
Facebook’s New Message to WhatsApp: Make Money (wsj.com)
244 points by ericzawo on Aug 1, 2018 | hide | past | favorite | 380 comments

Whatsapp had a great business model: $1 a year. With their current 1.5 billion users, that's nothing to sneeze at. It doesn't cost them $100M a month to provide the service.

I wish more companies were like Craigslist - happy to make an great profit and a lasting business by providing basic information services for a reasonable price. Instead, a bunch of MBAs want to rule the world by focusing on growth at all costs, so they can then turn around and squeeze their locked in users for every dime possible.

Engineer with an MBA here. My two cents: Back when I was writing code, my worldview was that if engineers ran every company, then the world would simply be a better, more rational place. Because engineering is hard and everything else is easy/squishy/learnable.

During my b-school classes, it dawned on me that things are much more complicated than I had thought. Marketing and sales are very hard, very quantitative, and can make or break a company. Corporate planning from a cost / revenue perspective is super critical. Steering a large organization and navigating personalities and power structures in such a company is difficult and squishy.

Certainly, some MBAs are full of sh but I've also run into plenty of engineers who are full of sh. I think it's hard to stereotype. When I first started business school I thought everyone would be the stereotypical investment banking jerk. Instead, I was pleasantly surprised that most people were fun, very sharp, pleasant, intellectually curious, and they really respected folks with a technical background. Exposure to them broadened my own worldview in a number of different ways. Sure, you don't need an MBA to run a company. But you also don't need a CS degree from MIT to be an awesome engineer.

Just because it's hard, and the people running them are sharp and smart, doesn't make it any more righteous or normal.

Back in the Colonial times, sharp smart lads went to prestigious military schools and learned the complexities of how to subjugate conquered people. How to efficiently run a slave camp. How to squeeze every unit of labor off the peasants, etc. People went to these schools were probably very cultured, polite, and were funny and pleasant at social events. But history will judge them harshly

Would not be surprised if the same thing happened to MBAs when the tide of history turns in a few centuries. Maybe squeezing profit off of people will no longer be ethical or acceptable, even if your model is complex and intellectual

I believe the parent’s point was that running a business that is self-sustaining is actually a difficult endeavour, and doing what looks like ‘squeezing customers’ from the outside is actually what the business needs to do to survive. I think this is a reasonable point, considering that no matter what price point many services are offered at, customers will still complain that it’s too high.

Leading me to my question: is your post satire, or do you really consider charging money for a service to be morally equivalent to murdering natives?

But this implies that "squeezing the customer" tactics - where you first focus on growth at all costs, then later find how far you can degrade the service before a critical number of customers quit - is the only way for a company to survive.

I don't see any evidence for that - and in fact, GP proposed/reminded of an alternative business model for WhatsApp.

Actually what I was getting at was pricing - customers who are used to getting something for free will always think that any charge is outrageous. In non-tech examples people think that what are reasonable prices are gouging etc. Not that gouging doesn’t happen, but the public is bad at judging what a reasonable price looks like.

In the specific case of whatsapp, it would be interesting to see what would happen if the service did offer a $1 a year subscription. I’d pay, assuming that data wouldn’t also be used or sold for advertising. But I have a gut feeling that most wouldn’t, they’d rather switch to something that cost nothing, even over something that was very cheap.

Psychologically the gap between free and any cost is large. Which means that for a business, people are either willing to jump that gap or not. The price itself isn’t really a huge factor, it’s free vs not free, so the price may as well be higher than $1, or whatever the minimum viable amount is.

Also the post above was making some wild comparisons that I wanted to point out are silly.

The person you are responding to is talking about the bigger picture, whereas you are focusing on a local detail. While you make a really good point if you consider that you honestly thought you were talking about the same thing, instead you were not. Now it looks like you've subtly moved the goalposts, so that the person you are responding to has an argument that sounds ridiculous. Even though you've not responded to it at all.

Really? Is there a way of equating people with MBAs to conquering invaders that doesn’t sound ridiculous?

I'm not under the impression that you moved the goalpost. Instead I think that storgendibal softened russelbeattie's post a bit by saying that not all business tactics are morally wrong, just like it would be wrong to say engineering is evil because one can build nukes. It's not really a secret that a lot of engineers (programmers) don't like business as a subject of study so this website will be very biased against MBAs, but I am quite confident that those engineers also don't run businesses. The engineers that do run businesses show more respect for the kind of businessman that understands and respects the product and its development process as well as the engineers involved.


Source? My understanding was military academies focus on tactical leadership, military conduct and often an engineering background.

It also depends on what you mean by colonial times, military academies didn't show up in the U.S. until the 1800s.

> Maybe squeezing profit off of people

I think the parent's point was significantly more nuanced than this characterization.

And yet colonialism, organized slavery, etc happened and very likely needed substantial expertise in logistics and management to be pulled off.

That expertise had to come from somewhere.

Well, the prestigious school also taugh all the persons who then led the colonized people to independence, there's that too.

Nope, the oppressors destroyed the native culture, robbed them off their wealth, social structures, and (however) evolved systems of institutions while leaving no venue for the colonized people to prosper. Few who managed to survive and climb through the inevitable mixing of peoples learnt some of the tricks from their oppressors and fought back for independence.

I am afraid your comment sounds like it is trying to find some silver linings in the oppressors malevolence but please try to sympathize (if you cannot empathize) with those colonized.

Well, in some case it was a culture of slavery and piracy, so in those case it was an improvment. Infrastructure, education and sanitation were improved in some cases too.


No, I was pointing that the schools decried by the parent were also where the persons who led some of the conflicts for independence were taught in the same school; I was defending those schools.

> Infrastructure, education and sanitation were improved in some cases too.

And I would like to point out that they would’ve improved otherwise had the natives weren’t oppressed. In other words, the oppressors destroyed the ability of the natives to improve. The so called improvements happened despite being oppressed.

As for defending the schools, the same point applies - the oppressors destroyed the systems of education. Had they not invaded the natives and kept there greed to their homelands their wouldn’t be any need for defending these schools.

Edit: a word and newlines.

I'd agree that some of the colonies would have improved had the colonisation not happened, but not everywhere: in some case it happened because the colonised powers did it. And most of them didn't have systems of education before the colonisation.

> but not everywhere: in some case it happened because the colonised powers did it.

Could you please describe me such a scenario/situation where it would’ve or has had happened? The point of my argument hinges on the natives unability to improve due to the oppressors malevolence.

> And most of them didn't have systems of education before the colonisation.

Sure, most if not all of them didn’t have a Europian styled system of education. I don’t suppose you’re saying that the natives didn’t have any concept of educating their children? And yes, it would’ve improved too had they not been not destroyed …

Finally, I think we’ve digressed too far off the main thread of discussion. I feel like I am in the middle of https://www.xkcd.com/386/

I think you should read a book on the history of the British empire. The point you're responding to is basically correct. The idea of the "noble savage" as it was once called is a fantasy. The countries invaded and conquered by the British were typically brutal empires with medieval or lower levels of development, and had been that way for thousands of years with apparently little or no cultural development. The British were encountering local rulers with spears and they had Gatling guns. These societies had no technology, no science, no education or healthcare, primitive to non existent infrastructure of state and oh, they were mostly slave-oriented societies.

Yes the empire was a dictatorship that conquered them and in the early era, bought slaves from the local rulers. In the late eras the empire built infrastructure, education systems, brought modern medicine, tried to teach civilised values like not beheading your political opponents and having votes instead, and in some cases as the empire faded, left the countries in a vastly better state than they were found.

Colonialism is easily one of the most complex and ethically grey areas I've found when studying history. There is no evidence or reason to believe those societies would have ever advanced were they not conquered.

>Finally, I think we’ve digressed too far off the main thread of discussion.

We can still go a long way!

Personally I just wish less of our world class minds were working at huge, de facto advertising companies thinking about how to monetise/track the flow of information, sneak an microsecond advantage on the stock market etc and more were solving more important stuff like climate change, disease and democracy/human rights being under retreat.

Lets be honest here, Whatsapp gathered hundreds of millions of users with a tiny team. Signal and Signal protocol made Whatsapp secure with less than 10 people on the team full time. So less than a hundred staff, 1.5 billion per year is more than enough resources to add get most of the benefits of Whatsapp to humanity. Leaving plenty of engineers, MBAs and who ever is left to go do more useful stuff.

I don't disagree. I think a lot of the debate on this thread comes down to free market economics and whether you believe it leads to a global maxima or not.

I think that starts to approach a religious belief, so I don't think I want to get into that debate, but I have yet to see a system that works better than the free-market (plus a reasonable safety net )

Here's my favorite group of smart people working on solving climate change.


