Jan Koum founded WhatsApp in April of 2009, and the earliest version of the app was available for download in Apple’s App Store the following month. Run on the programming language Erlang, WhatsApp is a cross-platform messaging app that serves as a reliable, affordable alternative to SMS and MMS—for which carriers often charge per-message.
Right now, WhatsApp is free for the first year and then just .99 cents per year after that. If it sounds overly simplistic, that’s not by accident. Koum has frequently been quoted as saying he wants to “do one thing, and do it well” , and keeping WhatsApp simple yet powerful has been the key to that. In October of 2009, Brian Acton, Koum’s friend and former fellow Yahoo employee, rounded up $250,000 in seed funding for WhatsApp, earning him the title of co-founder along with a substantial stake in the company. As the app continued to gain traction, Acton and Koum were overwhelmed by attention from interested VCs, yet the pair was initially resistant. First and foremost, Koum and Acton wanted to deliver powerful, ad-free communication, and they felt accepting venture capital might force them to compromise. Nevertheless, Jim Goetz of Sequoia Capital refused to give up, working for months to arrange a meeting with either Koum or Acton. Finally, in April 2011, after Goetz promised to keep WhatsApp ad-free, the founders accepted $8M in venture capital from Sequoia. By November 2011, WhatsApp had become the No. 1 paid social app for iOS, and had been downloaded 10 million times on Android. WhatsApp went on to raise another $50M from Sequoia in July of 2013. And in February of 2014 the company was acquired by Facebook for $19B, the largest to date for a venture-backed company. The acquisition, along with the 50 billion messages sent every day by the app’s more than half a billion users , and the addition of 1 million new users every day, all point to the fact that WhatsApps vision of replacing phone carriers’ expensive text messaging plans is becoming a reality.
To put those numbers into context: in all of Q4 2012, Twitter grew by nine million users, while Facebook acquired 40 million. Though growth is necessarily slower at much larger companies like Twitter and Facebook, WhatsApp’s growth is nonetheless impressive. The company is projected to reach one billion users by August 2015, at which point they’ll will be six years old—two years younger than Facebook was when they hit the same milestone.
An Early Pivot
After coming up with the initial idea, Koum was quick to choose the name WhatsApp because it sounds like “What’s up?” and he incorporated WhatsApp Inc. just a week later, on February 24th, 2009—his birthday. But WhatsApp wasn’t always a messaging service. After Koum kept missing phone calls while working out due to his gym’s rule barring cellphones, he came up with the idea of a mobile address book that displayed statuses next to contact names, so that friends could let one another know if they were available or at the gym, in a meeting, had a low phone battery, and so on. Around the same time, Koum’s Russian friend Alex Fishman held pizza and movie nights for the local Russian community—sometimes up to 40 people at a time—at his West San Jose home. On such nights, Koum talked to Fishman for hours about his app idea, and many of the app’s earliest adopters came from this group, including Alex Fishman. Once he’d downloaded the app, he met with Koum at Tony Roma’s in San Jose to go discuss the problems he’d encountered. Though a promising concept, the initial incarnation of WhatsApp tended to crash, and adoption was not instantaneous. In fact, early on Koum confessed to Acton (who had yet to sign on as a co-founder) that he was thinking of giving up and looking for a job. Acton advised Koum, “You’d be an idiot to quit now. Give it a few more months.” As it turned out, Acton was right. It wasn’t long until Apple launched push notifications, which Koum incorporated into WhatsApp. In the newest incarnation, when users changed their statuses the app pinged everyone in their network via push notification. Users liked this function so much that they began using the app to ping one another, at which point Koum realized he had inadvertently created a mobile instant messenger. He explains, “Being able to reach somebody [halfway] across the world instantly, on a device that is always with you, was powerful.” Seizing this opportunity, Koum released WhatsApp 2.0 with a more prominent messaging functionality, and the formerly lackluster user base quickly grew to 250,000—proving Acton right and letting Koum know he was on the right track.
