WhatsApp: why the free service cost $19bn

Mark Zuckerberg’s new app is quick, easy and ad-free. It’s also more popular with some users than Facebook

You’ve got mail: Facebook now owns four of the world’s most desirable smartphone apps. Photograph: Brent Lewin/Bloomberg

You’ve got mail: Facebook now owns four of the world’s most desirable smartphone apps. Photograph: Brent Lewin/Bloomberg

Sat, Feb 22, 2014, 01:00

Karleen Smyth might be the quintessential WhatsApp user. She is 26, from Co Clare, lives in Dublin and has friends in Australia, the US, Britain and elsewhere. “None of my friends would ever text me. They all use WhatsApp,” she says.

“You can send as many texts and as many photos as you want over the service for free. It’s quick and easy, and there are no ads annoying you. I was on to my friend who’s working in Saudi Arabia for ages last night, and I know there won’t be any bill.

“Everyone I know uses it. If it’s a formal work message to someone I would use the standard phone text, but for socialising and keeping in touch with my friends who are now scattered around the world it’s all WhatsApp.”

Free, quick, easy, no ads: Smyth has summarised why this week Facebook paid a staggering $19 billion for the smartphone app. Facebook’s idea was to connect the world, but over the past few years many under-35s have decided they prefer to connect through WhatsApp.

Sonia Harris is a Dubliner who runs her own PR company. “I use WhatsApp so much I couldn’t even tell you how much a standard text message now costs,” she says. “I suppose I am one of the few – for now, anyway – who also uses WhatsApp for my business. It’s just a very quick and handy way of getting in touch with business contacts for free.”

Set up in California five years ago, WhatsApp wanted to “provide a richness of experience and an intimacy of communication that email and phone calls simply can’t compare with”. Its owners realised that most communication was taking place over smartphones and that they could do for text messages what Skype did for voice calls: eliminate the charge.

WhatsApp spread largely through word of mouth. It now has 450 million users around the world, and last June it announced that it had processed 27 billion messages in 24 hours.

But with no ads, how does it make money? It’s free for the first year; then an annual subscription costs 99 US cents (about 75c) – not much for individual users, but if you have 450 million of them it’s a substantial income for the company.

WhatsApp came with a high price tag for Facebook because it is heavily used by teenagers and young adults who are having conversations outside of Facebook. Facebook is now a mainstream service; many young people prefer to talk to friends on a different platform from the one their parents, grandparents or bosses use.

Facebook’s chief executive, Mark Zuckerberg, said this week that “WhatsApp is the only widely used app we’ve ever seen that has more engagement and a higher per cent of people using it daily than Facebook itself”.

The designer Sinéad Doyle, of the National Tailoring Academy, says she has no concerns about Facebook owning a service she uses frequently. “I’m 30, and I went to college in Limerick and then in London, so I use WhatsApp to stay in touch with friends in different places.

“I’m not worried about Facebook now having my WhatsApp data. You just don’t put anything in writing that you don’t want other people to see publicly – and don’t send any photos that you don’t want other people seeing. People understand privacy settings better now. Someone always owns your social-media data. It doesn’t matter who now owns WhatsApp. You just have to be careful with what you share.”

“It’s not that you are going to be stalked or be receiving inappropriate messages or photos,” says Laura Allen, who works in the music business. “If someone knows my mobile-phone number they can ask me if I will add them to my WhatsApp contacts – but, like anything else, you only invite or are invited by your existing friends. And if someone is annoying you, for whatever reason, you can just block them.

“The way I use it – and this is really handy – is, for example, last night I was at a big do with some friends. We set up a group for that event on WhatsApp, so we could all find out what time we were meeting at and talk about the event over the service as it was happening. And that group was closed just to us. Simple, easy and effective.”

If you look at this deal and think Facebook is simply scared of losing teenagers, think again. Facebook now controls much of how we communicate. It owns four of the world’s most desirable smartphone apps: Facebook itself, Instagram, WhatsApp and Facebook Messenger.

When Facebook bought Instagram, the photograph-sharing site, for $1 billion, two years ago, it promptly introduced “ads that stay true to the spirit of the Instagram community”. Will WhatsApp now change too? Sonia Harris expects it to. “What I can see happening is the standard WhatsApp staying free but, pretty soon, the introduction of a premium WhatsApp service for the business community, which would be charged at around €7.99 a month.”

But WhatsApp’s chief executive, Jan Koum, says users will notice no change. “Here’s what will change for you, our users: nothing. You can still count on absolutely no ads interrupting your communication. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company.”

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