Those things are hard, especially when 90% of everything is crap you need good skills to convince people or companies that what you are selling is something they must have.

I’m curious in your path. What made you decide to get an MBA being an engineer, and what are you doing now with that degree?

This is a very common path taken in India.

Engineer > 1 - 4 years experience in IT/Engineering etc > 2 Year MBA from a reputed college > Management role in related or a completely different field.

There is a general consensus in India that engineers can be groomed to be good managers. No idea why.

One more aspect to consider is that qualifying exams for top-tier MBA colleges in India (IIM's, etc) are somehow cracked more easily by engineers. Of course there are students from commerce / arts / etc that also crack and top these exams, but the trend till date is it's mostly engineers.

Also most of the top Indian guys in Silicon Valley (Sundar Pichai, Satya Nadella, etc) have are engineers from some of the top engineering colleges in India.

I grew up programming and always assumed I'd be a software engineer, without really considering other career paths. After six years of of software engineering (mainly operating systems and cloud infra), I thought it might be valuable to do a breadth-first search for a short period of time, and an MBA seemed a decent route to do that search. In retrospect, I use some of what I learned in bschool in my current job, but largely, the mind expansion was worth it. There are many perspectives and b-school exposed me to a lot more points of view than I had before.

It's the path people take when they're not very good at engineering but want the medium bucks.

This is both ungenerous to parent, and ungenerous to anyone who does an MBA.

Just because you don't see the value in something, doesn't mean it doesn't have value.

Sweeping generalization.

Our ability to generalize is one of the key traits that makes us the dominant species on this planet. Describing that particular commenter's path is not nearly as informationally useful as describing the most common path.

MBA is the business equivalent of "<technology name> Specialist Certification" in engineering. It's for the second-rate.

Can you please point me to your research/rationale on why you think it's for the second rate?

I hold an MBA from one of the top schools in my country. It was a waste of time.

MBA is highly dogmatic and highly prescriptive. It does not delve into the why. I can't draw a better analogy than the worthless certification courses that you'll find on the CVs of second-rate engineers.

If you want someone who is leading their field in some technology, you look for researchers, people with significant on the ground experience, people who understand the first principles, limitations, and capabilities of that technology. If you just want to fill the job slot with some rando, you'll settle for someone who has some stupid certification in said technology and thinks there's only one right way to use it because that's all they've been taught. MBA is the same thing but with a lot more self-congratulatory jerkoff. If you're in the right industry, it becomes easy to spot recent MBA grads. The way they talk to their subordinates, the way they talk to their superiors, even the way they act during downtime around coworkers - it's all part of the cookie cutter recipe they were fed and blindly follow. It's nauseating.

so by your argument, you consider yourself a 2nd rate engineer and moved to make "medium bucks"?

A lot of the debate in this thread is conflating two questions: are engineers more capable than MBAs? (Answer: of course not, in the sense that MBAs can do things that engineers can't, and are often very smart and technical people). Secondly, are MBAs less ethical than MBA, or do they make the decisions they do because they are exposed to market realities that engineers aren't? This is a tough and abstract question, and I think the answer depends largely on your feelings about capitalism and economics in general.

Ok, I agree that some MBAs can be full of it but can we already stop this MBA hate on HN? I feel like lots of people here think that if you build something then customers will surely come. I've got a huge surprise for you. You will have to sell your product and some of the MBA's are really great at that. In B2B a single sale can make or break your company when you're low on cash.

You do your job and let them do theirs. You code, talk to users, ship, and iterate. They handle sales, operations, marketing, and maybe fundraising. These other things can be done by a technical founder but they are not fun. There is a reason why some companies hire COOs so that CEOs can focus on their job.

Finally, it's not MBAs who decided to focus on growth at all costs. It's the nature of the game. Either you get to the top or your competitors will do that. So don't hate the player, hate the game.


Well, I do think it is fair to make a strong connection between the whole concept of maximizing shareholder value being the ultimate corporate goal and MBAs and their education. If the ultimate corporate goal would be maximizing customer value instead, the whole social media landscape would look very different.

And the funniest thing is that nobody has ever been able to explain me why maximizing long term shareholder value would be a better goal than e.g. maximizing long term customer value. I mean, in order to maximize long term shareholder value, you need to pay your taxes and competitive prices to other factors of production like labour and debt holders and your supply chain. There is no rocket science there. And if your goal was to maximize customer value instead, of course you would need to pay competitive rates to equity holders, otherwise you could not run the company and maximize the customer value.

The corporation is an independent legal entity. The whole idea that the stakeholders who get their moneys last in case of bankruptcy and risk only the money they have invested (others are risking their careers, homes, businesses etc) are designated as "owners" of this entity is really weird once you start thinking about it.

Very good observations. And indeed, the whole notion that maximising shareholder value is the goal to pursue stems, I think, from a naive "economism", as James Kwak called it in his excellent book Economism: Bad Economics and the Rise of Inequality [1], namely the following train of thought:

The whole point of society is to maximise utility. We can't do interpersonal utility comparison, so we're satisfied with a Pareto optimum (where you can't improve anyone's situation without making someone else worse off). By the two main theorems of welfare economics, Pareto optima are basically equivalent (under the "usual" assumptions) to market equilibria. Thus, free market.

Next, there's the agent/principal problem: the principals (owners=shareholders) of a company delegate the actual running of it to agents (managers), and now the problem of value alignment arises - the managers could be tempted to maximise their own utility (empire building etc., or even beneficial things such as employee health insurance) instead of that of the owners. And the theory suggests that the solution is maximising shareholder value, because then the owners can themselves decide how to allocate the proceeds (eg into voluntarily providing employee health insurance) as to maximise utility.

[As an aside, btw, the theoretical case for free trade rests on an Economics 101 argument (comparative advantage), but is predicated on redistribution (free trade creates efficiency gains such that even after compensating losers you still retain a surplus, therefore it's better). However, the funny thing is that the (eg libertarian) figures promoting free trade frequently conveniently forget about that part of the argument.]

And of course the whole pareto optimum/market equilibrium/maximising shareholder value argument is based on assumptions that just don't hold; the world is more complicated than Econ 101, and very often more careful empirical examinations of the evidence support much more progressive/liberal policies than Economism suggests. (That's also the gist of Kwak's book, IIRC.)

TLDR: Growth at all costs is not necessarily the nature of the game, it's contingently so because of flawed policies and flawed economics: the oh-so-rational, yet so limited Econ 101 view that MBA students are typically subjected to.

[1] https://economism.net/

You're completely ignoring that them doing their job often means promising features that do not exist on a timetable that is nowhere near reasonable, thus forcing me to bail their ass out by working ungodly amounts of overtime, punishing me for no good reason.


It became the "nature of the game" because of them in the first place.

"Either you get to the top or your competitors will do that."

So what? In just about every field out there, there is room for more than one entrant.

Craigslist isn't playing the game and doing fine. The game is all in your head. Feels like even the IDEA that there's a game is MBA hogwash they're trying to sell you.

Craigslist is doing amazing, but they are definitely an outlier

They're an outlier by not being greedy.

Craigslist is a benevolent dictator, but it is no saint.

Craigslist is greedy in a strange way. Craigslist is greedy over their the simplicity of their product and desire to hold on to their turf.

The company makes more than enough money to offer all kinds of improvements that need not markedly change how the marketplace behaves.

These features would not exploit the user or the user's experience. (In the spirit of this thread, "MBA" ideas)

When someone comes along and tries to ship the same thing, improved, and break TOS to get exposure to CL users, CL shuts them down. The big difference between craigslist and other startups is craigslist rarely incorporates competitive ideas into their product.

I support the position craigslist holds, but not the way craigslist holds it. I believe it will be toppled by a group less benevolent or be forced to add features at a date far later than it could have added utility to so many people's lives.


Well, that's an incredibly euphemistic take on it, if nothing else. Let's see someone try to "get exposure to" (scrape) Facebook's user graph for a competing product and see how long that attempt would last. I don't understand how people can feel entitled to data that CL gathers: obviously they'd be protective of it as it's their secret sauce/crown jewels.

So you're saying change the simplicity of their product and give their data away?

That's literally their entire business model.

They could make so much money with all that data but stay true to their original goals of providing a classifieds service.

But OP is hating the game, the game that is developed collectively by MBA's who dehumanize business from what was a human endeavor into a marketplace of exchangeable values and exploitable externalities.


I'd bet that this is true of any degree. Not saying MBA providers don't teach useful stuff, but the degree is a terrible signal of quality--after all, it is by far the most popular graduate degree. I'd much rather work with someone who can state business options articulately and intelligently than someone with degree X; if this articulate/intelligent person happens to have an MBA that's great for them.