What Isn’t Fueling WhatsApp’s Growth?
But before we delve too deeply into what is driving growth for WhatsApp, let’s look at what separates them from many of their competitors. Koum and Acton’s mutual intolerance for nonsense is a great place to start. Taped to Koum’s desk is a note from Acton that reads “No Ads! No Games! No Gimmicks!” When the two first met in 1997, they bonded almost instantly over their “inability to bullshit,” and once Koum came to work at Yahoo, where Acton was already employed, it was this same no-bullshit policy that helped to forge their friendship. This too has informed each decision they’ve made regarding WhatsApp—from user experience considerations to marketing.
As discussed above, Koum and Acton are very explicit in their dislike of advertising—perhaps a lasting effect of their experience at Yahoo. In an interview with Fast Company, Koum explained that because he sees smartphones as very personal devices, using them as a means of advertising feels inappropriate. He explains, “When you get that message from your loved one, from your family, or from your best friend, you want to be able to reply to it right away, you don’t want to be distracted by any advertisement.” Not only do they refuse to run ads inside WhatsApp, the company has remarkably spent absolutely nothing on advertising or customer acquisition. The founders have chosen instead to focus on building a useful product. As Goetz explains:
When we first partnered with WhatsApp in January 2011, it had more than a dozen direct competitors, and all were supported by advertising. (In Botswana alone there were 16 social messaging apps). Jan and Brian ignored conventional wisdom. Rather than target users with ads — an approach they had grown to dislike during their time at Yahoo — they chose the opposite tack and charged a dollar for a product that is based on knowing as little about you as possible.
This approach has proven incredibly effective. Despite—or perhaps because of—their avoidance of all things marketing, the company has enjoyed impressive viral growth thanks to a product that truly resonates with users and essentially markets itself (more on that in just a bit). Yet the company’s no-bullshit policy applies to more than just advertising. Despite having a massive user base and handling 50 million messages per day, at the time of the Facebook acquisition WhatsApp had just 55 employees—32 of whom are engineers. There is nothing superfluous when it comes to the app or the company.
Using an Established Distribution Network
In a discussion of WhatsApp’s growth, AOL co-founder Steve Case explains:
“When we launched AOL, only 3% of people were online, and they were only online an hour a week. Times have changed, fueled by the rapid globalization of the Internet. Now there are 2.5 billion people online, which makes it possible to go from zero to 450 million users in just four years.”
No doubt that conditions were ripe for WhatsApp to explode. The sheer size of the existing base of Internet-connected phones has made WhatsApp’s growth possible. Because they rely on established infrastructure—mobile internet access via the data packages that are increasingly standard components of mobile contracts—the company has been able to scale quickly and inexpensively all the while focusing their resources on creating the best user experience possible, thanks to the massive mobile networks that are already in place. Koum and Acton knew the opportunity was in the masses, so they didn’t design WhatsApp with just smartphone users in mind. From the very beginning they worked hard to ensure that WhatsApp worked for as many people as possible, which meant making the app work across platforms and available on a wide range of devices—even very old, so-called “dumb” ones—and operating systems. While many apps today launch just for iPhone users with the newest hardware, WhatsApp took the opposite approach. Mass reach, mass audience and mass utility was the mission.
