How will Facebook monetize WhatsApp

$19 billion dwarfs almost everything else about the Facebook and WhatsApp deal. And when it comes to money matters- almost everyone seems worried about how Facebook is planning to get returns on this massive investment.

While it is clear that WhatsApp has been acquired more for its 450 million user base than its monetization strategies, there is a clear gap between Facebook and WhatsApp's basic premises.

Recently, Mark Zuckerberg put to rest some increasing shareholder worries around mobile monetization with new types of ads. Advertisement revenues indeed form the financial bedrock of Facebook. WhatsApp owners, on the other hand, have been vocal about being averse to advertisements on their messaging platform. They also seem to be antipathetic to most other existing ways of making money from consumer internet services. Jan Koum and Brian Acton have thus far followed the "No Ads! No Games! No Gimmicks!" rule to keep their messaging service free from advertisements and other complexities.
 

"Ads are not the right way to monetize messaging," Zuckerberg told analysts during a conference call about the WhatsApp acquisition. That is something that has the Wall Street worried with firms like Pivotal Research Group downgrading Facebook's shares soon after the deal was announced. Zuckerberg, believe analysts has spent $19 billion for an entity he cannot monetize using his established revenue models. The acquisition thus, though high on strategic value, is becoming difficult to justify in terms of metrics that Facebook is generally valued against.

Says Vidya S. Nath, Director, Digital Media, Global Innovation Center (GIC), Frost & Sullivan, "Whatsapp's business model, to date, is charging a dollar for a year for subscription. It will be interesting to see how the two applications will be able to combine synergies in the future, because contextually they are very different."

While direct advertising seems off the table for now, here are some possible ways that Facebook can use for monetizing WhatsApp.

Increase in subscription amount: 

According to Zuckerberg, WhatsApp's revenue model of charging $1 a year after one year is "a good start". If WhatsApp can get one billion users paying $1 a year- that could generate $1 billion in annual revenue. However, there's also the possibility of WhatsApp's monetization potential becoming greater, because if it attains the crucial mass of 1 billion user base, it could get away with charging, lets say, $2 a year. WhatsApp could also win on the premise of offering an ad-free, secure messaging experience to its customers and charge only a slight premium for it, thereby distinguishing itself from other messaging services.

Little paid things: 

WhatsApp, under Facebook's fold could also imitate some of its competition by bring in paid stuff like digital stickers, cards etc. Popular messaging app Line said it made $17 million in the first quarter of 2013 from selling digital emoticon-like stickers that can be included in messages. Kakao has generated revenue from mobile games, while WeChat has a payments service. These little things, that cost nominally, can be an option in the future, though analysts believe that is not happening any time soon. "The growth of WhatsApp, and by extension Facebook, lies in diversification of reach and services. Facebook is likely to evaluate paid stuff, or Yelp like services to monetize WhatsApp," says Vishal Tripathi, Principal Research analyst, Gartner. 

Corporate accounts: 

Much like "Facebook for Business", there could also be a corporate version of WhatsApp. WhatsApp is extensively used for communicating business decisions, minutes of the meetings and various other corporate purposes. Facebook could charge a premium for these accounts and in return offer things like encryption for better security, and other add-ons like closed groups etc. Tripathi agrees that corporate accounts could be one monetization option for WhatsApp.

Experts are also not ruling out eventual advertising. "It will be interesting to see if WhatsApp moves away from its subscription model and adopts advertising. After all, in effect, Facebook is going to be able to have access to 450 million verified mobile numbers, many of whom may not even be on the Facebook app," says Vserv's CEO & Co-Founder, Dippak Khurana.

In a market where messaging apps are not uncommon and can scale rapidly, WhatsApp's real value is its subscriber base. So while any big monetization moves are not likely to come immediately, they will eventually become a compulsion because as we said- $19 billion is a very big amount.

See this video clip about this topic too