WhatsApp, the most popular communication app of 2022 (for the second year in a row) is synonymous with mobile messaging. So popular it even has its own verb with people regularly asking friends to “Just WhatsApp it to me”, WhatsApp has a long history from relatively humble origins. So, where did it all begin and how did WhatsApp become the communication behemoth that it is today?
Back in 2009, Brian Acton and Jan Koum left their work at Yahoo! and began to travel around the world together. As with almost all long-term travelers, eventually, the money began to run out. They both decided to apply for a job on Facebook but without success. Disappointed, but with a newfound drive they came up with the idea for a new communication app, WhatsApp.
Alongside hundreds of thousands of other users, Jan Koum bought himself a shiny, new iPhone in January 2009. Within months, Koum realized the vast potential that the newly launched App Store held. Initially, the plan was to launch an app that allowed users to display statuses next to their names. Koum and Acton discussed the idea but realized they needed assistance.
In steps Alex Fishman. Alex was able to share a variety of insights with the duo, including that the idea was definitely worthwhile investigating but without the assistance of a professional iOS developer it wasn’t going to get off the ground. Alex introduced the pair to such a developer Igor Solomennikov who had posted a profile on RentACoder.com.
Just a few weeks later, Koum had managed to get WhatsApp 1.0 developed, and WhatsApp inc was incorporated in California on 24th February 2009.
Why name it WhatsApp? Simply because it sounds like “What’s Up?”, is an app, and effectively asked for the status of the person.
Initial feedback wasn’t great. Friends, Fishman, and others said that the app didn’t offer much, drained their batteries, and had frequent bugs and crashes. Disappointed, Koum was ready to throw in the towel and began to look for another job. It was Acton that offered him encouragement and said to keep going at this point. Fortuitously, in June Apple added push notifications to their mobile iOS. Working with developers Koum adapted WhatsApp to send push notifications to friends of users when the user updated their status.
The handful of users, many friends of Fishman in Russia, quickly began to change their statuses and began to communicate with each other through push notifications and status updates. Rather than simply updating to “Out Shopping” users were trying to connect with specific other users, “Hey Dave, what’s up?” to which Dave would respond with his own status. The users were modeling the chat model and internet-based (rather than SMS) instant messaging that would become WhatsApp 2.0.
The demand was there for an instant messaging application and WhatsApp 2.0 went into beta. By simply logging in with a phone number rather than creating an account, users were given connection and simplicity. Messages could also be sent over the internet rather than using their SMS allowances, if they were connected to WiFi instant communication was essentially free.
At the time, Blackberry was pushing its exclusive BBM messaging service, but this was only available to Blackberry users. Google had launched G-Talk, and Microsoft had launched Skype but each required you to share your username with the recipient rather than just a phone number.
2.0 was added to the app store on 27th August 2009 (a mere 8 months from conception) and included direct instant messaging and the now infamous double-check delivery mark. People were able to message text instantly, but it would be some time before media would be added.
For now, it was just Koum as a permanent member of the WhatsApp team, then in October 2009 Acton managed to get five ex-Yahoo! colleagues to invest $250,000 into WhatsApp. Acton was already looking for a potential startup to invest in, and with the advent of push notifications and instant messages, he knew WhatsApp and Koum was the right place to invest. Acton became a cofounder in November 2009.
At the same time, WhatsApp came out of beta and, as an iPhone exclusive, launched fully onto the App Store. Users were able to send national and international messages for free within the app. Immediately calls were heard for a BlackBerry and Nokia version of the app. Koum quickly hired a friend, Chris Peiffer, to create a BlackBerry version, and this launched in January 2010.
The US market was, initially, the slowest to adopt. Frivolous cell phone contracts meant that SMS was king. But beyond the USA, in places like Asia and Europe, SMS allowances were closely limited. The demand was there for a free service. Seeing the opportunity, Peiffer joined the team full-time, and shortly after Symbian OS, Android, and Windows OS versions of WhatsApp were launched.
