Facebook 's WhatsApp, the most popular mobile messaging app in the world, now has 900 million monthly active users. That's an impressive gain of 100 million MAUs since April and more than double its user base from just over two years ago.
WhatsApp. Source: Google Play.
But as WhatsApp continues to grow, many investors are likely wondering when it will start generating meaningful revenues for Facebook. After all, the social media giant paid a whopping $21.8 billion for the company last year -- a purchase that dwarfed its $1 billion purchase of Instagram in 2012.
Why monetizing WhatsApp is toughThe second-largest mobile messaging app after WhatsApp is Facebook's own Messenger, which hit 700 million MAUs in June. Tencent's QQ Mobile, the top messaging app in China, is in third place with 627 mobile MAUs in the second quarter of 2015. Another Tencent app, Wechat/Weixin, finished that quarter with 600 million MAUs.
Facebook likely has lots of overlapping users who use WhatsApp, Messenger, and its core app, but each app plays a distinct role in its mobile ecosystem. WhatsApp is designed as a no-frills replacement for SMS. Messenger follows the footsteps of WeChat, LINE, and other Asian monolithic chat apps by evolving into a platform for payments, apps, and social games. Facebook's app mainly showcases its core News Feed.
FB Messenger. Source: Google Play.
WhatsApp is arguably the hardest of the three platforms to monetize, because adding display ads or new services could ruin its lightweight appeal and turn it into a Messenger clone.
WhatsApp's sole source of revenue is a nominal annual fee of $1 after the first free year. Theoretically, this means WhatsApp could easily generate hundreds of millions in revenue per year. But last October, Facebook revealed that WhatsApp only generated $15.9 million in revenue during the first half of 2014 despite hitting 600 million MAUs at the end of that period. That's because WhatsApp only charges users in Europe and North America, while remaining free for usersin developing countries like India.
WhatsApp matters more than you thinkTo understand the real reason Facebook bought WhatsApp, we should take a closer look at Internet.org, the Facebook-led initiative to improve Internet access and mobile device usage in developing countries. To accomplish this, Facebook partnered with wireless carriers and offers free access to certain apps without their usage counting toward data plans. That process, known as "zero rating" apps, encourages customers to use apps like Facebook and Messenger as much as possible.
WhatsApp isn't included in the current list of Internet.org apps for three reasons. First, it doesn't require as much data as Messenger. Second, it's already the top messaging app in several developing markets, including India, where it claimed 70 million users at the end of last year. Lastly, WhatsApp works on a wider variety of phones than Messenger, including connected feature phones, which use slimmed-down versions of popular apps.
But as Internet.org expands, Facebook will likely add free versions of WhatsApp and Instagram to that bundle. In exchange, Facebook can access more user data, which it can use for targeted ads on its main site or to determine which services to add to its Messenger platform. However, Facebook is probably postponing an all-out launch due to persistent criticisms that Internet.org violates net neutrality rules by giving preferential treatment to zero-rated apps.
Facebook's solar-powered Internet drone. Source: Facebook.
The road to a billionFacebook CEO Mark Zuckerberg stated during last quarter's earnings call that there would be "many clear ways" to monetize WhatsApp when it reached 1 billion users. Earlier this year, CFO David Wehner stated that WhatsApp might introduce new paid features that would let businesses message consumers. Considering how quickly WhatsApp is soaring toward 1 billion users, Zuckerberg and Wehner might have to clarify those statements within the next two quarters.
For now, investors should have some faith in Facebook regarding WhatsApp's future. Instagram waswidely ridiculed as a "waste" of a billion dollars back in 2012, but eMarketer now believes that that the app could generate $2.8 billion in annual ad revenuesby 2017. With WhatsApp, the plan could be grander than just display ads -- it could collect more data from developing markets, capture more first-time smartphone users, or improve business-to-consumer communications.
The article Facebook Inc.'s WhatsApp Hits 900 Million Users: What Now? originally appeared on Fool.com.
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