Facebook is using a boatload of money on WhatsApp – $19 billion in a combination of money, stock and limited stock – and there’s alot of measure of interest encompassing the purchase. Why did Facebook use so much cash? How the heck is it ever going to make back this NINTEEN BILLION?
They are more questions, too, because Facebook is now starting to generate its revenue from $1 billion Instagram purchase – and it’s doing through ads. Facebook has no plans to add advertisements on WhatsApp. So how the FISH is it going to make any money? It’s a query to Facebook investors no doubt want answered, and probably faster rather than later.
The first question is: why did Facebook buy WhatsApp? I think there’s been a ton of great analysis out there. My favorite so far is from GigaOm which suggests that Zuck made the bid for one major reason: to keep the target on Facebook, and away from any competitor. The social network has seen a decline in youngsters – the same audience WhatsApp is full of – and there’s been speculation that the company is losing its moto and the fame of Facebook is dying off. More importantly, Facebook stopped Google from acquring WhatsApp – for a rumored $10 billion – again, keeping itself in the headlines instead of Google. It’s a good strategy. Now back to how Facebook can make money.
Ads probably don’t work in WhatsApp. The audience, more than 450 million monthly active users, keeps coming back because of its simpliicity. There aren’t any ads now, and the owners promised early on that there were no intentions to ever add advertisement. Instead, the company generates its income from a low fee of $1 asking for the following year of use. A fee most of us give off. That $1 fee is also the answer to WhatsApp’s income generation for Facebook.
These microtransactions, essentially what makes Apple’s iTunes App Store so being successful, can be purchased on for 99 cents and can be huge income generators. According to a recent report from Think Gaming, cited by Pacific Standard, the two most popular applications in the iTunes App Store, Candy Crush Saga game and Clash of Clans generate $994,344 and $786,506 per day. Even more stunning, those apps add 33,714 and 37,083 users every day. WhatsApp adds 1 million new users every day. The secret to that income generation? Microtransactions – the sort that cost 0.99$ for another life, or $4.99 for a few steps of candy that make beating a level that much faster. Messaging, like gaming, is addictive, and people are willing to spend there bucks to improve their experience instead of allowing something like ads, which inhibit the experience.
My point is that WhatsApp stands to generate more income than it does now – and has ever – if it takes the step toward microtransactions.How about a pack of HD wallpapers for your favorite sports teams? Yes, WhatsApp allows wallpapers for chat backgrounds, and it can charge a low fee for them.
With 450 million monthly active clients, let’s say half spend $1 a year on new content. That’s $225 million a year in income Facebook earns from WhatsApp, not including the additional ~$450 million it will earn from each user who will pay $1 a year to continue service. Indeed, at that rate Facebook won't profit once again for 24 years, yet that is just accepting that Whatsapp development were to end, dead in its tracks, at 450 million clients at this moment. At its current development rate, nonetheless, it stands to have 815 million clients in twelve months (recollect that, its including 1 million new clients every day). Facebook stands to profit back snappier than you may might think.
So is Facebook’s WhatsApp acquisition crazy? $19 billion is a considerable measure of cash, however its not as senseless as it appears, and there are surely approaches to make a couple of bucks.
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