Messaging has overtaken phone calls as the dominant mode of communication among people in professional and personal settings. If you look at the most common messaging apps you use, namely WhatsApp, Telegram and Snapchat, you will notice that they’re all “free”.
Yet, we have all heard the cautionary saying that if you’re not paying for something, then you’re the product.
We should care about how they are making their money because we use these apps every single day as the conduit to send private, deeply personal messages, photos and videos to our loved ones and co-workers. Whether its mushy love messages or the password to our home Wi-Fi, we don’t expect these messages to ever be seen by anyone other than those we send the messages to.
Understanding how these messaging services make their money will allow you to know of any trade-offs and compromises that are being made to keep those companies viable.
As of March 2017, WhatsApp has 1.2 billion users worldwide, with rapid growth coming from emerging markets.
WhatsApp used to charge a $0.99 yearly subscription fee, but has since got rid of that in favour of acquiring more users. In some developing countries, where many people don’t have access to credit and debit cards, even a small fee was a huge barrier for WhatsApp to gain more market share.
Instead of charging users, WhatsApp has announced that they have been testing tools that will allow businesses and organisations to pay for the ability to communicate with their customers on WhatsApp. In future, customers could look forward to getting their banking, flights, online transaction details over WhatsApp.
In 2014, Facebook paid $21.8 billion in cash and stocks to acquire WhatsApp. While WhatsApp has always been opposed to serving up ads, being part of the Facebook family has meant that WhatsApp has changed its privacy policies to allow them to collect data on you and share that with Facebook to allow for more sophisticated ad-targeting.
The kind of information they can collect include your connections (who you communicate with and how often) and the nature of your communication (keywords used in your messages and the media you send), your device information and location data, and more.
Thus, while WhatsApp does not sell ads, its parent company relies on advertising revenue to survive. As one of the largest messaging apps on the planet, WhatsApp’s evolving business model is definitely something worth keeping an eye on.
With more than 100 million monthly active users, Telegram, is an increasingly popular messaging app around the world and in Singapore.
It relies mostly on donations from its wealthy patron Pavel Durov, a global entrepreneur who founded Russia’s biggest social networking platform. Living under constant surveillance by the Russian government, Pavel felt very strongly for the ability of people to communicate securely and privately.
Telegram’s growth is fueled by concerns in a world where privacy is increasingly scarce. It received millions of new users days after Facebook acquired WhatsApp, as users are wary of how their private information may be used by Facebook.
Telegram has openly stated that it will never sell ads or accept outside investment, which will compromise its commitment to users. What would happen after the money runs out?
To remain true to the project’s mission, it could be run as foundation, where donations from crowdsourcing or other wealthy benefactors who also believe in what Telegram stands for, much like how Wikipedia and Firefox are run.
Telegram is also considering having paid options in the app and charge developers to build services on top of its platform.
The day-to-day disappearing photos we send to our friends are all free. However, as a company valued at $20 billion (twice as much as Twitter) on paper, Snapchat has quickly and decisively incorporated multiple revenue-generating functions.
For example, fun, branded filters that we use to beautify our snaps are actually paid for by event organisers and companies for users in a specific geographic area. These filters have become an increasingly popular way to create hype and marketing for events, places and stores. Snapchat also charge businesses for sponsored lenses that allow customers to play with face filters that the brand created.
Another way Snapchat earns money is through its Discover and Stories sections. As you jump from one friend’s story to another, or browse through channels by Snapchat’s publishing partners, short video ads from companies are displayed.
All in all, Snapchat generates revenue by charging businesses to reach out to its highly-engaged base of users.
What It Means For Us
From a consumer’s point of view, free apps are a good thing. Arguably, the value we derive from daily use of these apps outweigh the privacy and attention we give up. So long as this trade-off is still in our favour, we will continue to use these apps.