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Pre-Facebook, WhatsApp's monetization strategy has been to charge users a nominal fee for usage ($1/year). And $1/yr with 1B users doesn't justify the price tag

by ozgune 8y ago

Pre-Facebook, WhatsApp's monetization strategy has been to charge users a nominal fee for usage ($1/year). And $1/yr with 1B users doesn't justify the price tag for Facebook. So Facebook wanted to introduce advertising. PS: I'd be happy to pay them $1/month because a significant part of my communication happens over WhatsApp. The challenge is $1/month is probably too pricey for most of their user base.

sp527 8y ago
If you think that even the friction alone of charging $1/yr isn't enough to shove the vast majority of users off the app, you haven't been paying attention to consumer expectations.
- s73v3r_ 8y ago
  But that's what WhatsApp was doing before.
  - sp527 8y ago
    No they were not. This is a complete falsehood. They sold the company well before they could roll out their monetization plan widely enough for it to impact user retention. They were also much smaller at the time.
- ozgune 8y ago
  I agree that $1/yr would shove off majority of users off the app. That said, I think WhatsApp could get to revenues of $1-3B per year because of the following: * I pay $60/mo for my AT&T line. I do the majority of my communication over WhatsApp. In that sense, WhatsApp adds more value to my life than AT&T. There are a group of users who'd be willing to pay more for that value. * For most users, WhatsApp is an integral part of how they communicate with friends, family, doctors, coworkers, etc. As a consumer, it isn't just an "app" but an integral part of their communication flow. * WhatsApp is respected by international telcos. I know at least for the telcos in my home country that they'd be happy to charge for WhatsApp subscription as part of their packages. I think the primary problem was that even if WhatsApp could monetize $1-3/yr per user on average, it still wouldn't have met FB's revenue expectations.
  - deleted 8y ago
    [deleted]
  - sp527 8y ago
    I honestly believe the friction of paying any non-zero amount at all for a messenger app is more than what 80%+ of users would be willing to bear psychologically. They would almost certainly just migrate to a different app. That's also where WhatsApp's group emphasis becomes a huge drawback - groups would tend to migrate together, making it easier and quicker for the whole network to unravel.
  - underwater 8y ago
    WhatsApp relies on network effects to be successful. If you get less than 100% of users continuing to pay and use the product then the utility goes down; the paid product is actually worse than the free version.
- stale2002 8y ago
  Well, but WhatsApp proved you what, because that's exactly what they were doing for a while.
ISL 8y ago
Facebook didn't want to die. Large and growing networks are a threat to FB. Buying up Instagram and WhatsApp was probably less expensive than building competitors and out-competing the upstarts. The prospect of ad revenue is a bonus.
aylmao 8y ago
FWIW this is from the perspective of and American consumer (I assume, from your comment below where you mention AT&T). Most WhatsApp users aren't American, and in a lot of places $1 is a more significant price tag. That aside though, some places don't have the infrastructure or trust to even allow any sort of online payment to happen: a lot of people in India don't have credit cards, and being from Mexico myself, I know a lot of people who do don't trust online transactions enough to pay with it online.
- toomuchtodo 8y ago
  Charge me two dollars as a first world American, and give someone else the service for free. Infrastructure can be expensive, but not that expensive. Let's Encrypt, OpenStreetMap [1], and Wikipedia run on donations, and these are core internet properties. If you think you need tens of millions of dollars annually to run a chat client at scale, no. [1] https://help.openstreetmap.org/questions/9867/what-is-annual-cost-of-running-osm https://help.openstreetmap.org/questions/9867/what-is-annual... (OpenStreetMap infrastructure costs less than $100k/year)
  - earenndil 8y ago
    Let's encrypt and wikipedia are not-for-profit. If they charge americans $2/month and eastasians $0, then people will be outraged, and they'll find a way to get it for free anyway.
    - toomuchtodo 8y ago
      I would ask for proof people would be outraged. Google and Facebook have used their overwhelming first world profits to fund internet ventures in the third world, and no one is outraged over the actions except for the blatant colonialism those actions represent.
      - earenndil 8y ago
        They have never offered the same service to an identical identity type (e.g. person/government/corporation/school are all different), but charging for one and not the other.
rchaud 8y ago
The $1/yr thing was BS. The app never actually took you to a payment screen; I think it was "free for 1 year, $1/yr afterwards". The only time I have ever paid for Whatsapp was in the Blackberry App Store back in 2009, when it cost $3.
- ismail 8y ago
  I paid $1 on the App Store
rokhayakebe 8y ago
The challenge is $1/month is probably too pricey for most of their user base. I was born and raised in a third world country and 99% of my family and friends still live there. Our GDP per capita is around $1,000 (yearly figure). I know people with children who make no more than $150 per month and cannot afford their own apartment. I know people who make even less. I know people who live in villages and probably have a monthly budget of no more than $80-$100. Yet I have very rarely met people who somehow aren't spending at least $5 per month on their phone bill (buying minutes). In fact I was very surprised to find that not only nearly everyone has a mobile phone, BUT phone service was more expensive than they are in the US. For example one hour at an internet cafe will set you back 50 cents. Yet everyone has a mobile phone, about half have a smartphone (granted a cheaper version of Android) and people buy internet connection left and right. In America, you walk into any coffee shop, get a free water, a free internet connection and a Thank You. I say this to say, that WhatsApp could charge $2 per month and most people will happily pay it.
- abalone 8y ago
  This is an invalid comparison. WhatsApp is an OTT messaging service. You're comparing it to carrier internet and voice service. It would be more valid to compare it to carrier text messaging fees, which was the arbitrage opportunity they exploited. But that opportunity is mostly gone now that everyone has smartphones. If WhatsApp charged $2/month they would face the same challenge from upstart apps that carriers faced from WhatsApp.
- krrrh 8y ago
  An important point to add to these observations is that WhatsApp made massive inroads with carriers in developing countries to zero-rate their services (unlimited WhatsApp messages as part of a data plan). This is the underreported aspect of the FB acquisition as these arrangements were immediately parlayed into zero-rating for WhatsApp and Facebook. WhatsApp was so far ahead of Facebook in becoming established in these markets that it posed a real threat. And as you said, $1-24 per year paid to WhatsApp would be only a fraction of what even the poorest mobile phone users pay for their plans.
abalone 8y ago
> The challenge is $1/month is probably too pricey for most of their user base. The only reason WhatsApp exists is that international carriers were charging higher fees for text messaging while offering lower data rates, creating an arbitrage opportunity. WhatsApp never took off in the U.S. because U.S. carriers were ahead of the curve in shifting to free texting (thanks to the iPhone popularizing unlimited consumer data plans). So yes, this puts a hard ceiling on what WhatsApp could charge. And that makes them feigning they thought they could justify a $19B valuation without increasing monetization all the more ridiculous. Of course they knew what would happen. That's why the deal was "if you monetize we vest all our stock and leave and cry out loud all the way to the bank," not "you can't monetize."

