    So HOW exactly does whatsapp make money?

  • http://www.assignmenthelp.net/ Smith

    that’s not a very informative piece for a really enticing title actually… I still don’t get it how does whatsapp make money !

    • Lionel Carlisle D’Souza

      Yeah, this article was absolute s***. Truth is, it doesn’t make that much money. I’d say it makes around somewhere along the lines of jack and s***. All it has is a large number of users connected on the app that exchange texts and pics. And keep in mind, people would rather create a group on Whatsapp than on facebook to connect with and exchange texts. I’ve noticed a lot of people do this, my parents, uncles and aunts all old farts are like hooked on their phone because of all the stupid what’s app groups their in. And like Zuckerberg said the amount of messages exchanged had even surpassed that of Facebook’s even though it has a bigger user group that that of Whatsapp. And facebook’s market specializes in nothing but social networking, so they had to tap into it before someone else would and make it their competitor. Same with Instagram

  • RuralOtto

    what role do the telecom companies play in these free apps to log revenues?
    Do telecoms have any tie-up agreements with these free apps? Do telecoms share revenues with apps that use very high levels of bandwidth: more app data that transits their networks means more data used by users?
    Also Big Data brokers have a role in using free app user data: do these data brokers cause another revenue stream to app devs?

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