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

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Some build apps for fun. Others for profit. 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 a free app to be worth so much money?

WhatsApp isn’t entirely free, but we will get to that later. Built to be a “better SMS alternative,” according to the company’s website (SMS stands for short message service; better known as text messaging), WhatsApp 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 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, 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 like WhatApp make money?

Most apps generate revenue through the following practices:

1. App 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.

For WhatsApp specifically, the app costs about $1 to download…but that price tag is only present in certain countries. Other users around the globe actually get to experience the app for free for year one, but then pay $1 for each year following.

2. The “Freemium” Model: Even “free apps” or those that are free to download can still make money, and lots of it. This freemium model allows users to download the app without charge, 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 on social networks, in magazines, on TV, etc. companies pay for their products and services to be seen within mobile apps. While WhatsApp hasn’t yet cashed in on this tactic, other SMS apps, like WeChat, which is well known in China, has both apps and online games. With only 440 million users, WeChat turned in $924 million in revenue in 2014’s third quarter.

All of this considered, there is one big thing missing. I mean, WhatsApp earns $1 per download on iOS and $1 per year on other platforms (and not even for every user). Even with a large user base, the company’s revenue might only be hundreds of millions of dollars. Thus, 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 at the time of purchase, growth opportunity, future prospects, behavioral data, contact lists, keeping the app out of the hands of competitors. All of these things have a price tag. And a hefty one, it appears.

“Why so much for WhatsApp? That’s what it’s worth to FB. 450M users, growth, blocking competitors. All at a price.”

Tweet: Why so much for WhatsApp? That's what it's worth to FB. 450M users, growth, blocking competitors. All at a price.


What does the future hold?

If I had such a future-telling capability, I’d probably consider using it on something other than predicting WhatsApp’s next move. But, it’s fun to think about. Above all else, growth prospects are tremendous. As with most apps, and especially with a messaging app, one person in a group of friends downloads, then the rest follow. Then, the social groups of those people all take to adoption, and so on as the app branches out from one group to the next. Taking both the app’s existing and quickly expanding user bases into consideration, WhatsApp is primed for profiting when the time comes.

So, just something to keep in mind when building your own apps. There are many ways to get compensated for 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?

  • 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

      • LondonTiger

        Facebook was ad free for a long long time. Once they have 95‰ of the market then they start serving ads. People are hooked as already and Facebook destroyed the competition so users are stuck with watching ads.

        Likewise with WhatsApp the company will spend the money aggressively expanding and eating up market share. Then after its the only sms alternative you’ll see ads everywhere. Like Facebook they know all your likes and dislikes so they can really target ads to you

  • 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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