by ozgune 8y ago

sp527 8y ago

If you think that even the friction alone of charging $1/yr isn't enough to shove the vast majority of users off the app, you haven't been paying attention to consumer expectations.

s73v3r_ 8y ago
But that's what WhatsApp was doing before.
- sp527 8y ago
  No they were not. This is a complete falsehood. They sold the company well before they could roll out their monetization plan widely enough for it to impact user retention. They were also much smaller at the time.
ozgune 8y ago
I agree that $1/yr would shove off majority of users off the app. That said, I think WhatsApp could get to revenues of $1-3B per year because of the following: * I pay $60/mo for my AT&T line. I do the majority of my communication over WhatsApp. In that sense, WhatsApp adds more value to my life than AT&T. There are a group of users who'd be willing to pay more for that value. * For most users, WhatsApp is an integral part of how they communicate with friends, family, doctors, coworkers, etc. As a consumer, it isn't just an "app" but an integral part of their communication flow. * WhatsApp is respected by international telcos. I know at least for the telcos in my home country that they'd be happy to charge for WhatsApp subscription as part of their packages. I think the primary problem was that even if WhatsApp could monetize $1-3/yr per user on average, it still wouldn't have met FB's revenue expectations.
- deleted 8y ago
  [deleted]
- sp527 8y ago
  I honestly believe the friction of paying any non-zero amount at all for a messenger app is more than what 80%+ of users would be willing to bear psychologically. They would almost certainly just migrate to a different app. That's also where WhatsApp's group emphasis becomes a huge drawback - groups would tend to migrate together, making it easier and quicker for the whole network to unravel.
- underwater 8y ago
  WhatsApp relies on network effects to be successful. If you get less than 100% of users continuing to pay and use the product then the utility goes down; the paid product is actually worse than the free version.
stale2002 8y ago
Well, but WhatsApp proved you what, because that's exactly what they were doing for a while.

