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How Does WhatsApp Make Money? Why Is It free? – Investopedia

WhatsApp was founded in 2009 by Brian Acton and Jan Koum as an alternative to pricey SMS services. The app allows users to upload their contact book and message anyone who has the app installed, at no cost. It is available for iPhones, Androids, and desktops.
Meta (FB), formerly Facebook, purchased WhatsApp in February 2014 for $19 billion and according to the 2014 Facebook Form 10-Q, during the nine months preceding Sept 30, 2014, WhatsApp generated revenue of $1.29 million.
In 2018, WhatsApp co-founder and Facebook Inc. director Jan Koum announced his departure from Facebook. Media reports indicate that Koum decided to leave after a disagreement with the company over its use of user data and its desire to allow advertisements on WhatsApp. Koum, along with his co-founder Brian Acton, has long been an advocate for the privacy of WhatsApp users. 
In February 2020, WhatsApp had two billion users and was Facebook's second-biggest property, after its namesake app. It surpassed messenger and Instagram, the third- and fourth-biggest properties. So how is WhatsApp making its money?
The short answer used to be $1 at a time. In some countries, the app used to cost about $1 to download; in others, the first year is free, but each subsequent year costs $1; in other words, WhatsApp had a subscription model. At the peak under this model, it had about 700 million users worldwide; yearly revenue can be estimated at $700 million per year at that time.
In January 2016, Facebook revealed in a 10-Q filing that because WhatsApp was monetized in “a very limited fashion,” it may not be generating meaningful revenue in the long term, hinting that the strategy would change. Shortly after, WhatsApp announced in a blog post that the era of subscriptions had come to an end and the messaging app would now be free to use. 
There are still no ads in the app, however. "Starting this year, we will test tools that allow you to use WhatsApp to communicate with businesses and organizations that you want to hear from," the company wrote at the time. The goal is to have people communicate directly with their banks, airlines, etc. over the app, while the businesses pick up the bill previously paid through subscriptions. 
WhatsApp Business, the business platform of the messaging app, provides a host of tools for businesses to access company insights and measure metrics, making it an attractive tool for businesses.
Though WhatsApp’s financial statements aren’t public (Meta doesn’t break down its revenue by company), Forbes estimated potential revenue to be $5 billion and the average revenue per user to be $4 by 2020. As of February 2020, WhatsApp had over two billion users. 
Outside of America, where sending text messages is more expensive, SMS apps are popular and have successfully monetized. WeChat—the popular Chinese SMS app—has ads as well as online games. The company is partly responsible for Tencent’s, which owns WeChat, $13.7 billion revenue in the third quarter of 2019. The app has over one billion active users.
WhatsApp is adding almost a million users per day, mostly in Latin America, India, and Europe. With SMS apps, growth is exponential; when one person in a social group downloads and advocates using the app, many new users download the app to communicate with the original person. These new users then encourage other members of their other social groups to use the app.
By increasing market penetration, the app becomes indispensable and the user base grows. 
Industry insiders have speculated that part of the rationale behind acquiring WhatsApp was for Meta to access user’s behavioral data and personal information.
With location sharing data, 65 billion messages sent per day, and access to users’ entire contact lists, Meta has access to a ton of personal information—all uploaded and saved on its servers. While Mark Zuckerberg has previously promised that this data won’t be used to improve consumer targeting in Meta ads, it will be unless the user changes the settings to not share information with Meta.
WhatsApp, as well as other messaging providers (including Apple), have been in hot water with governments around the world after it was determined that terrorists used apps to communicate before and during attacks.
Governments and counter-terrorism agencies wanted the companies behind these apps to share the encryption key to gain access to messages sent and received by the terrorists. The companies, however, refused to oblige. This led to WhatsApp's adoption of end-to-end encryption, which prevents anyone, including WhatsApp, except the sender and receiver from gaining access to the data shared on the app.
WhatsApp has become one of the most popular messaging services in the world with only room to grow. Whether you believe that Meta overpaid for WhatsApp or not, the fact is that the app has a growing revenue stream with endless possibilities that will allow it to bring in more revenues over time.
Forbes. "Exclusive: The Rags-To-Riches Tale Of How Jan Koum Built WhatsApp Into Facebook's New $19 Billion Baby." Accessed Feb. 28, 2020.
WhatsApp. "Download." Accessed Feb. 28, 2020.
U.S. Securities and Exchange Commission. "Facebook, Inc. Form 10-Q (9.30.2014)," Page 21. Accessed Feb. 28, 2020.
Facebook. "Facebook to Acquire WhatsApp." Accessed Feb. 28, 2020.
New York Times. "WhatsApp Co-Founder Leaving Facebook Amid User Data Disputes." Accessed Feb. 28, 2020.
WhatsApp. "Two Billion Users — Connecting the World Privately." Accessed Feb. 28, 2020.
Vox. "WhatsApp is Now Facebook’s Second-Biggest Property, Followed by Messenger and Instagram." Accessed Feb. 28, 2020.
WhatsApp. "Making WhatsApp Free and More Useful." Accessed Feb. 28, 2020.
Business Insider. "WhatsApp's Insane Growth Continues: 100 Million New Users in 4 Months." Accessed Feb. 28, 2020.
U.S. Securities and Exchange Commission. "Facebook, Inc. Form 10-Q (9.30.2015)," Page 42. Accessed Feb. 28, 2020.
Forbes. "How Much Revenue Can Facebook's WhatsApp Generate In The Next Five Years?" Accessed Feb. 28, 2020.
Tencent. "Tencent Announces 2019 Third Quarter Results." Accessed Feb. 28, 2020.
Sina. "Ma Huateng: WeChat's Global Monthly Active Users Exceed 1 billion During the Spring Festival." Accessed Feb. 28, 2020.
Emarketer. "WhatsApp: A Key Driver of Mobile Messaging Growth." Accessed Feb. 28, 2020.
CNET. "WhatsApp: 65B Messages Sent Each Day, and More Than 2B Minutes of Calls." Accessed Feb. 28, 2020.
Vox. "Mark Zuckerberg Explains Why an Ad-free Facebook Isn’t As Simple As it Sounds." Accessed Feb. 28, 2020.
Combating Terrorism Center. "How Terrorists Use Encryption." Accessed Feb. 28, 2020.
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