A Better, Cheaper Alternative to SMS and MMS
Without question the most significant contributor to WhatsApp’s impressive growth curve is the fact that the app is an exponentially more affordable alternative to SMS and MMS messaging. After all, WhatsApp wasn’t originally a messaging service, but messaging is clearly what users needed—as Koum saw with their frequent status pings in WhatsApp 1.0—and their carriers weren’t doing a very good job of providing it. Because it relied on 2G and 3G data, WhatsApp allowed users to circumvent their restrictive, costly mobile service providers—many of which were charging per message, raising rates at busy times, or limiting texts entirely. In Singapore, for example, some users were limited to just 100 texts per month, while the Indian government restricted texts to just 10 a day during certain holidays. WhatsApp not only helped users to work around these restrictions, but to do so at a much lower cost. In fact, eschewing marketing expenses and relying on an established distribution platform allowed WhatsApp to focus on building and supporting an app that offered valuable, sought-after features above and beyond what mobile carriers were providing, including group chat, audio and video file sharing, and location sharing for free in the first year and just $0.99 each year thereafter. Contrasted with the exorbitant cost-per-message plans of most carriers WhatsApp is a no-brainer, and it’s additional features made it just that more compelling. Group chat in particular was huge among younger users, many of whom either didn’t have this feature through SMS or couldn’t afford to send so many texts. In addition being exceptionally useful, these group features amplified viral growth, going beyond 1-to-1 connections of typical texting to one-to-many. All this came with relatively low cognitive overhead for new WhatsApp users. Onboarding is simple and streamlined—instead of a long registration process with username and password creation, users simply confirm their mobile numbers; rather than creating an entirely new social graph, users are presented with a list of their phone contacts already on WhatsApp. This makes switching from standard text to WhatsApp essentially painless. Still, WhatsApp’s appeal wasn’t just that the service offered improved cost, features, and functionality over standard SMS messaging. The real key was the cross-platform interoperatbility that enabled friends to connect regardless of phone, operating system, carrier or country. Though Blackberry’s BBM and Apple’s iMessage offered their own SMS alternatives, they didn’t work across platforms. This, in and of itself, is a huge piece of the puzzle—disrupting an established market with a service that’s not only more affordable but also more reliable and functional.
It’s noteworthy that many of the most restrictive messaging plans and the oldest, cheapest phone models are most prevalent in the developing markets where WhatsApp has taken off. WhatsApp’s cross-platform operability, its availability on both smart and feature phones, and affordability helped them to grow internationally very quickly. In fact, it seems that the founders were thinking globally from the very beginning. In announcing the Facebook acquisition on the WhatsApp blog, Koum asserts:
Almost five years ago we started WhatsApp with a simple mission: building a cool product used globally by everybody. Nothing else mattered to us.
Staying in touch with someone across the world is undeniably more complicated than communicating with someone who lives within the same borders as you. Understanding full well the complexities of global communication—Koum is after all originally from Ukraine—WhatsApp was built to make it just as fast, easy, and affordable to get in touch with any and every contact regardless of geographic location. This global focus has been an important piece of the puzzle for WhatsApp, as Koum explained on the WhatsApp blog in December of 2013:
There was the woman from New Zealand who moved to South Africa to complete her PhD. The week before she left to go back home, she met the man of her dreams. Despite living thousands of miles apart, she told us that WhatsApp has allowed them to feel closer than ever. We also heard from a British woman who runs a charity in Uganda. She told us that her team on the ground uses WhatsApp to send daily reports, photos, and videos of the children they’re helping, which she shares to build support for her organization all over the world. Doctors in India are using WhatsApp to instantly send electrocardiogram pictures of patients who’ve suffered heart attacks, saving valuable time and potentially lives. In the mountains of Madrid, rescuers used WhatsApp to locate and save lost hikers.
As of April 2014, WhatsApp was growing fastest in Brazil, India, Mexico, and Russia, further reinforcing the efficacy of their global approach. In fact, it’s this global reach that likely attracted Facebook in the first place. Since Facebook is running out of new users to acquire in the US, Canada, and much of Europe, WhatsApp represents a way for the company to gain insight into what international users want and need.
In addition to the features and functionality above, one of Koum’s primary concerns has always been privacy. Handling users’ personal communication is a huge responsibility, and it’s one that the company doesn’t take lightly. As Goetz explains:
WhatsApp does not collect personal information like your name, gender, address, or age. Registration is authenticated using a phone number, a significant innovation that eliminates the frustration of remembering a username and password. Once delivered, messages are deleted from WhatsApp’s servers.