I don't get why MBAs get brought up at all.

Here is a good example of what MBA's can do.

First, go to Disneyland and look at the ticket prices. They're really high, right? On a per-day basis?

So next you price out the season passes. You do the math and you find that if you are going 6 or 7 days in a year or less, you are better off without the season pass. If you are going 8 or more days ( for instance ), the season pass makes more sense.

So you do the math and think about it some more. 7 or 8 days sounds reasonable, my family will enjoy it, right?

The next thing you know, you are happily shelling out $1000 per family member, thinking of all the happy times you will have and all the money you are going to save.

I’m having difficulty understanding you. Is this a scenario where you’re arguing for or against MBAs? It either sounds like you’re arguing a) MBA teaches you grade school reasoning or b) an MBA teaches you to maximize your revenue stream by providing pricing structures that encourage people to spend more than they want. In either case I’d rather work with someone with a wider skill set providing someone people do want and are willing to pay for.

I think the context is vital here. In the ideal situation of 5 people hungry and the only shop in town with exactly 5 sandwiches ready, nobody loses: shop sells, people eat, workers get paid. But in this world there are more products and services around than people wanting to buy them, so people have to be convinced, and engineers usually are really poor at lying.

A revealing sign that an engineer isn't running that shop would be the production climbing to 50 sandwiches. The same 5 people would be fooled into buying all of them by advertising, special discounts etc, then they would eat 5 each instead of 1 becoming obese, thus helping the medical business, and throw away the rest helping the trash collection and disposal business.


Or, the products could shut down, or lower their prices. If there’s no demand, why put energy into making demand rather than making something people want? It’s the lowest bar of achievement in this society; while I understand money can be a powerful motivator, this lowers the value of the entire work force.

That's literally the endgame of capitalism.

Capitalism is, and always has been, about reaching a state where supply exceeds demand. One could argue that once a business reaches that stage, they can put up a Mission Accomplished banner and fire most of their workforce. But because of how wealth is distributed, workers always need to be working so they're incentivized to extend the work and market as long as possible.

The same mechanism is responsible for the situation where institutions tasked with solving a certain problem (crime, cancer, etc.) invariably end up perpetuating the problem so they can continue existing.

You think some shmuck MBA setting up a devious pricing structure at Disneyland is bad? Consider that the US has more empty houses than homeless people, and more unsold cars in lots than people who lack reliable transportation.

Agreed! A good reason not to like capitalism.

Or implementing limits to it so that we get mostly the good of it.

Right, it's a spectrum. I don't think there are many cogent adults (even "democratic socialists") that wish to do away with the majority of capitalism in our society: the nordic model.

That calculation sounds extremely obvious to someone with no MBA or sales/marketing experience whatsoever. I’m confident that MBAs or experiences people in those roles do a heck of a lot more than calculations like that.

I am not that confident.

Thus our world races to the bottom in integrity, values and the common good. Eat or be eaten. Kill or be killed.

Those committed to non-violence do so without regard to whether they'll win or lose.

The players make the game.

Being an MBA doesn't change whether or not you can sell something though. Anyone can equally be good at selling things, its more of a personality type if anything

I don't see the purpose of MBAs unless you are doing high level management at a mid-large company, and you are supplementing it with other (core) skills such as software development. The other reason you would take an MBA is if you want an equivalent knowledge set of a bachelors business degree without having formal training.

I think the MBA hate is warranted to some degree, because you see far too many people taking an MBA as a "backup" option. I've dealt with way too many people with MBA degrees that have no idea what they are talking about.

I'm a strong believer that business skills need to be won by hard-earned experience.

You don't need an MBA to sell something, even when the target customer is an enterprise.

Can report from the trenches of a major software consulting firm: putting a sharp engineer who's even reasonably good at communicating in front of the C-suite is 5-20x more effective than using someone with an MBA.

But is it the best use for the engineer's time? Does the engineer want to talk to a bunch of strangers every ..say.. week?

My role evolved in that direction, mostly because I was okay with it. Other roles can be designed to be cross-functional from the beginning. Generally it's a useful application of engineering time if it's a high-leverage situation with decision-makers in the room and meaningful potential deal value at stake.

The best use of an engineer’s time is whatever makes the company the most money. If talking to customers C-level people is a weekly requirement for that, then that is what the engineer needs to do.

That's true if the company and the engineers exist in vacuum.

Very often, the engineer would get frustrated with this and look for work which is more interesting. That way, the company will be, increasingly, left with engineers who are there because they have no alternative.

"Either we do this or they will" is a bad argument as justification for doing something unethical. The reason I think it is bad is because it is lazy, and it is lazy because it is circular. You say it is true, and because you say it is true (and you act as if it is), it is true. It's not very interesting to follow and it should also be pretty plain to see why it doesn't work as a justification.

From my perspective, any company that goes public will eventually turn to crap (or go through decades-long crap/good cycles). It's not MBAs that drive for growth at all costs - I would argue it's shareholders. Shareholders are greedy and don't care about anything else besides ROI. Even if that means throwing the consumers under the bus in the long run to achieve that.

Yeah but who do you think is pushing the company to bow to the shareholder pressure?

It could very well be the engineers looking to make a lot of money with their stock options after all their hard work.

It could very well be the MBA's who designed the incentives program.

It is the Boardroom === MBAs.

A company has a fiduciary duty to the shareholders, who bought the stock on the assumption that the company will be run in their best interests. If they do't do that they are open to shareholder lawsuits. (This is the way that activist investors often work.)

A company does not have an obligation to be short sighted. This is also something the company can communicate to any investors.

Is it really common for lawsuits against normal sized companies? (I'm not talking intel, facebook etc.)

Activist investors fight for power in board rooms, not in court rooms.

IT doesn't appear that FB values user privacy, this is not a surprise.

The legal system? Shareholders can vote to replace board members.

Not really at a controlled company like Facebook.

eh why feel bad for mba’s? some of the highest paid most privileged people in the world

Ok, I agree that some MBAs can be full of it but...[Y]ou will have to sell your product and some of the MBA's are really great at that.

Some are full of it, some can sell. What about the rest, and what are the proportions?

How many of their current users would actually be paying $1 a year? Over the long term how many more? Most of these products want to be free. If I'm paying $1 a year to WhatsApp and see my friend using a different app without being charged for it, I feel like I'm getting screwed. I find it hard to think of WhatsApp truly being a long term product with that business model.

Two, claiming encouraging more ads on your platform is "squeezing locked in users for every dime possible" is only half of the equation. Have you ever talked to a business that relies on Facebook and Instagram ads? They're enormously grateful they exist. Without them hundreds of thousands of businesses would not be possible. That shouldn't be thrown aside as worthless.

Just before WhatsApp was bought by Facebook, they were asking for that $1 per year (I remember paying it) and they had 450 million users, in spite of plenty of chat alternatives being on the market ever since the 90s.

I initially ignored it then switched to it after they started to do end to end encryption and encouraged all my friends to use it, instead of Facebook’s Messenger.

So yes, they were already popular because the app was working on all platforms, because it is easy to connect with your friends and because it did what it was supposed to do without the crap.

I’m not saying that the ads model doesn’t have its place, far from it, I’m saying that WhatsApp could have lived just fine without it.


How many of those users were actually paying at the time? IIRC they allowed 1 year of free use (even more depending on your country). I don't know what the churn is going to be the moment a currently free customer becomes paying, but it is definitely non-zero. I really don't think that is evidence for a long term sustainable business model if others exist with zero total subscription fees.


The biggest reason for WhatsApp's success was the cost of SMS messaging most international markets. That's actually declined significantly since its introduction, so that's another drag on their pricing power.

Could they have lived? Maybe. But I doubt they'd have 1.5 billion users like they do now, and I don't think they long term trajectory for the business would look sustainable charging $1 a year.

They had something like 50 employees didn't they? Back of napkin I'd say probably around $10,000,000 for employee packages. Multiple that by 3-5x for total operating costs and I'd speculate they'd need $30-50m to break even which is about 3% of their subscribers paying $1.

The problem is that in order to maintain their position as an app everyone can communicate on, they need everyone paying the subscription fee. Once people realize not everyone is on the app, it becomes a self fulfilling prophecy.

There’s a huge difference in the number of people willing to pay for an app “that I can connect to everyone with” and those willing to pay for an app “that I can connect to only the other people willing to pay $1 for”.

I mentioned in another comment but many countries have free data for WhatsApp plans which kind of entrenches their position. They might lose out eventually but it won't be overnight.

