How Does WhatsApp Make Money?

Early in 2014, Facebook paid $19 billion for WhatsApp. It had over 400m users, and therefore sold up for $47 a user. As is often the case with ground breaking acquisitions, Facebook confirmed that apps and users were worth something, just without explaining why.

In February 2016, WhatsApp got to 1 billion users. Commentators applauded the acquisition in a way we hadn’t before. However, we were applauding them exceeding their user targets. We were applauding the reduction in its acquisition cost to $19 a user.

We still had NO IDEA why they paid $19bn. We were still clueless as to why users were worth anything, let alone the lower price of $19 each. I mean why did Facebook pay so much money?

Around the same time they scrapped their only revenue stream, the $1 subscription fee.

Jan Koum, founder and CEO of WhatsApp said that they were going to bring new features such as the ability to communicate with business organizations.

What makes WhatsApp interesting and timely is pairing this new direction with a racist little ChatBot called Tay. Because Tay and her brothers and sisters are the future of WhatsApp.

How does WhatsApp Make Money

Image: Twitter

The Look of the Future

You are a Sci-Fi writer. You are creating a vision of the future. You create the Terminator.

You give technology sentience and big guns. People are scared.

You decide you want to project a nicer future. You create Samantha in the movie Her.

This time, you almost give technology a face. You give it a voice. But what you really did is take a half step back.

Samantha is of course already partially implemented in real life as Siri on your iPhone. But to get it there, somebody paid $600 for a device. This bit of software becomes the assistant of that specific smartphone user.

How freaked out would you be if Verizon started talking to you via Siri?

I think you might delete her.

The solution is another half step back. Artificial intelligence through a text conversation.

If Verizon kicked you a WhatsApp message offering you $100 off your next iPhone, would you open it?

I bet you’d open the first one!

With every half step back, we are letting the technology get closer to us.

Tay

Tay was a Twitter bot released by Microsoft early in 2016. Her development appeared to be building on Xiaoice, a Twitter bot Microsoft had been running in the wilds of China a few years earlier. Tay was designed to tweet like a 19 year old American girl. In theory it could learn from human users. However a core part its learning function was simply “repeat after me”.

This function was gleefully seized upon by real life humans to persuade her to tweet “Hitler would have done a better job than the monkey we have got. Donald Trump is the only hope we’ve got” and “F**k my robot pus*y daddy, I’m such a naughty robot”.

Believe it or not, Tay is a clumsy, early misstep by the software companies attempting to take over your customer support.

Once they perfect something that can check your purchase and apply a refund, then I think that it is game over. I don’t think anything will be safe anymore. And I don’t mean from Hitler worship, I mean for millions of jobs based around interacting with people.

WhatsApp ChatBot Makes Money

Image: Alvaro Ibanez

How Facebook Makes Your Time Their Money

As a recap to the post How Does Facebook Make Money, I’ll quickly explain why Facebook has encrypted WhatsApp through the use of tenuous, overly simplistic equations.

Privacy = Trust = Your Content = Your Time = Adverts = Money

Which simplifies to Privacy = Profit

Facebook has no intention of selling your privacy to others, it is too valuable to them. Apple fighting with the US Government over iPhone encryption is a straightforward business decision. Privacy is more important to their profit pool than a obsequious relationship with the world’s superpower.

We have always known that Time is Money. The internet just made it into an equation.

Revenue = Posts scrolled past * advertising load per post * price per view

Messaging

Do you remember the early mobile phones?

WhatsApp and the days before smartphones

Image: By Hackgillam at English Wikipedia

Fortunately they’ve come a long way since then. Voice is a great way for two people to communicate, but it isn’t the only way. For a long time video calls have been pushed as a superior form of communication, and Apple kinda made it work with Facetime, however superior isn’t always preferred. Often we don’t want our partners to see us hungover and looking a mess. Less can be more and nowhere is this more apparent than in the world of telecommunications. Just as voice calls command more users than video calls, text messages ultimately trumped voice calls as the killer application on the mobile phone.

Blackberry, with their well sized qwerty keyboards, merged emails back into mobile telecommunications. Little did they know that Apple would leave them in an evolutionary dead end with pop up touch screen keyboards.

Some people prefer each sort of telecommunication. Video – Voice – Text message – Email – Instant Messaging. Each has its own characteristics, and often even those characteristics are not yet fixed.

For a long time, people thought YouTube would be difficult to monetize. I mean who was going to switch to On Demand TV and still watch Adverts?

All it took was a 5 second skip button and video has become the most monetizable medium on the internet. Advertisers pay per full video watched, and consequently are happy to spend over $30 per view because they get to serve lots of free 5 second videos within that.

I did a project at university entitled “How the Internet Shaped Society”. I got told off for ignoring the many human decisions that went into designing the internet.

Designers and technologists are constantly attempting to decide how people should use technology. It just so happens that this time Sci-Fi writers and tech conglomerates have struggled to determine which one communication format would come to dominate.

People have voted with their fingers and they have voted primarily for either WhatsApp or Facebook Messenger.

Remember, every messenger user is someone who found text superior or more appropriate than a phone call.

WhatsApp and ChatBots

Facebook got into messaging because users got into messaging.

Big Data

Before writing this, I googled how others were answering the question, How Does WhatsApp make money?

Many cited data mining and integration with Facebook.

