if you're not paying for the product you are the product you are being programmed how does whatsapp make money what started out as a very simple business question led me down a rabbit hole much darker than i would have imagined that affects every single one of us but to make sense of all this we need to travel back in time [Music] it's 2009 the iphone came out a couple of years ago and the world is getting to grips with this new concept of smartphone apps facebook is rapidly gaining momentum and a guy called brian acton
applies for a job there he gets turned down but he says he's looking forward to life's next adventure and that adventure would come just a couple of months later when brian and his friend jan coombe had a smartphone app idea of their own whatsapp it was initially designed as a way for people to update their status but once they introduced private messaging the app started to gain popularity very quickly because at the time traditional texting was still quite expensive whereas whatsapp was offering global instant messaging completely free [Music] now free applications normally make money and
at least one of three ways advertising in-app purchases or selling your data but the whatsapp founders hated ads and actually left their previous jobs at yahoo because of disagreements over the extensive use of advertising they even made a post on the official whatsapp blog about why they hate ads so that wasn't an option but they also didn't want to start charging people to use features in the app the reason they started this in the first place was simply because they wanted to build a great product that people wanted to use trying to make the product
better truly was the priority and option three was a total non-starter as well both the whatsapp founders were privacy activists so for a little while they got by without any revenue they were simply using the original seed funding they'd been given by some wealthy friends at yahoo and keeping costs to an absolute minimum to save money the whatsapp team even worked off cheap ikea tables and wore blankets for warmth if you picture the stereotypical silicon valley startup looking to grow as quickly as possible and make millions whatsapp was the opposite but we're still trying to
be really really conservative and frugal was the money we had so but inevitably as more and more people downloaded the app and more features were introduced like picture messages whatsapp needed some revenue to invest in servers and hiring a bigger team so whatsapp introduced a one dollar fee in some countries you had to pay this upfront to buy the app whilst in other countries you got the app free for a year and then had to pay one dollar a year after that to keep it what's interesting about this is that the one dollar fee wasn't
actually enforced all that often if anyone didn't pay the one dollar renewal at the end of each year whatsapp would normally just let them keep the app for free anyway it was almost like the fee was more of a voluntary donation as crazy as that sounds it worked fairly well it meant they didn't alienate their users and enough people did pay the one dollar fee the whatsapp were able to keep running smoothly for quite a while after all one dollar a year for such a convenient app was well worth it to many people if it
meant they didn't have to do any of this of course whilst the one dollar fee did bring in some much needed revenue for whatsapp it was mainly just to cover their costs they still weren't very profitable with such a small fee but strangely that didn't matter [Music] tech companies exist in a very strange realm where you can be worth vast sums of money even if you're not profitable and have no clear plan to make money if you've got lots of users investors see the potential you see started coming to us and they're like you guys
are doing great we want to partner with you we want to give you money and we're like we don't really need it which makes them want to invest even more now the reason the whatsapp founders were reluctant to take on new investors in the beginning was that they were worried the investors would want to push heavier monetization and compromise the quality of the app however soon whatsapp were growing so fast that investment companies like sequoia capital started offering them millions of dollars and agreeing to whatever terms whatsapp wanted which meant the investors wouldn't interfere with
the app or make them implement ads and whatsapp would get a big cash injection and herein lies the revenue strategy whatsapp used for a while get investments essentially they said rather than trying to get more money out of our users let's just invest in making our app the best it can be which will bring in more users which will then bring in more investors and the cycle repeated seriously that was their plan and it worked out great for everyone you see whatsapp is an app that benefits from the network effect meaning the more people who
have the app the better it is for all of the users as it means they can message more people so by not cashing in and plastering it with ads or lots of paid features whatsapp could grow much quicker because people would tell all their friends and family about the app and so the user count would keep rising and thus they kept attracting more investors giving whatsapp even more money to improve the user experience further of course there is one big problem with this strategy you can't rely on investors forever at some point they'll want to
see that the company actually has a profitable business model well unless of course you just sell the app for a huge payouts [Music] facebook has bought the mobile messaging service whatsapp for 19 billion dollars in cash in stock and at the time a lot of people were confused by this sale with many people baffled by the figure paid 19 billion dollars come on is it really worth it in fact there's data to suggest that in the prior nine months to facebook's acquisition whatsapp had generated just 1.2 million dollars in revenue and thus it was making
a huge loss so why would facebook be buying it for 19 billion dollars for context they bought instagram for 1 billion or for comparison that kind of money could fund about 20 mars missions or build 13 burj khalifas instead facebook bought a messaging app with very similar features to their own messaging app that had relatively low revenue and was quite probably making a loss every single year why facebook's next trick is to turn whatsapp into a real business the messaging service makes practically no money now but mark zuckerberg has plans to change that then there's