The now small group of WhatsApp founders and employees had limited costs but needed to generate revenue. They transitioned from a free download model to a one-off charge, at $0.99. Shortly after making WhatsApp a paid app, the feature to send photos was added and sales continued to rocket.
By 2011, WhatsApp was continuing to grow sustainably with the paid model and was sitting pretty in the Top 20 apps. At this point, Koum and Acton were on the radar of investors. Looking to get in at the ground and build a serious money printer, VCs were constantly reaching out.
The issue was the pair had, from the very start, always said that they wanted WhatsApp to stay ad-free, and this was likely going to be the way that VCs would look to monetize it. The founders wanted WhatsApp to be used for fun, excitement, and communication, not as a way of pushing ads on their users. They felt that was the easiest way to push people away.
After a long 8 months of reaching out, Sequoia Capital’s Jim Goetz finally managed to secure a meeting with the pair. With a long and established background in funding startups and offering strategic insight, Goetz proposed that he become a strategic advisor, invest $8 million and take 15% of the firm with the promise that advertising would not be on his agenda. The WhatsApp team agreed.
By February 2013, WhatsApp had a phenomenal 200 million users, over 50 staff, and founders who were feeling the pressure. Sequoia was approached for another round of funding, this time to the tune of $50 million following a startup valuation of $1.5 billion.
The business model had changed again from $0.99 to download, to free to download and then a subscription fee, and finally completely free for all users. WhatsApp wanted to be accessible to everyone the world over and didn’t want to be off limits to users who didn’t own a credit or debit card for subscriptions.
5 years after its conception, in February 2014, WhatsApp was acquired by the social media giant Facebook. Facebook paid $19 billion for the acquisition, a move that stunned the financial world. Questions were raised over the purchase price and when asked Facebook’s founder Mark Zuckerburg said that using an analytical forecast Facebook found that WhatsApp was going to be their main competitor for mobile communication. Especially seeing as WhatsApp was already outstripping Facebook Messenger by users and engagement rate.
Plus, the sheer volume of data held within WhatsApp was a goldmine for Facebook’s advertising platform. Relying on behavior and demographic data to show its users relevant ads, Facebook wanted all of the information that it could get its hands on.
Fast forward to 2017 and the time came for the original founders to leave WhatsApp in the hands of Zuckerburg and Facebook. In September, Acton was the first to leave to launch the nonprofit Signal Foundation. Shortly after Jan Koum left, unfortunately, Koum’s departure was mired with arguments over data privacy, Facebook’s intrusive nature, and what it had planned to make money from WhatsApp.
The short answer is that WhatsApp doesn’t really make money. Since ditching the one-off $0.99 payment to download the app, and subsequently removing the ongoing subscription there is no financial transaction between the basic user and WhatsApp at any point.
There are some charges within the WhatsApp Business app, but only for the advanced features that some medium to large firms might require. That said, generally speaking, WhatsApp is not a money spinner for Facebook (Meta) instead it is a way of keeping users within the Meta ecosystem. Of course, WhatsApp still has one of the largest data sets in the world which would be hugely powerful in the right advertiser's hands, but for now, with its end-to-end encryption, conversations remain private.
There has been no official valuation of WhatsApp since its acquisition by Facebook back in 2014 when the price was set at $19 billion. Back then some analysts used a calculation to see what each user was worth roughly $42. In 2021 there were 2.2 billion users, so if we use the same calculation it would put the valuation of WhatsApp at $92.4 billion.
One could argue that rather than valuing WhatsApp as its own product, instead it should be seen as part of Meta, which is now part of the stock market. When floated Facebook had an IPO price of $38, this has risen to a high of $384 a share but at the time of writing it sat at $138 a share. These are tumultuous times and Meta was hit with a record $232 billion drop in value following a weaker-than-expected first-quarter revenue report back in February 2022.
It’s difficult to predict the future for WhatsApp, will Meta stick to Koum and Acton’s original plan of focusing on the users, providing a free, quality messaging experience, or will they lean into monetization through ads? It’s a difficult position for Zuckerburg and Meta to be in, one wonders how long they can resist the lure of making money from 2.2 billion users.