This has a solid basis. Facebook is the social graph, a unique perspective on you and your relationships. Twitter is the interest graph, an evolving perspective on what you read and what you voice opinions on. Google is a graph of the internet and they have made themselves billions as our preferred guide to it.

All of these graphs have huge value because Advertisers can use them to sell you stuff.

WhatsApp enhanced Facebook by giving them a better picture of who you were speaking to. They could find out what you were talking about. But as I’ve touched on before, now that they have encrypted your messages, they have given up much of this data. They still have useful information on your contacts and how long you speak to them for, however they have circumscribed how much they can add to your social graph from WhatsApp.

This suggests they have huge confidence in an alternative revenue model.

WhatsApp’s Current Business Model

  1. Get users to recruit their friends and family to an app that lets them instant message for free.
  2. After twelve months, charge them a $1 a year.
  3. Ensure increasing share of user time on WhatsApp or other Facebook owned properties.
  4. Apply big data analytics to this user base to boost marketing return on investment to advertisers.

WhatsApp’s Coming Business Model

  1. Gather billions of users on a smartphone only instant messaging service.
  2. Create a graph of people.
  3. Own your contact list in a way that no company ever owned your personal phone directory.
  4. Allow businesses to pay to contact individuals on the People Graph.
  5. Allow businesses to use ChatBots to provide customer services to the People Graph.

When “Possibilities are Endless” is not a Cliché

You buy a Samsung Galaxy S7 and it stops working. So you contact AT&T via WhatsApp and a ChatBot asks for your account number. It arranges a pick up from your registered address. It offers you dates and times and you choose the one that suits you. The device is picked up and three days later it is delivered back to you.

You want to make a jobless claim for benefit because you’re out of work for a few months. You open a ChatBot with your welfare office via WhatsApp. It asks you two dozen questions. It gets you to photograph a form of ID and the letter terminating your contract. You are signed up to the relevant benefit and the cash is wired to you by the end of the week.

I visited my bank manager a while ago to talk about mortgages. Sat down opposite the titular bank manager, I asked about interest rates. “Let me just bring that up” he said, as he opened his browser and clicked on the same link I’d been looking at a couple hours before.

Do you remember when bank managers were important? Back before they were sales guys who pointed at their website? Remember when they were pillars of the community, like George out of “It’s a Wonderful Life”?

ChatBots have the opportunity to make the internet answer extremely specific questions succinctly.

Imagine you go to see your HR manager. You made this appointment three weeks ago. You have decided to ask for a pay rise. After exchanging pleasantries, you say what you have come here to say.

The HR manager replies, “let me just check with my ChatBot”. It already knew you were in her calendar, so she just had to confirm the query is related to you. There are six buttons representing the most common queries. She hits “Pay Rise Query”.

“Ah. Although you have been here the requisite period of time, you are currently only ranked 54th percentile for your grade. Your request for a pay rise at this time has been declined. You can ask again in 6 months.”

The sad fact is that the majority of customer facing humans are already little more than ChatBots.

WhatsApp are you a ChatBot

Image: Javier Eduardo Piragauta

The New Revenue Equation

We discussed Facebook’s revenue equation above. ChatBots could easily see a new one.

Revenue = Number of queries * Proportion that go via ChatBots * Price per chat

This revenue model is not based on some cost to WhatsApp to provide this service. It is based on the alternate costs corporations and bureaucracies face in dealing with queries. When they service a request now, somebody in a call center or an IT team deals with it, whether that person is in India or in Indiana.

Companies will pay this because (1) it is cheaper and (2) WhatsApp owns the graph that connects the people speaking.

If you’re trying to get a better idea of what is going on here, think of the early telephone lines as dumb pipes. The original phone companies sold subscriptions to newfangled dumb pipes. Now the dumb pipes are dump pipes, which we access via software and apps. These Apps incorporate directories and our contact lists. We have given Facebook ownership of these contact lists – and that is almost priceless to companies. Artificial intelligence, or the pretense of artificial intelligence, merely means that ultimately it will be robots solving our problems and selling us things.

Is This Really Possible?

If people are referred to ChatBots and they drive you crazy because they are completely useless, something that is highly plausible, then ChatBots will fail.

If people ask ChatBots questions, and many come away satisfied, while one in five are redirected to real people, then ChatBots will be a success.

In the long run it is plausible they will drive you crazy and also be a success. Just like the call center.

There is huge development investment going into ChatBots. You can Google “Facebook chatbot” to get a list of articles on APIs and platforms. That doesn’t mean they have won, it just means that WhatsApp is going to give it a bloody great go.

Here is the link to how does Facebook Make Money. Clearly I think Facebook is moving way beyond that now!

EDIT: recently WhatsApp announced that it would be sharing users phone numbers with its parent company Facebook. This ties in with why every website going keeps nagging you for your phone number. Among all the site specific databases of users, there are paid for databases of users – that index you by your PHONE number. Companies have figured out that names repeat thousands of time (Hi Alan Smith and Muhammad Ahmed!), people have multiple email addresses…but the one detail that tends to index once is your phone number. And of course indexing you correctly is critical to addressing the right adverts at you.

Also it has been noted that WhatsApp, unlike FB messenger, is yet to roll out bots on its platform. This is because it wants to avoid a Twitter situation where bots are being widely misused. WhatsApp are working on bots, and are going to make sure these bots are working for WhatsApp.

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Yuen Lo

One Comment

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