the strategic value in what we can do together and i actually just think that by itself it's worth more than 19 billion dollars i mean it's it's hard to exactly make that case today um because they have so little revenue compared to that number but i mean the reality is there are very few services that reach a billion people in the world they're all incredibly valuable much more valuable than that now hearing zuckerberg talk about the synergy between facebook and whatsapp rank alarm bells for many people after all facebook's whole business model is collecting your
data then using that to shove limitless personalized ads in your face at every opportunity pretty much everything whatsapp was meant to stand against plus facebook have a terrible track record when it comes to privacy such as the cambridge analytica scandal where millions of facebook users had their data taken and used against them without consent not just that but in a leaked private message from the very early days of facebook zuckerberg allegedly told a friend that if they ever needed info about anyone at harvard just ask as he has over 4 000 emails pictures and addresses
when the friend asked how zuckerberg said people just submitted it i don't know why they trust me [Music] since then facebook has gone on to have numerous other scandals involving privacy security and data which always end the same way and it was my mistake it sounds like we made a mistake there in retrospect it was a mistake we have made a lot of mistakes in running the company it was my mistake i apologize for that and i'm sorry and i'm sorry i'm really sorry that this happened and then after that everything just carries on as
normal however zuckerberg promised the whatsapp founders that they could continue to operate independently from facebook and that there'd be zero pressure to monetize so what could go wrong [Music] on a blog post in 2016 whatsapp announced they will no longer charge subscription fees meaning the one dollar fee that wasn't properly enforced anyway would be scrapped which on the surface sounds great maybe facebook really do just care about connecting the world and they're happy to make a huge loss on whatsapp and just not monetize it at all but if we step out of dreamland and come
back to reality the truth becomes a lot clearer about why facebook really bought whatsapp and how they're monetizing it firstly facebook was buying the users and their data as one source points out facebook is in the surveillance business and in fact maybe the biggest surveillance-based enterprise in the history of mankind the more data facebook has about users the more powerful it becomes and whatsapp provided behavioral data contact lists and endless more personal information some have argued that whatsapp was the missing link for facebook as the access to phone numbers now bridges the offline and online
worlds of facebook users plus whatsapp now has well over 1 billion users and still has a lot of growth opportunity in fact it leads the way in developing nations where facebook's own messaging service isn't as popular that was likely why facebook scrapped the one dollar fee for whatsapp users because getting new users into the facebook ecosystem is far more profitable for them than charging one dollar each your data is worth much more to them than one dollar a year because the more data points they have about you the more they can combine that with data
from other sources and build an even clearer profile of exactly who you are thus making it much easier to sell you things and so by removing the fees it removes any barriers for people to use the app and thus makes it easier to expand and eventually get the entire world using their services which all become connected however another reason for facebook's whatsapp purchase was simply to stop the competition zuckerberg had heard that the whatsapp founders had been invited to google's mountain view headquarters for talks and so he rushed to make them an offer they couldn't
refuse so that they didn't sell to a competitor facebook has a habit of doing this as a way to ensure they keep control of the attention facebook is a case study in my opinion in monopoly power because your company harvests and monetizes our data and then your company uses that data to spy on competitors and to copy acquire and kill rivals you've used facebook's power to threaten smaller competitors and to ensure that you always get your weight these tactics reinforce facebook's dominance which you then use in increasingly destructive ways so facebook's very model makes it
impossible for new companies to flourish separately and that harms our democracy so whilst we can't publicly see the revenue data of whatsapp it seems evident whatsapp is not making a profit right now in fact maybe never has but because it's now owned by facebook they're in no rush to monetize directly what matters to them is owning the users and data because as one source argued that means the tentacles of facebook are closer to reaching billions of people and with a market that size facebook is sure to find a way to eventually cash in but hold
on a minute you might be thinking are you not getting a bit carried away here zuckerberg specifically said whatsapp would stay independent and wouldn't be sharing information with facebook so there's nothing to worry about right right [Music] in 2017 whatsapp founder brian acton quit after a conflict with zuckerberg regarding whatsapp's monetization and plans to share whatsapp user data with facebook by leaving when he did he lost out on an estimated 850 million dollars in unvested stock options but clearly he couldn't be a part of what was happening for a second longer just a year later
brian began to get much more vocal about his facebook concerns he even tweeted it's time delete facebook he then poured 50 million dollars of his own money into starting signal a rival messaging app with very similar features to whatsapp but that was a non-profit foundation and prioritized security and privacy essentially he wanted to recreate whatsapp in the pure idealized form it started and if you zoom out for a moment you'll see what a crazy story arc that was for brian acton firstly he tries to get a job at facebook and gets rejected so he builds