It’s a decidedly contrarian approach shaped by Jan’s experience growing up in a communist country with a secret police. Jan’s childhood made him appreciate communication that was not bugged or taped. Though not as flashy as group messaging or file sharing, WhatsApp’s guarantee that users’ private messages will remain private has nonetheless been an important component of growth.
Word of Mouth
Combined, the above factors made WhatsApp a powerful, useful service. As is often the case with such products, once users realized the app’s utility, they wanted to spread the word. Word of mouth was and still is an important driver of growth for WhatsApp since, as we already mentioned, the company doesn’t spend money on user acquisition. Not only that, not counting the numerous articles written in the wake of the Facebook acquisition, the press has mentioned WhatsApp fewer than 200 times—and most of those happened well over two years after the company launched. In early 2011, as WhatsApp was enjoying a spot in the U.S. App Store’s top 20, a staff member asked Koum why he wasn’t publicizing the fact. He responded, “Marketing and press kicks up dust. It gets in your eye, and then you’re not focusing on the product.” It is this focus on product—and the resulting rich UX and pain-free onboarding—that has contributed immensely to word of mouth growth for WhatsApp. Forbes contributors Phil Nunes and Larry Downes refer to this as “near perfect market information”—a phenomenon resulting from constant communication among consumers, in which “new products are adopted and effectively marketed by early users to other users, who in turn recruit the next and larger wave.”
The Network Effect
As more people flocked to the service, WhatsApp’s user base grew enough for the network effect to take hold. As with major networks like Facebook and Instagram, the value of WhatsApp increases exponentially as more and more people begin using it. Someone who downloads WhatsApp and finds that thirty or forty contacts are already using it is much more likely to remain engaged and send invitations, whereas a person with just two or three contacts using WhatsApp has less use for the service. The more users WhatsApp gets, however, the more likely it is that new users will have several contacts already using the app—giving new users a reason to stick around and invite their remaining contacts.
Knowing When to Charge
Today, WhatsApp spends around $500,000 a month on SMS verification for new users. This figure has certainly grown as the company has, but even early on, much of the their financial resources went toward these verification texts—which, at least for the international users who were early to adopt the product, could cost as much as 65 cents each. To offset these costs, as well as to ensure that WhatsApp didn’t grow too quickly, the app was intermittently switched from free to $1. Yet after the addition of photo sharing in December 2009, Koum and Acton found that growth steadily increased despite the app’s paid status, at which point Acton suggested keeping the app paid. After experimenting with a 99-cent-per-year subscription model on Android devices, WhatsApp implemented the subscription plan for Apple devices as well in July of 2013, completing the company’s transition from a one-time fee upon download to a yearly subscription model. Now, users can download and use WhatsApp free for an entire year—for most, enough time to sufficiently engage with the product—after which they’ll be asked to subscribe. Though WhatsApp’s popularity did decline somewhat in July 2013, their growth quickly stabilized in terms of sheer number of downloads, while their spot among the top-grossing apps actually rose. Much like their approach to advertising, WhatsApp’s decision to charge despite an abundance of free alternatives seems unconventional. Yet the implementation of a paid business model was an important step toward growing WhatsApp in that it kept users invested, making them more likely to remain engaged and invite their friends. As Koum explained on the WhatsApp blog in December 2013:
A few short years ago, my friend Brian and I set out to build a messaging service with a single focus: best possible user experience. We bet that if our team of engineers could make messaging fast, simple, and personal, we could charge people directly for the service without having to rely on annoying banner ads, game promotions, or all those other distracting “features” that come with many messaging apps.
This avoidance of “annoying banner ads, game promotions, and distracting ‘features’” is the true embodiment of Koum and Acton’s no-bullshit policy, which informs everything the company does. This has been the most critical component of WhatsApp’s success, as it has allowed them to ignore trivialities and focus all their attention on developing and refining a truly useful product that essentially markets itself.