The power of mass usage comes into play here. IIRC, when WhatsApp launched, I was one of the early adopters. As it grew (and it became hugely popular in Brazil, where I lived) they switched to the $1/year model. Current users were auto-enrolled in a "free-for-life" plan. My friends who didn't have WhatApp would still sign up because everyone else was using it and, besides "$1/year? it's almost nothing".

In Argentina many cellular plans include 30 days of WhatsApp for free on pay-as-you-go plans. Even if you lapse your payment for the 30 days you still have WhatsApp texting. Interestingly audio, photos, and video don't work.

There were always alternatives, just carried certain other costs. SMS was a major competitor, and as its prices have declined significantly internationally, the friction with using it would as well.

Being the first mover is not a infinitely defensible advantage. If another app comes along but doesn't carry the $1 a year fee, it wouldn't be hard to motivate people to switch.

Was it 1 Brazillian Real or 1 USD?

In many countries, WhatsApp is the defacto communication platform for businesses to communicate with customers.

I don't actually remember. I used to set all my settings to US/American ones because some apps were only in the US app store, so there's a good chance I was looking at the US$1 price. Not sure what my friends saw in the Brazilian app store.

It was the equivalent of US$1 in reais.

> It was the equivalent of US$1 in reais.

I think it was R$1,99, that was not exactly US$1 (even considering the stronger Real in the period), however it was not exactly equivalent to US$1 either.

At least in India, it was equivalent of $1 in my currency, i.e. Indian Rupee.

Hundreds of thousands of businesses that exist only thanks to FB and Instagram ads?

You should provide ample evidence for such an extraordinary claim.

I remember when they had the $1 cost it was 1 year free. They captured you in that time and then you didn't mind paying the $1 when all your friends were on it.

I don’t understand the MBA hate here. The WhatsApp founders don’t have MBAs and sold their company to Facebook for 19 billion. They wanted to be that rich. Nothing to do with MBAs.

Also let us be clear. Engineers are no saints either. Case in point Anthony Levandowski of Otto. Orchestrating one of the shadiest acquisitions to make a quick buck.

Folks have pointed out below that the issue of growth is not necessarily an mba or maximizing shareholder thing. In some competitive environments if you don’t do it, you will die. That said one can always do what DHH did with 37 signals...that was a specific choice. Nothing to do with having an mba or not.

One has to look at things with nuance, not just be black and white.

Hold on what is being discussed here has nothing to do with how you sell your business or for how much. We are talking about how loyal customers are treated by business/business people.

Whatsapp was sold for that much because many other companies were willing to buy for similiar amounts.

The comment was about how WhatsApp was good with the model they had before facebook’s acquisition and how now the model to make money is because of mbas. That is what I am commenting on. It is as if MBAs are the reason Facebook is trying to monetize WhatsApp in a different way.

They didn't enforce payments. I remember they asked me money but the app still worked when I didn't pay. I was surprised, so when they asked me money again many months later I didn't pay again to see what happened. The app kept working. Months later they asked me money again and this time the app stopped working. But back then whatsapp was not as popular as it is now. I was still using SMSes with most of my contacts (my plan had more free SMSes than I needed) and Viber was at least as popular as Whatsapp and I remember that I was using at least another two or three instant messengers with different people. So I didn't pay and I waited to see what happened. The other messengers where free. After a couple of days whatsapp started to work again. So it was official, they bluffed about payment and I knew that I could ignore their future requests. They cared about growing and not about being profitable. The $1 per year business model wasn't for real.

My guess is that if they enforced payments there wouldn't be any whatsapp now. We would be writing about one of their free competitors from that time now.

This type of customer behaviour explains why "grab the customer by the balls" is such a popular business plan.

In the end customers are screwing themselves big time if they don't want to pay €. Software doesn't grow in trees.

I wonder how many people paid anyway. Maybe their tactics would get enough payers to support the whole thing.

Here is Jan Koum, at Startup School SV 2014 [0]: "... our iPhone app was paid and our other platforms were free." Other platforms being Nokia and Blackberry.

He further explained that it may sound somewhat counter-intuitive: the reason why they made the app paid for some users was to slow their growth (similar to Facebook's college-only focus) so they could properly build out infrastructure and improve on the user-experience [1].

[0] https://genius.com/Jim-goetz-jim-goetz-and-jan-koum-at-start...

[1] https://youtu.be/8-pJa11YvCs?list=PLQ-uHSnFig5OyY5JWSQrl_gES...

Glossing over the fact that they probably wouldn't have all of those 1.5 billion users if it had stayed a paid service. Even at $1, having to pay money pushes people off to other free platforms.

So? It would still be profitable. Not everyone has to use the same thing.

Sure but it will start to erode its market share as other companies offer similar but free products.

And a mobile messaging company relies on the network effect to stay relevant and popular.

One of their free competitors would have grown to 1.5 billion users and whatsapp wouldn't be able to charge money for the same product. They would have had to pivot to something people would pay for or close or sell for a much smaller amount.

They could try charging $1 per year now and see what happens. Probably a flood mainly to Facebook Messenger and in part to other apps.

People are so mindbogglingly stupid that it hurts.

Every user of these so-called free platforms pay way more than $1 yearly for using them, via products they have been pushed and attention they have lost. If you're a potential high-wage earner, you're paying more than that in an hour!

Maybe not all those users but they where growing really fast despite announcing their business model loud and clear, - I'd say even to some degree because they were loud and clear about their business model: selling a great service.

You, could do tiered models as well. At a billion users they were running 11 servers. Free with ads and data sharing, .25 targeted ads no data sharing, .50 geolocated ads only. $1 privacy + the standard. 1.50 premium extra storage or w/e

The jump from free to $0.25 is the biggest hurdle of all. Right now, you basically don't need a payment form connected to your account to use Whatsapp. But you do with $0.25.

The tiers you suggest don't affect any layperson (would your grandmother even know what geolocated ads are? Would she care?). If anything, it sounds alarming to a layperson to even have these options.

IMO your comment is a clear example of why technical people should not always be the product decision makers.

Those tiers wouldn't fly under the GDPR, at least not the free one.

Many great products never get brought to market because of "lack of scale."

The second renaissance of this unicorn investment bullshit will be micro-services run by small teams that bootstrap and market there way into profitability instead of asking millionaires to sign them blank checks hoping they will be the next SNAP.

To me there was always a fatal flaw in WhatsApp's original business model, namely, lack of a viable payment method that could scale to the userbase they were targeting. Most people using WhatsApp don't have a credit card. Telcos obviously have a way to charge their customers but beinf an OTT service meant they wouldn't be incentivized to help WhatsApp kill SMS revenue. An exit to FB ended up being the obvious decision.. but it had to be clear at that point that the plan has to be monetize users through ads.

I first started to use WhatsApp at the recommendation of a Paraguayan friend who lives in a small house outside of Asuncion. Her father drives a taxi and she drives a beat up car from the early 1980s. No idea if she paid for the app using a credit card but at least in Latin america, lower middle class people do tend to have access to such payment methods. My understanding has always been that WhatsApp encountered its first and biggest success in the third world, where mobile connections are spotty and average people at the time didnt want to pay for data plans and SMS packages. WhatsApp allowed people to pop into a wifi hotspot to check messages without any fees beyond the $1 for the app.

I'm from Latin America, and I can't agree with that: lower middle class people don't tend to have access to credit cards. Besides, even for people who do have credit cards, the friction of using one for payment is non-trivial.

The reason everybody uses WhatsApp is that they never paid for it -- in fact neither I nor anybody I asked can actually recall ever seeing payment UX on the app.

Agree, I'm from Mexico and over here Uber had to change their payments methods. They started allowing cash payments to prevent missing a good portion of the market. And yes, I've used WhatsApp since the early years and I never paid for it, actually I don't even remember WhatsApp being insistent about it.

It didn't have to get everyone to pay $1 a year. It just had to get enough to pay the rent and know that eventually with improvements in payments it could get most on board a paid plan. I presume thats what they had in mind at the time, the billing was very loose, I cant recall anyone being blocked for not paying, at least here (SEA).

And its feasible. Back in the day there were carriers open to chat apps (eg BBM) and google play is one of the first merchants on direct carrier billing, despite every telco trying to control app marketplaces.

Fast forward to today and there are dozens of agent networks and wallet platforms for underbanked users and improvements in banking and DCB across the board. They wouldn't have had anywhere near 100% paying customers but entirely possible to get a majority.

Your post made me wonder whether I'm missing something obvious: what sort of global wallet platforms exist for underbanked users?

Credit cards are the only platform I know to work reliably, but most people don't have them, and they are horrible to use online. If you don't have a credit card, what online, global alternatives exist? Paypal I guess, but using it is even harder than using a credit card..