his own app called whatsapp years later facebook buy it for 19 billion dollars and ask him to stay on as a facebook employee he then has a huge falling out with facebook and quits finally he uses some of the money from the whatsapp sale to start a brand new rival app to compete with facebook and whatsapp i am the the david going against the goliath that i created i want to build a delightful product that protects people's privacy now how exactly did it get to that point where brian was willing to walk away from an
extra 850 million dollars just to get away from what facebook were doing well things started to get rocky when in may 2017 the european commission fined facebook 110 million euros for misleading it during the takeover of whatsapp finding posts on on facebook of 110 million euros the fine is the highest fine we have ever imposed for procedural infringement in a merger case apparently facebook falsely claimed it was technically impossible to automatically combine user information from facebook and whatsapp however it was later revealed that not only was this possible whatsapp had actually been sharing user information
with facebook for years already this included sharing phone number data from whatsapp so it could be targeted by facebook ads brian has said he later found out that pretty much right from the beginning facebook had always planned to match people's whatsapp numbers to their facebook or messenger accounts so they could collect more data about them to show them more personalized adverts a little while later the other whatsapp founder yan coomb also quits after it became clear that facebook executives wanted to weaken whatsapp's encryption to make monetizing it easier but perhaps what's most troubling of all
is some people believe the whatsapp encryption is already not as secure as it's made out to be now facebook according to all these articles is looking at putting an on device ai algorithm in to whatsapp to scan and moderate content for the entire platform if this is implemented and we're going to get to that because i think it's already there the app itself would automatically scan messages prior to them being encrypted and sent something that they are basically saying is encrypted and secure and it's not do not assume that whatsapp is secure they hear the
word encryption and then assume that it is safe this is an amazing ploy of disinformation in recent years brian acton has gone on to say i sold my user's privacy i made a choice and a compromise and i live with that every day and he's certainly not the only former facebook employee to have spoken out against what the company is doing former head of growth chamath once said we've created tools that are ripping apart the social fabric of how society works in hindsight facebook acquiring whatsapp was inevitably going to cause a clash facebook is one
of the world's biggest advertising networks and the whatsapp founders hated ads facebook's business is built around how much it knows about its users and the whatsapp founders were pro privacy activists and so it could be argued that deep down the whatsapp founders must have known things were only gonna end one way once they sold to facebook but put yourself in their shoes you're being offered 19 billion dollars for an app that isn't even profitable would you really turn it down [Music] let's again return to the original question how does whatsapp make money we now know
that in the early days they did this with the one dollar fee then their business model became getting money from investors and eventually getting a big payout from facebook but now that facebook owned the app how are they making money from it right now is it just from collecting our data sharing it with facebook and its affiliated businesses and then selling us things well no one other new way they're looking to monetize whatsapp is with whatsapp business a service that helps businesses connect with customers and provide customer support several big tech companies like netflix and
uber have already started trialling the service whatsapp makes money if businesses don't reply to customers within 24 hours thus essentially charging them for late replies and whilst this sounds kind of promising i'm willing to bet you probably haven't ever used this service and so i think it's reasonable to assume this alone is not going to make whatsapp profitable anytime soon unfortunately now that the one dollar fee has gone all those things whatsapp originally tried to avoid now look much more likely a spokesperson for whatsapp has already confirmed they plan to further monetize the app by
introducing ads in the status section someone should probably tell them to remove the why we don't sell ads post from the whatsapp blog first but the truth is that whilst we may see more monetization happening directly within whatsapp the biggest value of whatsapp to facebook will always be the data and deeper integration between whatsapp facebook instagram and so on in early 2021 concerns about this caused whatsapp a lot of negative headlines essentially because of apple's new disclosure requirements whatsapp had to inform users about which of their data points may be shared with businesses and the
third parties they use for whatsapp this included things like phone number profile pictures name status login activity contact list purchases financial information information about your phone mobile company ip address location and so on whatsapp initially forced users to accept this by february 8th or were told they could no longer use the app ever again if you rather not agree you'll at first be able to hit the back arrow in the upper left corner of the overlay over time though the pop-ups will appear more frequently eventually you won't be able to click away at all and
the app's functionality will start to degrade but when they received complaints they postponed this until may 15th they didn't change anything just postpone the date you had to accept by to try and let the backlash die down what's arguably worse though is that this update wasn't even a change to their privacy policy apparently it was just clarification of what whatsapp had already been doing for years but because of new rules they had to publicly announce it now which may leave you wondering if there really are all these privacy concerns then why do people still trust