Current and Future Growth Engine
The Facebook Effect
In 2012, when Instagram was purchased by Facebook for $1B, the photo-sharing platform had around 30 million users. In July of that same year, a mere three months later, Instagram had grown to 80 million active users, more than doubling its user base. Similarly, since the Facebook acquisition of WhatsApp was made public, WhatsApp has gained around 25 million users per month.
In many ways, the acquisition can be seen as a defensive move—ensuring not only that WhatsApp doesn’t become competition for Facebook, but also that big-name competitors like Google can’t take possession of the increasingly popular WhatsApp. But that’s only a fraction of the story. As Mark Zuckerberg explained on the acquisition call:
“WhatsApp is the only widely used app we’ve ever seen that has more engagement and a higher percent of people using it daily than Facebook itself … Based on our experience of building global services with strong growth and engagement, we believe WhatsApp is on a path to reach over one billion people in the next few years.”
So while the acquisition has no doubt been a boon for WhatsApp, it’s only a driver of the company’s growth of late. After all, Facebook’s initial interest in WhatsApp was undeniably a result of the company’s already-remarkable engagement and growth—as was also the case with Instagram.
In addition to the surge in new users, after the Facebook acquisition was announced there was quite a bit of negative feedback, which Koum refers to on the WhatsApp blog as “inaccurate and careless information circulating about what our future partnership would mean for WhatsApp users’ data and privacy.” Nevertheless, in this same post, he goes on to assert that:
“If partnering with Facebook meant that we had to change our values, we wouldn’t have done it. Instead, we are forming a partnership that would allow us to continue operating independently and autonomously. Our fundamental values and beliefs will not change. Our principles will not change. Everything that has made WhatsApp the leader in personal messaging will still be in place. Speculation to the contrary isn’t just baseless and unfounded, it’s irresponsible. It has the effect of scaring people into thinking we’re suddenly collecting all kinds of new data. That’s just not true, and it’s important to us that you know that. Make no mistake: our future partnership with Facebook will not compromise the vision that brought us to this point. Our focus remains on delivering the promise of WhatsApp far and wide, so that people around the world have the freedom to speak their mind without fear.”
Koum assures users that respect for their privacy is “coded into [WhatsApp’s] DNA,” and the company’s continued growth indicates that the majority of users feel confident in this fact. Though not of concern to WhatsApp users, one of the most common criticisms of the company is that they’re stealing revenue from cell phone carriers. But the company (obviously) disagrees with that assessment. In a 2012 interview with Reuters, Acton asserted the contrary:
“I view it from the perspective that we’re facilitating a broad movement to data plans and the entities that provide those plans are the carriers, so they stand to benefit quite substantially. … It’s all about the data.”
Another, and more serious concern with WhatsApp, as AOL co-founder Steve Case points out, is that the $19B valuation has many wondering whether this is another bubble. “Having watched AOL go from $70 million at 1992 IPO to $150 billion in less than a decade,” says Case, “it does feel a little like déjà vu.” Still, he goes on to assert that the landscape has shifted in such a way that it is now more plausible than ever to see growth trajectories like WhatsApp’s. Finally, many are concerned that growth at WhatsApp will eventually slow. As we mentioned previously, this has indeed been the case with other giants like Facebook and Twitter, and as any user base grows, new users naturally become harder to find. The real question is, where is the ceiling where this natural slowing of growth kicks in for WhatsApp, which is built on the massive mobile phone network.
The Remaining Pieces of WhatsApp’s Growth Engine
We hope that this analysis will be instructive for startups attempting to build an app or product valuable enough to disrupt an established market. Conspicuously absent from the analysis were things like AppStore optimization, paid downloads, tech press, Silicon Valley influencers or any of the other oft-talked about mobile growth strategies. We think what’s not in this analysis is equally as instructive as what is. WhatsApp proves that it’s not bells and whistles—but a genuinely useful product—that truly drives growth. So what did we miss? What other growth levers did WhatsApp use to drive remarkable growth? And how long do you think it will continue? Will apps like Line overtake it? Or will WhatsApp continue to be a dominant mobile player for the foreseeable future?