- WhatsApp is profitable because it has few employees & saves on server costs by deleting messages once they have been sent
- Instagram was ad free when it was acquired, though its founders hadn’t been so vocal about not running advertising
- Every minute spent on Snapchat or Line or WhatsApp is a minute not spent on Twitter or Facebook or Instagram: Analyst Ben Thompson
- As part of its new multi-app strategy, FB obviously decided it needed access to more of those minutes...
- ...Brands need to focus on creating experiences to earn the attention to win some of those minutes back
The technology world saw another one of its ‘big deals’, when Facebook acquired WhatsApp for a total sum of USD 19 billion last week.
WhatsApp was founded by two former Yahoo! engineers and has been built with entirely on word of mouth and with three guiding principles of ‘No Ads, No Games, No Gimmicks’, differentiating it from rival services such as Line and WeChat which rely on advertising or gaming and in-app purchases for revenue. Instead WhatsApp charges users USD 1 a year after the first year, which is free – when mobile customers can often pay that much to send less than ten text messages, its appeal isn’t hard to understand.
It is apparently profitable, because it has so few employees and saves on server costs by deleting messages once they have been sent. Like other messaging apps it also makes use of the simple interface with contacts on a phone so that users can very quickly connect with all their friends, rather than having to build up a social graph.
It’s all about the money
This is a very different strategy to Facebook which relies on monetising user data through advertising. Facebook has said that it has no plans to change WhatsApp’s model, and that the company will remain independent. One of WhatsApp’s founders is also going to join Facebook’s board. Much of the coverage of the acquisition will focus on whether Facebook will stick to this promise: Instagram was ad free when it was acquired, though its founders hadn’t been so vocal about not running advertising.
There are other ways that Facebook could build on its new acquisition’s success to date other than ads. Its penetration is greatest in many markets Facebook has yet to conquer in the way it has places like the US, UK and Australia. The fact that it allows people to communicate via WiFi means it has great appeal in developing markets where data charges can be expensive – Facebook should now be able to use that global popularity to continue to drive the growth of its core services.
Facebook also has much more server capacity than WhatsApp has had to date, so it will be interesting to see whether the policy of deleting sent messages from its databases will continue, or whether Facebook will look to use that data to improve targeting on its ad-funded products. This will obviously be dependent on how it manages such a move: when Google centralised all of its privacy and data usage policies it got in hot water in the EU.
How Facebook decides to further monetise WhatsApp beyond its existing subscription model makes interesting speculation but is ultimately not the real point here. On mobile devices, consumer attention is more fragmented than ever – as analyst Ben Thompson put it: “attention is a zero sum game; every minute spent in Snapchat or Line or WhatsApp is a minute not spent on Twitter or Facebook or Instagram”.
As part of its new multi-app strategy (including Instagram and Paper), Facebook obviously decided it needed access to more of those minutes. Brands meanwhile need to focus on how they can create truly valuable experiences to earn the attention to win some of those minutes back.
The author, Ciaran Norris, is a part of the digital team of Mindshare Worldwide