There are no truly global ones yet (though alipay has 500m accounts). Rather a hodgepodge of companies in developing countries have been rolling out their own, with a lot of success in recent years.

The first wave was telcos, which largely failed with the exception of a tiny few (eg m-pesa in kenya, globecash in philipenes). Banks entered the frey but struggled. Then the new wave came around, led by Alipay and Wechat. They kick started their wallets by leveraging existing products (ecommerce, chat) before expanding it to point of sale. This model is growing strong (see go-pay, grab-pay, paytm).

But the whatsapp problem could have been solved by a far more traditional route. You dont need people to pay on whatsapp, but rather just need the $$ to get to whatsapp. For that type of thing electronic voucher distribution could have been leveraged, in the same way that play, games vouchers, itunes vouchers work.

So Whatsapp sell codes at a 5-10% discount to 3 large companies (paid in advance), who then onsell through a network of parties until someone wanders up to a street stall, gives a dollar-equivilent in cash to the owner of the stall and receives their code. The code when entered extends the subscriptions. Everyone in the chain takes a portion of the fee.

If your feeling particularly fancy you can replace the entire voucher with a realtime call that activates that persons subscription. But needs to be on a per-country basis.

==Instead, a bunch of MBAs want to rule the world by focusing on growth at all costs==

How does Paul Graham explicitly stating "Startup = Growth" fit into this box?

Remind me where Mark Zuckerberg got his MBA.

The vast majority of customers would switch off Whatsapp to free competitors if the service had a price. If more companies go this path, sure, but the market has shown so far that people are willing to put up with ads in exchange for not paying money. We see this in pretty much every industry from TV to online content. Whatsapp does not have enough of a competitive advantage to charge a premium and hope to keep its customer base.

I would rarely use a product I needed to pay for. On the other hand the products I pay for I usualu get more enjoyment and/or more productivity.

If I was using it and the price went to a dollar I would probably continue.

>>It doesn't cost them $100M a month to provide the service.

This isn't that much of a factor. FB paid $19bn for Whatsapp. A small profit on a $100m or $500m revenue base is never going to justify even a fraction of that acqisition price.

FB sort of set this standard themselves. They didn't pay attention to revenue early, as the movie said: A million dollars isn't cool. A billion users is cool. At IPO-time, those billion users still didn't ad up to revenue. This is much later than google, who had a mature business model much earlier.

Then, FB actually did find a formula to turn their 2 bn free users into a revneue stream. They proved it can be done.

Putting on the ruthless analyst hat... There are two reasons for the whatsapp bidding war: (1) keep it from the competition (2) potentially turn 2bn users into >$2bn revenue. FB already achieved no. 1. The ruthless business thing to do would be to force whatsapp to bet the house on achieving no. 2.

If the app cost $1 per year subscription, most people could afford it, but many wouldn't get their shit together and actually do the payment, and then their accounts would be suspended, and the network effect would be reduced.

And also, WhatsApp wouldn't be making a ton of money. Payment processors take a huge bite out of $1 payments, the service does cost money to run, and it costs more money to continue to develop.

A monetization model that's not a subscription allows very poor people/people who are turned off by putting in a credit card number to stay on the system, while monetizing the majority of users for a much higher per-person value, thus meaning that WhatsApp would take in higher total revenue while maintaining their network effect and ability to appeal to new users.

You can see why they want to do the latter.

Just give subscription users some special features, custom Emoji, or whatever. Seems like it would generate enough revenue to pay the bills, but probably not enough to make a FB type business happy.

I personally would stop using WhatsApp if they charged a subscription for it. I don't use it to talk to a few people. It would be ridiculous to pay money to keep using it. For me at least.

I'm the complete opposite. I'd pay a lot more than $1 per year if the alternative was targeted ads.

Nearly all users got in during "free for life" periods. Whatsapp was never making anywhere near $1/user/yr. To give you an idea of just how few users were paying, in the first half of 2014, they had 450 million users and generated only $15 million of revenue [1]. Even if you annualized that to $30 million, that means about 6.7% of users were ever paying a fee to use it.

[1] http://time.com/3545911/facebook-whatsapp-earnings/

IIRC for me it was a one time fee of 1 USD.

They implemented this fee whenever they were growing too fast and needed to slow they growth to keep their servers in check. At other times it was free.


I'm not really sure Craigslist is a good model here, I feel like their business is getting taken apart vertical by vertical as they fail to keep improving.

And what about all the small businesses that could grow from providing them an advertising outlet to their customers on WhatsApp? What about countries where it's difficult to make online payments, or credit card fraud is rampant? What about processing fees? What about necessary price fluctuations as the infrastructure grows? What about user growth?

In an interview a number of years ago, one of the founders of WhatsApp said the $1 fee was actually not a business model. I believe the interview is on YouTube.

He said he instituted the $1 fee to try to slow down a relentless increase in new users because he was afraid of potential outages.

I have had whatsapp for years (well prior to the FB acquisition) and have never paid for a subscription. I might have paid $1 originally (don't remember). Subscription payments for apps wasn't a thing back then on iOS.

How else is someone with an MBA going to make their qualification look like it means something? It's similar to marketing in many large companies for example, anyone will tell you that most of what marketing does benefits precisely no-one. Users get pissed off about adtech et al - but those "extra 5000 clicks per month!" sound really good in a meeting and without any context regarding sales and PR, etc...

Remember when WhatsApp required a subscription? One of the first changes made by Facebook after purchasing WhatsApp was to make it available for free. And now they're complaining they can't milk it enough? Oh dear.

I know that a percentage of WhatsApp users would stop using the app if they started requiring a payment again –because apparently paying $1 per year for using an application on your $999 phone is outrageous, but I wonder why can't they just make it an option again as an alternative to ads.

You are completely mistaken if you think adding a subscription-only would not reduce usage of WhatsApp by 10x at least. I am an Indian (WhatsApp's biggest market by far), and know for a fact that hardly 1% of people using it right now in India would be able/willing to set up a payment system AND willing to pay $1 for it (which is not as inexpensive as you think) when there are so many free alternatives. And then it immediately loses its value as a messaging platform (since if my relatives/friends are off it due to forced subscription, what will I do on WhatsApp even though I am ok paying $1). #networkEffect

So adding forced subscription is a definite death sentence for WhatsApp. Also remember that even if everyone of the 1B people did pay $1 for the service, it will still be impossible for FB to recoup $19B it purchased WhatsApp for.

On the other hand, I would love a "Ad-free" mode for people who are willing to pay (like YT Premium), and ads to support other 99.xx%.

But those who can afford to pay (either for WhatsApp or for YT Premium) are typically the ones most lucrative for the advertisers. So if I am in charge of such products, what is the incentive for me to invest into these efforts which are only going to add complexity while not making any extra money? What is the compelling reason for offering an Ad-free mode if it is going to be adopted by a tiny fraction?

Because as someone who's willing to pay to not have ads, ads are a non-starter for me. If they're forced upon me, I'll switch products, and force anyone I communicate with to switch products to continue communicating with me. (If an individual won't install Signal, I'll drop down to SMS/email for them.)

In my experience, no, you can’t force alternatives on your friends and family, unless it’s an alternative they already have.

No, they won’t install Signal. If that were a real possibility, you would have done it already. So SMS it is. But I wonder, isn’t SMS more expensive than $1 / year? SMS has had outrageously high rates compared with 3G.

In some parts of the world that’s precisely the reason for WhatsApp’s popularity.

My non-tech friends can and have and do install signal, I’m pleased to say! It costs nothing, takes them a few minutes, and there’s no downside for them. I use it all the time.

agreed - I politely ask and if they dont I make my case.

SMS is plaintext - full stop.

> If that were a real possibility, you would have done it already.

Well, no, because I'm perfectly happy using WhatsApp in its current state.

SMS has been free (or very nearly free) for at least ten years over here. Pretty much any phone plan comes with unlimited messages or something like 10k/month, which most users won't reach.

If you can't charge people even $1 for your product, then I would argue that you might as well close up now. As others pointed out, ads won't work either, because if you can't afford to pay $1 for WhatsApp, then I'm not going to be able to profit from showing you ads.

Ads aren't magical things you can slap on a product to make it profitable. For ads to work you need an audience that technically could pay for you product, but who opts not to. You need to understand that Google isn't a create example of ads working, they are the exception. Facebook sort of works, but the US (and to a minor extend the EU) audience subsidies the rest of the user base.

Your right in that the $1, even at $1 per year, Facebook wouldn't be able to recoup the purchase price of WhatsApp. They won't be able to anyway, WhatsApp was never worth $19B. Facebook vastly overpay for the company. The WhatsApp purchase should be seen solely as a way of removing a company that "stole" screen time from Facebook, and now they're looking for an excuse to shut it down and roll the users into Facebook Messenger.

