It has been 5 years since the whopping $19.3 billion merger with Facebook. Although we haven’t yet see what justifies this hefty purchase, it’s more than evident where it’s likely headed.
WhatsApp was introduced in 2009 as an ad-free chat platform free to use for one year after which you had to pay a $1 annual subscription fee. Since the acquisition, they’ve taken down the subscription fee to focus on getting more people using the product.
It offers instant messaging, voice & video calls, status updates from contacts and a free Business App that comes with lite CRM capabilities. At the end of Q1 2019, the daily active users touched 500 million and that’s bound to grow each year.
Explosive growth of this kind is not merely an outcome of building a feature rich product. It’s the right business model in the right market that pays off in the long run. Much of WhatsApp’s success is deeply tied to its business model- freemium and ad-free. To become a truly profitable acquisition, a change in its business model is inevitable.
Exploring new business models
In the US, software companies that have a large user base are primarily based on one of these two profitable business models:
- Advertising- based
- One-time/ frequent transaction- based
Example: An advertising company that also offers subscription services such as GSuite from Google. A transaction company that also offers advertisement services such as Sponsored Products from Amazon.
At its core, Facebook is an advertising and e-commerce company. So there’s a strong possibility they’ll introduce ads in WhatsApp. Which is not entirely a bad thing to have but the how is what will make or break the experience.
Imagine Sponsored Posts you see in Facebook show up as retargeted WhatsApp statuses. Some speculate statuses where brought for this very purpose.
The best bet Facebook could have for WhatsApp would be to add value through a transaction-based business model. Like a Marketplace for products.
Having said that, it’s worth to take notes from the East so that we’re not blindsided by the American business model bubble.
Look no further than WeChat. Started as a messaging app, the poster child of Tencent has transformed the way the Chinese shop, run errands, hire services, pay bills, play games, order food, hail a cab, and do a thousand different things— making it a Swiss army knife of apps.
WeChat made 85 billion in revenue last quarter. Of which, less than 20% of revenue came from advertising. The rest comes from transaction-based services like mini programs and games. This does not come as a surprise at all since WeChat’s core philosophy is to honour privacy and user experience.
In their quest to find more revenue streams, they went beyond the low hanging fruits of doing business. This approach forces them to stretch their product thinking in innovative directions with features like Red Envelope that mimic the Chinese tradition.
Think for a second, how much time do you spend on WeChat every day? Do you spend more time with your closest family and friends, or with WeChat? If WeChat was a person, certainly it would be your best friend, that’s why you’re willing to spend so much time on it. Then, how could I stick an ad on your best friend’s face? Every time you saw him, you would have to watch an ad before you could talk to him.From Allen Chang, Founder of WeChat
In this post, we’ll see the ways WhatsApp can monetise the platform without jeopardising the user experience.
Business Account with Premium Features
With a business account on WhatsApp, you can manage contacts with labels like Prospecting, Payment Pending, Customer etc., automate messages, send quick replies, and add the details of your business. We can expect some interesting features on web WhatsApp which would be the most convenient place for businesses to use WhatsApp full time.
- An important feature they could give is allowing businesses to display their product catalogue with contextual call to action buttons such as Book Now, Buy Now, Sign Up, Learn More etc.
- Further, they could consider providing an interstitial page that takes them to a marketplace of sorts that is meant for easier browsing/shopping while it serves as a way of keeping customers inside the app.
The above two features along with WhatsApp’s native paywall will greatly negate infrastructure costs associated with setting up a business. Imagine if you can order your favourite paneer paratha right from WhatsApp without having to install a food delivery app.
- Soon they should also be allowing these business accounts to run ads within WhatsApp. The disappearing status is a prime real estate for this. By having strict caps for the frequency of ads displayed to customers, WhatsApp can provide a less intrusive messaging experience.
- Having a dedicated analytics section is a no brainer that’ll help businesses gain deeper insights on customer behaviour and sales data.
