How WhatsApp went from a nearly failed app to Meta’s next monetization push

In this weekly series, CNBC takes a look at the companies that made the inaugural Disruptor 50 list 10 years later.

Following the launch of the iPhone in 2009, the former Yahoo! employees Brian Acton and Jan Koum came up with the idea of ​​creating an app that would allow users to update their contact list statuses, which would then let their contacts know where they were or what they were up to this moment. Koum recruited the services of iPhone developer Igor Solomennikov, and they created their first prototype.

Among its early users, however, the app proved unpopular and was riddled with connectivity issues and crashes. It was starting to look like a failed concept, and Koum considered abandoning the project altogether and turning to other work.

But then Apple introduced push notifications, and that changed everything for what is now the world’s most popular messaging app: WhatsApp.

Push notifications, which allowed automated messages to be sent by an app without the app needing to be opened, offered the possibility of a more interactive model of Acton and Koum’s idea.

Subsequently, the company changed the function of the app to send push notifications when a user changed status. Soon, the founding team’s small circle of friends who used the app began pinging each other with personalized statuses throughout the day, serving more as an instant messenger than the status markers originally intended.

Building on this trend, they redesigned the app and released WhatsApp 2.0 in August 2009, focusing on the instant messaging component, which quickly became the defining feature of the app.

The newly redesigned app immediately caught the eye and the number of active users jumped to 250,000 in what seemed like overnight.

Soon after, Acton persuaded former colleagues at Yahoo! to invest $250,000 in seed funding. After months in beta, the iPhone application was released on the App Store in November 2009, followed soon after by Blackberry and Android versions. It also moved from a free to a paid service, charging $1 per year to cover the cost of sending verification texts to users. Over the next several years, WhatsApp continued to grow rapidly, backed by more than $50 million in investment funding from Sequoia Capital.

In February 2014, WhatsApp was acquired by Facebook (now Meta) for $22 billion, making it the company’s largest venture-backed acquisition to date. Following this, WhatsApp became the most popular messaging app in the world, with over 600 million users. Several major changes also followed, including web features, voice calling, and the removal of the $1 annual subscription fee.

Just as WhatsApp had capitalized on the emerging push notification trend, so has it with encryption. WhatsApp added end-to-end encryption to every form of communication on its service, meaning no one, even WhatsApp employees, could access data sent over its network.

Ultimately, WhatsApp’s success was found in its focus on user experience, embellished by the priority of privacy and a disregard for ads. WhatsApp has democratized phone communication and kept users’ interests at the forefront of their decision-making.

“Behind every product decision,” the company said, “is our desire to allow people to communicate anywhere in the world without barriers.” This is why the $1 annual subscription fee has been discontinued, to remove the barrier faced by users without a payment card. And this is also the reason why they have stood firm in not using third-party advertisements on the app, which would have inevitably cluttered the interface for users.

When WhatsApp was acquired by Meta, the company sadly promised, “No ads, no games and no gimmicks.” For the founders Acton and Koum, this sentence represented the philosophy of the company.

“You can always count on absolutely no advertising interrupting your communication,” Koum said at the time. “There would have been no partnership between our two companies if we had to compromise on the fundamental principles that will always define our company, our vision and our product.”

However, in 2016, this promise was revoked, when the company launched a major update to its privacy policy which announced that it would begin sharing user information and metadata with Facebook.

Although the company’s end-to-end encryption continued to protect the content of user communications, the update allowed WhatsApp to share a myriad other user information with Facebook, including users’ phone numbers, application usage frequency, information about how users interact with each other, IP address, language, mobile network and even location information, cookies and payment data.

Shortly after this update, the two founders Acton and Koum left WhatsApp and Facebook.

“In the end, I sold my business”, Acton told Forbes. “I sold my users’ privacy for a greater benefit. I made a choice and a compromise. I live with that every day.”

But while WhatsApp’s commitment to users’ best interests, including data privacy, has helped the company become one of the world’s most ubiquitous apps, it has also prevented it from becoming truly profitable. . Without advertising – which represents 97% revenue from Meta – WhatsApp maintained low profitability.

Today, Zuckerberg hopes to change that, particularly by focusing on WhatsApp Business, which first launched in 2018. He recently drew comparisons to how the company monetized Facebook and Instagram after building up a large audience during a conversation with CNBC’s Jim Cramer.

“WhatsApp is really going to be the next chapter, with enterprise messaging and commerce being a big thing there,” Zuckerberg told CNBC earlier this month.

WhatsApp Business currently consists of two components, the free WhatsApp Business app for small businesses, which allows businesses to communicate directly with customers, and the WhatsApp Business platform, an API for large businesses, which charges businesses for each conversation after the first 1,000.

In an effort to increase ad revenue, remain relevant to small businesses, and generate additional revenue through the premium services on offer, WhatsApp will soon be rolling out a premium service for small businesses that focuses on click-to- message,” which allows consumers to click on a business ad and be immediately taken to a conversation with that business on WhatsApp.

“We believe messaging in general is the future of how people will want to communicate with businesses and vice versa. It’s the fastest and easiest way to get things done,” a WhatsApp the spokesperson said.

This comes at a time of great uncertainty, as Meta recently missed both the top and bottom results for the second quarter and gave a troubling forecast for the next quarter.

Whether or not it can successfully monetize the more than 2 billion people who use WhatsApp today remains to be seen.

One thing is certain, however: Zuckerberg and Meta are betting that WhatsApp Business will be an essential part of the company’s future.

“Click-to-message is already a multi-billion dollar business for us and we continue to see strong double-digit year-over-year growth,” said the outgoing COO of Facebook, Sheryl Sandberg, during the company’s second quarter earnings call. It’s “one of our fastest growing ad formats for us.”

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