"if you can't charge people even $1 for your product...."

Only folks aren't always just paying $1. He's describing folks needing to set up a freaking payment system for a small amount of money - and that some folks aren't going to be able to do that and others aren't going to be willing. That's even before you get into the actual payment of $1. And this is before even considering there are other free apps that will work. There is a limit to the inconvenience folks will go through for your product if there are simpler alternatives, and being blind to this sort of thing could kill your company.

It also doesn't mean that folks cannot profit from ads. It isn't like all ads require you to pay through the internet - On my phone, I've gotten ads from a local coffee shop chain. I liken this sort of ad a cable tv ad. It might not get folks clicking on a website, but it might get folks in your store.

I don't understand all this talk of "setting up a freaking payment system" like it's some huge technical hurdle? Do the vast majority of people not get WhatsApp through the Play Store / App Store? Isn't adding a debit / credit card or purchasing a topup card for these trivial?

All this is besides the fact that we're talking about making the subscription model an option in addition to the ad-supported model, not forcing a subscription on everyone. I don't think a single person in this thread has suggested that apart from the people using is as a straw man.

You have to know WhatsApp's user base to understand this. Here in germany it's the de-facto standard communication platform. Everyone and their mother uses WhatsApp - and I mean that literally: Lots of old, non-tech-savvy folks use the service - the kind that even see creating an account as a barrier big enough to not use the service. I still think using the phone number as account was a genius move that enabled wide-spread adoption. Anyway, my mother and her peers don't have a Paypal account, no credit card (this is germany after all, credit cards can't be expected), certainly don't have a payment method attached to their Apple ID or Google Account (You'd be surprised how many people only use free apps). Yet all of them use Whatsapp happily and quite frictionlessly.

These folks are very wary of subscriptions, regarding them as potential scams or traps and while I'm sure Whatsapp would be successful even with a recurring price tag, I'm confident the service would be nowhere near as ubiquitous as it currently is.

Okay. But not so long ago people had to pay for WhatsApp, no? Has the user base grown tremendously since it became free (i.e. because it became free)? One of the points made earlier is that before being bought by Facebook WhatsApp was a profitable operation. If that was the case then there is clearly an argument for having a relatively low cost subscription based offering...

I'm not sure if they actually ever enforced their payment/subscription. I certainly haven't been charged, but I was a user before that started if I remember correctly.

It didn't "become" free. It has always been free for some significant fraction of the userbase. As was mentioned repeatedly all over the comments here, many people have never seen the payment screen at all.

no way. I've been using android for years but never added my card details on play store. although I have a 700£ phone, I intend to spend 0£ on play store.

I would pay for whatsup through paypal or something like that.

Whatsapp already supports payments in India through UPI. Setting it up is quite trivial, and if people deem WhatsApp central to their social graph, they'll buy the app.

However India is an extremely price conscious country, and many people would jump ship if WhatApp switches to subscription only. I tend to think that people would tolerate WhatsApp ads if they get the app free.

It will be interesting to see how this will play out.

If they go with ads, I'd be very interested in seeing what kind of revenue that would generate. I believe that Facebook reported around $1.30 in revenue, per user, per year in Asia in 2016.

I still think it's weird to have a product that worth so little to people that they won't pay a dollars a year, and yet it seems to essential in their everyday life.

Regardless, it won't get Facebook the billions they spend on WhatApps back.

Most insightful comment here

Probably not representative but in my circle, 90% people did pay for whatsapp before FB bought it out. The rest either had lifetime subscription through iOS AppStore or changed their phone numbers every year just to use whatsapp.

Whatsapp is the only software I've seen Indians pay for without thinking twice. 60 rupees per year is very easy to shell out especially when it replaces SMS which would cost you many times more.

The problem in India is not that people won't pay for whatsapp, it's that majority of the people don't have a way to pay. Very small percentage of whatsapp users own credit/debit cards. If a service could integrate with telcos and let users pay through them, I'm sure a lot of Indian users would pay for a lot more services than they do right now.

Given their market penetration in India, it wouldn't surprise me if they went so far as to set up in-person payment infrastructure. Wouldn't have to be complicated - it could even be like the Steam or Hulu gift cards you pick up at BestBuy. Any shop or market stall could sell them, just ship 'em out en masse and charge the store when they activate, possibly via the app.


Many of the telecos, however don't want their user's on WhatsApp, they want them to use SMS, I remember Airtel and other's complaining to the government about OTT services, and trying to force the government to introduce a licensing regime for them.

If WhatsApp has to depend on telecos, they for sure will screw it.

Nothing can compete with 0 rupees.

Also unlimited SMS are free these days.

How many rupees does the extra data for a year's worth of ads cost? Or are unlimited data plans common in India?

Unlimited data plans are not common in India.

On Airtel, which I use- 4G data 2Gb/day, Unlimited SMS, Unlimited calls(Anywhere in India), for 90 days, comes to like $9(around 599 rupees).

This is a pre-paid plan.

I can't think of anything that's for purchase on this planet that is actually cheaper than one freaking dollar per year.

If someone can't pay that they're a waste of bandwidth for facebook's ads, since they can't afford to purchase anything at all.

If what you say is true Facebook can pull the plug on India completely and save money. I doubt that what you say is true.

Problem is how to collect that dollar. Appstore model will not work. I think they will need to partner with telecoms provider for this.

Why won't an app store payment work? The app stores have subscription support and carrier billing.

And they take a cut of an already very small transaction.

Then have it be regional and have European users pay 1 $/€.

You can't beat free. That would result in a huge migration to FB Messenger (does it have groups?) and Telegram (which has much better groups anyway) and others.

> Messenger (does it have groups?)

Yes, and they're a PITA on so many levels. Also, Messenger already has ads.

> Telegram (which has much better groups anyway)

Yes, groups, and especially supergroups (which are highly reminiscent of IRC) are downright awesome.

How valuable is that type of market to advertisers anyways.

I don't know how you can seriously argue that $1/year is "not as inexpensive as you think." Even in poor countries, that subscription fee is ridiculously low.

Talk about living in a bubble. +everything drdaeman@ said above.

There are more people using WhatsApp in India (thanks to popularity of image/video/voice-messages) than who can actually read or have usable Bank accounts. If you think they can pay "$1" for something they can get for free (and have been using for free in past), then you are completely out of touch of reality. Apart from the amount (which is not trivial btw), there is no concept of digital payment for masses.

Also I know it's hard for HN crowd to understand, but the concept of paying to protect "Privacy" is completely foreign for majority of the users in the world. I can guarantee you majority of the users (at least in India) will happily let you track them, show targeted ads at them, give you all the personal details you need, heck even give your their Genome for for free without even blinking an eyelid. And I am not saying this is just because of ignorance on their part, but rather "Who cares if they track me" - I get free services in return.

And this is actually not a bad setup really (again I know HN crowd will get their pitchforks out at it): Show Ads to provide actual free services (like WhatsApp, Google search, Maps, etc) to the masses. It's much better IMO then charging for these services and never have the masses be able to use them (like "GPS" would be a premium service for rich people).

Disclaimer: All opinions expressed are mine and only mine and have no connection to my employer (Google).

So what's a dollar to an average Indian whatsapp user. An hour's wage, a day, week?

The average wage for most kind of hard labour is around ₹200/hour or ₹600/day in cities, which will be around $3/hour or $10/day. I believe the bigger issue is the payment system rather than money, most Indians don't use digital payments

Nothing. For poor it might make them think for a few seconds, but its still nothing.

The real issue is they can't compete with $0.

Also best way WhatsApp can work around this is to just ship their app with the phone, and bill the phone $1 * avg life of the phone.

There are a lot of cheapskates who believe anything over $0.00/forever is too much. I don't really know how many there are, but in some places (anecdotally and quite subjectively, especially poorer areas) there are people that just object to paying anything if there's a way to get something remotely similar for free. Even if that way ends up costing more in wasted time or sacrificed privacy or self-respect.

Heck, I think I'd admit was like that, once upon a time. I stopped only when I started earning enough to be able to spend relatively liberally, sometimes even without looking at the exact price, as well recognized my time's worth something too.

$1 is a meal. You can't eat Whatsapp

You can't eat a smartphone either but all of these theoretical people with zero disposable income seem to have them for some reason.

and if you can't afford $1 / year FB doesn't give two shits about you because you have no disposable income anyway.

They probably do care, indirectly. They want as many people as possible on their service. Maybe you don't have $1/year for Whatsapp and therefore aren't of much interest to Facebook for advertising either, but your friends' friends might.