WhatsApp has also opened up their APIs for businesses to build use cases on top of it. Which again is another hell of a good revenue source. Many SaaS companies have already started building excellent use cases for WhatsApp around CRM, Marketing and Customer Service.
Having a robust payment infrastructure is the first step to help monetising existing touch points. Facebook is already testing peer to peer transactions in India in collaboration with UPI. WhatsApp Pay will largely remain free to use for personal accounts. Eventually, Facebook will be able to:
- Earn through transaction fees from the retailers having business accounts on WhatsApp.
With UPI taking over the Indian market, the chances of earning on peer-to-peer transactions via WhatsApp’s digital wallet will be slim to none so focus will primarily be on B2C and B2B transactions.
WhatsApp could charge retailers having business profiles a certain % fee for the total amount of each payment and a flat fee for every transaction. To put market opportunity in perspective, PayPal has transacted $161.49 billion until Q1 2019 this way. That has earned them $4.6 billion over the last five years just as transaction fee.
- Earn through interests rates on credit payments.
We’re seeing an interesting global trend where internet companies are chasing banks to reach their credit card holders while these banks are after credit-worthy customers of internet companies who shun paperwork.
Three power couples have emerged so far in India: Amazon and ICICI bank, Paytm and Citi, and Ola and SBI, providing lucrative cash back offers. This curious waltz between internet companies and banks only means each have something significant to gain from another, given banks were earlier written off by digital incumbents.
The number of credit cards in circulation within India has gradually declined over the last year while a rough math on the volume of credit card transactions show a 27% increase y-o-y as of April 2019. This shows the market for credit-based payments is on the rise while the method of payment hasn’t stabilised. One reason could be due to RBI’s direction to replace old magstripe cards with the more secure, global standard chip-based EMV cards.
The other reasons are the general friction associated with using these cards. In another decades’ time, credit cards will suffer the same fate as CDs and DVDs with rapid development in user-friendly mobile payments and infrastructure changes such as the retail industry ditching expensive Point of Sale machines. WhatsApp stands a good chance to be an early entrant in the digital credit payment market with low to zero customer acquisition costs.
Integrate tightly with Facebook Marketplace for Advertisers
Similar to how having an ad account in Facebook lets you run ads on Instagram, advertisers should be able to run ads as WhatsApp statuses. The key here is controlling the frequency and relevancy. If WhatsApp were to base its ads on my activity on Facebook, I’d be okay with it, although again that would mean Facebook shares data to a source I never consented to. If it’s based out of my private conversations, I’d flip. There’s also a high chance of advertisers using third-party data to target me with ads on WhatsApp (offline data).
Taking these possibilities into consideration, it’ll be best to use WhatsApp as a point of direct communication with customers rather than a point for ads. Facebook has already rolled out a way for consumers to contact the WhatsApp number of businesses through CTAs in the ads.
Lead Ads, one of many types of Facebook ads, is best suited for this where people can consent to receiving communication from the advertiser. You can collect WhatsApp numbers through lead forms to run a WhatsApp exclusive message campaign.
Given the outrageous levels of misinformation spreading through WhatsApp, a natural way to counter it would be to allow people to subscribe to bite sized authentic news from different media publishers. The nature of the disappearing stories makes it a perfect candidate for publishers to make the most of it. Facebook could send premium status updates from the publisher of your preference to your WhatsApp number for a certain fee. So when you see a news article on your Facebook feed, you should see an additional CTA that says Subscribe to WhatsApp updates. I’m thinking out aloud at this point.
And if this is something that really takes off, it could validate WhatsApp’s potential to become an omni-commerce platform like that of WeChat, making it a gateway for a host of different paid services.
There’s so much more WhatsApp can do to monetise its platform. These are a few ways I thought it could potentially make a big buck without compromising its user experience. What are your thoughts?
Featured photo by Christine Roy on Unsplash