ISL 8y ago

Facebook didn't want to die. Large and growing networks are a threat to FB. Buying up Instagram and WhatsApp was probably less expensive than building competitors and out-competing the upstarts. The prospect of ad revenue is a bonus.

aylmao 8y ago

FWIW this is from the perspective of and American consumer (I assume, from your comment below where you mention AT&T). Most WhatsApp users aren't American, and in a lot of places $1 is a more significant price tag. That aside though, some places don't have the infrastructure or trust to even allow any sort of online payment to happen: a lot of people in India don't have credit cards, and being from Mexico myself, I know a lot of people who do don't trust online transactions enough to pay with it online.

toomuchtodo 8y ago
Charge me two dollars as a first world American, and give someone else the service for free. Infrastructure can be expensive, but not that expensive. Let's Encrypt, OpenStreetMap [1], and Wikipedia run on donations, and these are core internet properties. If you think you need tens of millions of dollars annually to run a chat client at scale, no. [1] https://help.openstreetmap.org/questions/9867/what-is-annual-cost-of-running-osm https://help.openstreetmap.org/questions/9867/what-is-annual... (OpenStreetMap infrastructure costs less than $100k/year)
- earenndil 8y ago
  Let's encrypt and wikipedia are not-for-profit. If they charge americans $2/month and eastasians $0, then people will be outraged, and they'll find a way to get it for free anyway.
  - toomuchtodo 8y ago
    I would ask for proof people would be outraged. Google and Facebook have used their overwhelming first world profits to fund internet ventures in the third world, and no one is outraged over the actions except for the blatant colonialism those actions represent.
    - earenndil 8y ago
      They have never offered the same service to an identical identity type (e.g. person/government/corporation/school are all different), but charging for one and not the other.

rchaud 8y ago

The $1/yr thing was BS. The app never actually took you to a payment screen; I think it was "free for 1 year, $1/yr afterwards". The only time I have ever paid for Whatsapp was in the Blackberry App Store back in 2009, when it cost $3.

ismail 8y ago
I paid $1 on the App Store

rokhayakebe 8y ago

The challenge is $1/month is probably too pricey for most of their user base. I was born and raised in a third world country and 99% of my family and friends still live there. Our GDP per capita is around $1,000 (yearly figure). I know people with children who make no more than $150 per month and cannot afford their own apartment. I know people who make even less. I know people who live in villages and probably have a monthly budget of no more than $80-$100. Yet I have very rarely met people who somehow aren't spending at least $5 per month on their phone bill (buying minutes). In fact I was very surprised to find that not only nearly everyone has a mobile phone, BUT phone service was more expensive than they are in the US. For example one hour at an internet cafe will set you back 50 cents. Yet everyone has a mobile phone, about half have a smartphone (granted a cheaper version of Android) and people buy internet connection left and right. In America, you walk into any coffee shop, get a free water, a free internet connection and a Thank You. I say this to say, that WhatsApp could charge $2 per month and most people will happily pay it.

abalone 8y ago
This is an invalid comparison. WhatsApp is an OTT messaging service. You're comparing it to carrier internet and voice service. It would be more valid to compare it to carrier text messaging fees, which was the arbitrage opportunity they exploited. But that opportunity is mostly gone now that everyone has smartphones. If WhatsApp charged $2/month they would face the same challenge from upstart apps that carriers faced from WhatsApp.
krrrh 8y ago
An important point to add to these observations is that WhatsApp made massive inroads with carriers in developing countries to zero-rate their services (unlimited WhatsApp messages as part of a data plan). This is the underreported aspect of the FB acquisition as these arrangements were immediately parlayed into zero-rating for WhatsApp and Facebook. WhatsApp was so far ahead of Facebook in becoming established in these markets that it posed a real threat. And as you said, $1-24 per year paid to WhatsApp would be only a fraction of what even the poorest mobile phone users pay for their plans.

abalone 8y ago

> The challenge is $1/month is probably too pricey for most of their user base. The only reason WhatsApp exists is that international carriers were charging higher fees for text messaging while offering lower data rates, creating an arbitrage opportunity. WhatsApp never took off in the U.S. because U.S. carriers were ahead of the curve in shifting to free texting (thanks to the iPhone popularizing unlimited consumer data plans). So yes, this puts a hard ceiling on what WhatsApp could charge. And that makes them feigning they thought they could justify a $19B valuation without increasing monetization all the more ridiculous. Of course they knew what would happen. That's why the deal was "if you monetize we vest all our stock and leave and cry out loud all the way to the bank," not "you can't monetize."