I wish I could upvote your comment more than once. We need to recognize companies like Facebook and Google for what they really are, ad companies. I fear that Microsoft might start taking a similar path with what has happened with Windows 10.

I wonder if the products that Google and Facebook offer would actually be of better quality if they actually charged a certain amount to access their services. They have become so essential that I believe in most markets they could charge $5 to $10 a month and still retain a significant amount of users.

Then again, it gives them an excuse to not have to actually have a decent support staff.

I would like to challenge you on your belief - YouTube offers an Ad-free mode and the subscriber numbers are still considered to be abysmal [1], considering that it has 1B+ total users. What makes you think charging $5 to $10 per month would retain enough users?

Moreover, Google made ~$15B in Q2 2018 in USA alone[2]. 86% came from ads, so let's assume Google made ~13B from ads in the USA in Q2-18. Even if we were to assume that each of the 240M internet users in the USA pays $10/mo to Google (an obviously false assumption), that is still only $7.2B for Q2-18, or half the revenue they are making from ads.

[1] https://9to5google.com/2018/01/22/youtube-tv-300k-subscriber... [2] https://abc.xyz/investor/pdf/2018Q2_alphabet_earnings_releas...

I use Youtube Red. Part of the reason no one uses it is because it's not a very good service.

Because I have Youtube Red I don't have ads, and I can download videos on my phone. Except I can't really download videos, I just kind of cache them in an inaccessible format that randomly fails. Seriously, it's very common for me to go back to older downloaded videos and have Youtube randomly tell me, "well, it's messed up, we'll have to redownload it later."

On top of that, using Youtube Red means that I have extra ads for Youtube Red specific channels that I can't permanently get rid of. On top of that, using Youtube Red means that Google will occasionally decide that I'm not allowed to watch videos on my phone and computer at the same time, because that's "using the account in multiple places."

What I should be doing is using youtube-dl to auto-download playlists without ads and then sync them to my device. But I'm still paying for it, because... I don't know why, I guess I'm lazy. But there's very little reason for anyone to purchase Youtube Red when they can get a better, more private experience by downloading an ad blocker.

The problem is that Youtube offers both a free tier and a paid tier, right next to each other, with no signficant improvements to the paid tier. You're still getting the same algorithmic, eyeball-grabbing, buggy crap in Youtube Red. So I'm skeptical that this is a good comparison - if your goal with paying for apps is to get away from the dirty feeling of having someone watch you and manipulate you, Youtube Red is never going to satisfy that, because it's always going to be developed alongside the free version and it's always going to be reusing that codebase.

Compare that to something like Netflix. Do you think it's a mistake that they don't offer a free tier?

Netflix offers free month trials. I think that's the right approach for them.

YouTube Red is still not available in my country. 3 years after launch, it’s only available in 17 countries.

Also YouTube has all the music that people care about and given the success of streaming services I’m going to guess that its lack of success has nothing to do with people not wanting to pay.

Getting users to pay for a service that was previously provided to them for free is probably the #2 hurdle for all Freemium products.

In retail it has long been known that when you sell a new product or service you allways start high and go down in price.

I don't think there are so many ads on Youtube that it's enough of an annoyance to subscribe.

Microsoft has been there for awhile. What you fear has long come to pass. On the other hand, I think you're wrong about paid software being better quality. Here's an example: YouTube vs. YouTube tv. The former we all know about. When was the last time you clicked a YouTube video and it didn't work or played the wrong thing or it simply crashed? These are daily enjoyments with the $45 per month YouTube tv. Hulu tv is the same way. It seems the more you pay, the worse the software.

Yeah ... but a huge fraction of Whatsapp users (in India & Africa especially) use $100 (or less) phones....

It surprises me that ad companies build their businesses around audiences who cannot afford $1/year for a useful service.

I'm not suggested that people in poorer economies should be deprived of targeted advertising. It's just surprising they wield such influence. I guess they make it up in volume.


They're planning for the future. Those people will be the major consumers of the world. The companies that can gain market share in emerging economies now will reap the rewards.


> audiences who cannot afford $1/year for a useful service

Not being able to afford and not being willing to pay are separate.

Not really, if the amount of disposable income is the deciding factor.

> if the amount of disposable income is the deciding factor

That's a big if, though. I wouldn't pay $1/year for WhatsApp messaging as a consumer. But I have a lot of disposable income. When you have a free substitute, these signals get mixed up.

There are massive variations in what people get from it and what they'll pay.

I live in South Africa and I'd pay $50 a year. Throw in a few paid-only features and I'd be quite happy.

All my friends use it. We use it at work for many teams. Video call with family in Australia. Audio with friends in Toronto or Chicago via Bluetooth while driving. That feels like magic. Better quality audio then the cellphone network and just works.

I have Skype, messenger, telegram, had Viber, tried WeChat. Barely use any. WhatsApp is like SMS, focused on my phone contacts, but has groups, audio, video, photos. That's all I want.

Here's an article discussing a local cell data bundle. It's still $1-3 per month. Poor people are willing to pay that because of the better value compared to SMS and voice call costs.


A lot of advertising is aimed at low income, low educated people because some products you still have to buy even if you are poor.

Thousands of corporations have survived without having to worry about markets that don't have disposable income. You don't see Apple hurting because they aren't successful in the poorest areas in the world.

It may sound cruel, but is it crueler than saying "Since you can't afford to pay, just give us access to your emails and private messages"?

Apple is a luxury good. You also don't see Gucci or Prada or Moet-Chandon unhappy because they can't be purchased in the poorest areas of the world.

Facebook has a different business model and a different mission than those companies.

Applications like WhatsApp noticeably improve the standard of living for people in WhatsApp, as they allow them to communicate with people far easier, cheaper, and faster than otherwise would have been possible.

It really is more cruel to say that because you, in a first world country, can pay 1 dollar much easier than they can pay 1 dollar, you should decide that they're not allowed to pay with their data if they desire.

If someone can't afford to pay $1 per year for something that allows them to communicate faster and cheaper then they are so fucked it's not even funny.

We're talking mind-boggling levels of poverty. How are they able to even pay for a phone and mobile subscription? Where do they live? How do they eat?

It sounds to me like a made-up sad story used as an excuse for rich corporations. If there are people that poor out there, Facebook could charge the rest of the world while offering the service for free to those that really can't afford it.

Not sure where in the world you live but if the medium income for Malawi is $250 dollars and the medium income where you live is $25,000 convert 1 dollar to $100. Would you pay $100 dollars a year for whatsapp? I wouldn't. For those living in the valley making 250,000 a year that translates to $1,000 dollars. To me that sounds like flushing your money away. The best phones are under 1,000.

I get your point, but the cost of the phone and mobile data to actually use whatsapp has a lower limit as well.

Even if you use whatsapp on a $50 phone (which you use for say 5 years) with a $3/month plan (which seems incredibly cheap), you have amortised costs of $46 per year. Increasing it to $47 to get whatsapp does not seem as unreasonable as you suggest.

Malawi is also an _extremely_ poor country, for reference Bangladesh have ≈ 5% smartphone usage with a GDP of ≈ 4000 USD per capita (PPP) while the GDP of Malawi is ≈ 1000 USD (PPP) per capita.

I would argue that not paying (but having the means to actually use whatsapp!) is more of a choice, or lack of payment infrastructure, rather than not having the disposable income to spend 1 USD per year for the service.

Why are countries where people can't pay $1 per year at all relevant to a discussion on software products?

If India and Malawi and whatever other country can't pay for WhatsApp, they don't get it or Facebook makes it free just for them. Or they find a way to make the ones that can pay do so.

What's the big deal?

It's cruel because WhatsApp is already there and people rely on it. Also worth noting, second point applies to Facebook but WhatsApp is encrypted.

WhatsApp was encrypted before the acquisition. And I am 100% confident that is why they want to find a way to monetize it directly. Not having access to data is not something they are used to.

You don't see them telling the FB Messenger team: "Hey, you need to make money."

> WhatsApp was encrypted before the acquisition.

WhatsApp was acquired February 2014 and end-to-end encrypted April 2016.


I agree.


I mean, I'm sure they have. Messenger has ads.

Your highly detailed personal data is infinitely more valuable to them than a measly $1 subscription fee. Until the incentives around building massive surveillance apparatus and calling them "tech companies" goes away, this will always be the case.

>>I know that a percentage of WhatsApp users would stop using the app if they started requiring a payment again

Most of their users come from countries like India(Im an Indian). Where people are very price conscious. And yes they would move on to other free services if charged.