whatsapp when this question was asked on reddit the answer was simple they don't but most people just don't care that much about privacy of course the people on our privacy do which is why when asked about trusting whatsapp all the top comments are no no way i don't trust them one popular post even listed specific reasons to not use whatsapp again mainly related to data sharing with facebook but again the network effect is at play here it's difficult for other apps to fully compete because even if you wanted to switch to something like signal there's
no point unless all your friends and family are using it as well as one person summarized by the time whatsapp was acquired by facebook practically everyone in my circle was using it for everything even work stuff it's so deeply embedded into people's lives that you essentially have to pick between keeping your privacy or keeping in touch with the people around you and yet despite all of that it's now time for a pretty major plot twist before we get to the final chapter of the whatsapp story time for a brief intermission if you check out the
description of this video i've included a link to a vpn and if you care about privacy online i highly recommend you get one so you can keep your data more private and so your internet provider can't track everything you're doing you'll also find links below to a lot of other useful resources like my youtube business course that teaches how you can get paid to create content like this yourself so that way you can earn an income from researching topics you find genuinely interesting the course covers everything from content creation to growing your channel to monetizing
it and scaling it including how to build a team so you can eventually create a more automated income from youtube i'm really proud of it so if you're interested in building a youtube channel or business of your own pause the video now and check out the description then let's get back to our story [Music] it may be tempting to see this video as an attack on whatsapp and facebook but that is honestly not the case the truth is that this kind of data collection is not some conspiracy it's a fairly standard practice that many many
companies do whilst facebook are particularly notorious for it it's hypocritical of me to preach about privacy when this video was funded by advertisements and honestly i don't actually think companies collecting data to show you more targeted ads is inherently bad if they're transparent about it because if companies like google didn't do that then free youtube content like this probably wouldn't be possible if companies like facebook didn't do that then free access to social media platforms probably wouldn't be possible the reality is that whatsapp is a great service and is genuinely helping to connect the world
this video has had a dark tone and if you really are worried about privacy and full transparency and the ever-growing power of facebook well then you'll feel this dark video tone was appropriate but many people may instead think this video is over dramatic because most businesses and apps collect share and often sell your data your local store's loyalty card tracks what you're buying and when cookies track every website page you visit in comparison the data whatsapp collects perhaps isn't even that bad what's really interesting here though is that most of us myself included have decided
we're willing to give away so much information about ourselves in exchange for something free we have to think really carefully about what it is that we're giving up when we're surrendering our privacy by agreeing that anyone who has the technical capacity to can track whatever you do on the internet combine that with any other data sources that they can acquire about you and let's be clear as far as we know what's happened not reading your actual messages once there are security concerns about that officially there is no evidence your messages can be or are being
scanned so after watching all of this should you remove whatsapp well it depends quite a few people have been switching to different messaging apps instead but it's worth being cautious here for example telegram has seen a big spike in new users and yet it arguably offers even less security than whatsapp since messages aren't end-to-end encrypted by default like whatsapp is in fact the two apps recently had a bit of a social media argument where neither came out particularly well so if you're truly worried about security and privacy and facebook having all this information on you
brian acton's new app signal seems to be considered one of the best alternatives out there because it's non-profit and has the backing of a now billionaire they're unlikely to have the same monetization pressures most commercial chat apps have it's even used by edward snowden and endorsed by elon musk crucially signal is also open source unlike many other chat apps where you can never be sure exactly how it operates we're not here to destroy whatsapp tomorrow we're here to help people understand that there's alternatives and that if you're if your privacy matters to you and it's
important to you that you should seek alternatives however if you're already using facebook instagram a messenger and you understand how facebook operates then continuing to use whatsapp probably makes more sense especially if all your friends and family use it it's simply very convenient and for many people that's a trade-off worth making if really all facebook is doing with that data is giving you more tailored adverts then maybe that's not so bad ultimately it's your choice but i think in general with all apps and websites being slightly more aware of what data you're sharing and how
it's used is important especially as more and more elements of our life become connected by technology because whilst there's nothing inherently wrong with that i will end this video with the same message that started it if you are not paying for the product you are the products [Music] [Music] now for some good news this channel has lots more movies and documentaries just like this one that you can watch totally free so just click here to start the next episode i think you're really gonna like this one i'll see you there cheers
