When Facebook spent $19bn (£13bn) buying WhatsApp two years ago, the price tag raised more than a few eyebrows. The smartphone messaging service was wildly popular, with some 450m users around the world, but the mathematics of the deal were hard to stack up at the time.
Users paid 99 cents a year for the app, which allowed them to send text messages, photos and videos over the internet, although around 300m had downloaded it before a subscription fee was introduced. So to get to $2bn in revenue, the app would need 2.3bn users – a third of the world’s population.
Even assuming an enormous profit margin, the purchase still seemed a stretch to make sense of, regardless of Mark Zuckerberg’s real reasons for buying it (WhatsApp was, and is, a major competitor to Facebook’s core product - communicating online).
Since the deal, WhatsApp has grown tremendously. It now has almost a billion users and shows no sign of slowing down. At its current rate it will have 2bn at the end of the decade, while the number of WhatsApp messages sent around the world outnumbers texts by around two to one.
But last week, almost two years to the day since Facebook bought it, WhatsApp’s founder, Jan Koum, announced that the company would ditch the 99 cent fee, essentially resetting its revenues.
Many of the people now signing up don’t have credit cards or online banking, Koum said, making it difficult for them to pay the charge. WhatsApp risked losing these people to free, if less popular, competitors.
Instead, WhatsApp will rely on something else for revenue: charging businesses to use the app to talk to customers. Where now we have call centres and hold music, we will soon be able to express our indignation over a messaging app.
“That could mean communicating with your bank about whether a recent transaction was fraudulent, or with an airline about a delayed flight,” Koum said, announcing that the new service will be introduced later this year.
But while the move could revolutionise customer service, it is potentially only the start of what is seen as one of the biggest untapped opportunities in technology: turning massively-popular messaging apps into portals for doing a lot more besides.
WhatsApp and Facebook’s own chat service, Messenger, both have hundreds of millions of users who use them actively, but have not evolved much beyond the original selling point of “text people for free”. What if they could use that scale of attention to do more – let you do your shopping, play games, or do your banking – through the apps?
In industry parlance, this is known as moving from a service to a “platform”; becoming a base on which software developers can build their own services. The world wide web is a platform, as is the iPhone – websites and apps are developed on top of them. And owning a platform can be incredibly lucrative – Apple has made billions from the 30pc cut it takes on app purchases.
In aiming to become platforms, WhatsApp and Facebook Messenger have been inspired by the success of WeChat, a Chinese app owned by internet giant Tencent. While China’s citizens use WeChat to talk to family and friends, they also use it to pay bills, make medical appointments, and check traffic.
WeChat has millions of apps living inside it, and has been able to charge for many of them: the money it makes from selling games and processing payments means that the app’s average revenue per user is around $7, against the 99 cents that WhatsApp has charged its users. The equivalent figures for Line and KakaoTalk, Japanese and Korean counterparts, are $3.16 and $4.24 respectively.
In offering accounts to businesses, WhatsApp is taking the first steps in the road to becoming more like WeChat – a move that Zuckerberg has hinted at in the past. Facebook Messenger has already started – it recently introduced an option to book Uber car journeys through its own app, and has a “Businesses for Messenger” programme that lets, for example, online retailers to keep their customers up to date about a recent purchase.
Given the success of their Asian counterparts, and the number of people they reach, WhatsApp and Facebook Messenger clearly have an enormous opportunity to become platforms in their own right.
Whether they can follow through, however, is another question. What has worked in China may not necessarily translate: recent trends suggest Western consumers want their apps to do less, not more, a phenomenon known as “unbundling”. Facebook has several different smartphone apps that, between them, recreate the website experience, as does Google. Foursquare, a local discovery app, has split itself into two apps that offer different features of the service.
Because it takes just two taps to switch between apps on a smartphone, putting everything into one piece of software is barely more convenient than into two. Apple and Google, meanwhile, are unlikely to take kindly to messaging apps building a platform on top of their own iOS and Android platforms. The idea of two Facebook-owned apps trying to do so would mark a new battle between the three tech giants.
If messaging apps can become the next computing platform, Zuckerberg’s faith in WhatsApp will have been repaid, but it’s unclear whether consumers will sign up to the idea.