>>because apparently paying $1 per year for using an application on your $999 phone is outrageous

Most smartphones on which people use WhatsApp in India are less than $100 phones. These days you get good usable smartphones in India for around $50 as well.

>>but I wonder why can't they just make it an option again as an alternative to ads.

Because bandwidth costs money.

Best way out of WhatsApp is to ship their app with the phone and have the manufactures charge $1 * avg life of the phone.

Reminds me of Sandberg complaining when the CA/trump fiasco was unearthed about users having to pay for the free service while FB doesn't allow them to.

Ads are the only way. Even if you want to pay a subscription instead.

Maybe that's why the WhatsApp founder left.

WhatsApp provides more than $1 of value to me in a year, provided I have already decided to use it. But paying a subscription also represents a psychological commitment, a loss of choice for a year, a mental tracking cost if I should reevaluate annually, an effort cost to convincing others to use it if I want to communicate with them, and an opportunity cost. Because I'm certainly not going to pay $1 to 10 different IM apps though I may keep 10 if they were all free.

The strain of all these hidden costs is way more than $1, probably on the order of $30. So WhatsApp reaps $1.5B and dumps $45B worth of externalities on its user base. I refuse to pay.

Your justifications strain credulity. Therefore, you possess the necessary psychopathological qualities to be a successful S&P500 CEO. Congratulations. ;)

Because they can make more money from ads. Why do you think Facebook for work is so cheap?

Doesn’t Facebook make $100per user per year in the US off ads? If WhatsApp can get anywhere near that there would be no reasistic price point which people would actually pay that would work for Facebook.

That's the crux of the argument. Most of WhatsApp users are outside of North America; many of them would balk at paying for a $100 phone, so their value is definitely not $100/user/year.

I'm wondering if this pressure was in response to the 20% decline on FB stocks. Its as if the shareholders looked at their portfolio in search of companies acquired that could fill that void.

Facebook didn't lose any money they need for day-to-day operations. The company lost value in the eyes of its shareholders, that's all. Facebook doesn't need to fill any void, as there is none.

No, this has been going on for awhile now, especially when you look at the high profile defections of many of the original WhatsApp executives.

The shareholders can't do anything because they don't have the voting power to effect any meaningful change. It's still Zuckerberg's company and will continue to be until they amends its articles/charter.

Why does a 20% decline in one day of trading matter after such a bull run-up since IPO ? Its just a tiny warning.

Maybe its my warped understanding of how multi-billion dollar boardrooms are ran.

To me, its not necessarily how well are our projects doing. Its more, squeeze out the most we can get from every asset and then squeeze for more.

I understand that Facebook will run just fine with or without the 20%, but I can imagine hearing this news and then looking around the room to find what acquisitions haven't performed well. Almost like a "What have you done for me lately?" vibe. Yes, its a bit warped to think that way (but fun too).

I would have gladly paid $1/month instead ($12/year) even just to avoid ads infecting the app which I use most on my phone. All of my family, relatives, and friends are on WhatsApp and every type (call, video or message) of communication happens through WhatsApp but this constant pressure of putting ads in the product from Facebook is something I don't like.

Because they paid $19 billion for it and need some form of return on that investment? You can't just throw stockholder's equity around like that and then come up with a plan that maxes out at ~$1 billion a year in revenue.

Well, they could, as Zuck has ~ 60% of voting rights.

Their stock just took a 20% dive because their main cash flow engine up to this point, the FB app, is showing stagnating engagement. Unless they want to take even great stock hits, which would lead to: greater difficulty to hire, greater difficulty to finance, more employee turnover, decreased ability to fight government regulation, et cetera, then they can't let this investment be wasted.

The acquisition price is a sunk cost. They still have the asset, and I agree its important for them to not waste it.

Sure, but it is analogous to what investors are valuing it with regards to their stock for.

Zuck paid $19 billion for it and needs some form of return on that investment? You can't just lose $16,000,000,000 in personal wealth in a day and come up with a plan that maxes out at ~$1 billion a year in revenue.

Better something than nothing?

A bonus is to combat competition like Snapchat to Instagram by having a solid alternative.

$1 - (2% fee + 30c card fee) leaves them with very little. I wonder how they get around the credit card fees. Supposedly Apple would want their 30% cut as well.

Say they get 30c per user. You get 1T traffic for $1, so 300G for 30c. That's roughly 40Gbytes per year or 100Mbytes per day. As long as people are on expensive mobile plans, there won't be more data.

Was it a subscription? I thought it was $1 to purchase(iOS).

With $1 purchase you were getting 1 year subscription included. Next year would be $1 in-app purchase.

on iOS was purchase, on android was subscription, after a while I think they may have switched to subscription on iOS for the people that didn't buy it.

I think they had turned to subscription instead of one off purchase after some time.

$1 per year

it was free for android and $1 for iOS users. subscription came way later..

All I know was I had Android and it was £0.99 per year, first year free. I've been using since 2009.

> as an alternative to ads.

I didn't notice but is there ads on WhatsApp?

From https://mobile.nytimes.com/2018/04/30/technology/whatsapp-fa...

"Mr. Koum had grown increasingly concerned about Facebook’s position on user data in recent years. Mr. Koum was perturbed by the amount of information that Facebook collected on people and had wanted stronger protections for that data ... he felt the company’s board simply paid lip service to privacy and security concerns he raised ... Mr. Koum was tired from fighting back against pressure from the board throughout 2017 to allow advertisements on WhatsApp ... There had been a certain level of pride within WhatsApp’s team over the dedication to privacy and the departure of their co-founder had left many wondering whether Facebook would now open WhatsApp to tracking user data and, eventually, to ads on its service."


"WhatsApp founders Jan Koum and Brian Acton reportedly left $1.3 billion behind by leaving Facebook ... The major divide was over monetizing the messaging app, which has 1.5 billion users. Koum and Acton had been resistant to adopting Facebook's widely lucrative targeted advertising model."

Is monetizing through ads the only way to go? Is FB org trapped on its modus operandis (innovator's dilemma)?

What about payments (charging a small fee for transactions) on their platform? The number of people already making business transactions on WhatsApp platform is huge, specially in Brazil [1]. A big bank in Brazil has already tried to grab this market by creating a keyboard with wire transfer integration [2].

This model is very similar to what WeChat has done in China.

[1] https://www.zdnet.com/article/whatsapp-is-the-main-digital-c... [2] https://medium.com/@leandroscosta/bank-ita%C3%BA-launch-a-ke...

IIRC Facebook has been pushing WhatsApp to add adds for a while, their pseudo independence prevented it but ... yeah I think Facebook's "slap ads on it" or "sell our customers" system is their one trick.

Square, a company with many years headstart, trades at a high multiple, and has many more integration points into commerce than WhatsApp does currently, trades at a market cap of $27 billion.

Given that Facebook bought WhatsApp for $19 billion, trying a low probability strategy of trying to compete for market share where the best case scenario is $27 billion in value seems foolish.

Square and Whatsapp are basically not comparable business entities.

If WhatsApp decided to move to payments, it is the closest analog.

No, square is fundamentally geared towards long-tail consumer retail, not peer-to-peer payments, and it's very credit card oriented. They still would not even be comparable.

What is the Cash app then?

An okay alternative to Venmo.

The UI is definitely worse (IMO) and they've done a piss poor job at tying users to identities more than using phone numbers. Nobody I know uses Cash App except in exceptional cases. I have to double and triple check usernames to make sure I'm not sending money to the wrong person.

The Cash app is a pretty small percentage of Square's revenue. Square isn't much more than a credit card processor for small businesses IMO.

Wouldn’t the closest analog be WeChat? Square isn’t a messaging platform.

I was referencing the guy above who suggested WhatsApp become a commerce platform, and why that is hard.

WeChat definitely does many of those things, but that’s far from it’s only monetization Model

Let whatsapp just add payment and take a 1% fee, it's really not that hard.

They had a business model: you provide a service to your customers and your customers pay for it. As the service is awesome, customers stay. That's why for instance in Spain, it has been the de facto messaging standard for 7-8 years. People paid for it if they had to, even for the 3-year pack. They use WhatsApp for everything, it literally has replaced calls. If there are ads now this might change, as that will alienate everybody. They might consider Telegram (that'd be my bet). WhatsApp is considered standard functionality of your phone here, you'd change your mobile provider if they start playing ads in the middle of a call.

"Messaging service WhatsApp, which has a user base of roughly 1.5 billion, is set to start showing ads in its Status feature next year"

Well, monetize through ads is something expected in any free platform that does not belong to a non-profit organization. It's just a matter of time and implementation. Here in Mexico WhatsApp is huge, even as a default B2C channel for a lot of small businesses.


You could also, you know, charge money for the service.

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