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Why WhatsApp’s new subscription model makes perfect sense

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Popular messaging and communication service WhatsApp on Wednesday converted its old, one-time payment model on the iPhone(s aapl) to a $0.99-per-year subscription model consistent with its policy on Android. Users will have to toss in an extra dollar every year after the first year they choose to use the app — and it’s a wise maneuver for the company.

The app has an enormous user base: In April, WhatsApp CEO Jan Koum boasted that the company has more than 200 million active users of the service every month. The reason for its runaway popularity lies in its ability to facilitate messages without SMS — instead ferrying communications over data connections and Wi-Fi.

Users take advantage of WhatsApp to text their friends in other countries without paying the exorbitant international texting costs that come with traditional communications. The app is popular in Europe, Latin America and Asia. Installing such a low-cost yearly plan makes it a no-brainer for those who participate in the some-odd 8 billion inbound and 12 million outbound messages that filter through the app every day because it’s still so cheap compared to premium text or roaming charges. WhatsApp, in turn, gets a steady stream of new revenue.

A subscription model could be WhatsApp’s key to netting new customers because it gives them a free taste of the power of the app. The free download may push more people who are considering it to try it, and then the app’s addictive qualities may well push users to pony up the the small subscription fee in year two.

Carriers now may have even more reason to be scared of the app.

13 Responses to “Why WhatsApp’s new subscription model makes perfect sense”

  1. It has killed pretty much everything else like google hangouts, yahoo messenger, facebook messenger and especially blackberry messenger among non-corporate clients. Its a killer app and saves tremendous amount of cost for people who want to share stuff across th border.. Its awesome…

  2. astroboy_888

    I am in the camp that believe Whatsapp will quickly lose popularity going to a subscription model. Free messaging at this point is a value-added service. And does not deserve a premium. There is really nothing else additionally to deserve a premium on the messaging itself.

    I expect active users base to drop dramatically when the new subscription model goes into effect. Maybe to ~10-20 million range. There are too many great free messaging apps out there that can easily absorb the users flocking to alternatives.

    Alternative LINE, another multi-platform messaging app, is free and has a better QoS (quality of service) in terms of messaging response time and ease of connection. It also has free voice calls which works great even internationally (voice quality much better than Skype even over 3G in my opinion). It makes its money by users downloading custom theme, stickers, and games – which is a proven and profitable business model to allow the core service messaging and voice to remain free indefinitely. LINE has reached 150M world wide and should surpass 200M by end of year.

    WeChat with the same business model as LINE has nearly 400M users, but it is mostly China based.

  3. CGuzman

    WeChat does all that and more, than WhatsApp, and is totally free on both platforms – As far as I am concerned WhatsApp is on the way out – and they are accelerating their own demise by going to the subscription model – I and many people I know will not pay for a service like WhatsApp which we have used for free for the last two years. Further more WhatsApp has had many delays in the delivery of messages sometimes taking hours to come through (I am mostly on my WiFi network – 200 Mbps symmetrical). No such problems with WeChat and I have the option to use live talk radio and video!!

  4. Amos Moledi

    “Carriers now may have even more reason to be scared of the app.”

    Rubbish. I have never met anyone who bought whatsapp on the android platform. Only iPhone users purchased it because they had not choice. After a year of using whatsapp, android users download it again for FREE. This model will not make and difference. In fact I will rather cancel my subscription I I have to pay for it every year while other users download it for free.

  5. WhatsApp has reached a large majority of iOS users in the world already. The freemium model does support additional users on the platform, but its an obvious move towards an IPO (the only option left after declining various potential acquisitions by the likes of Google and so forth).

    With 200+ million MAU’s and a strong market penetration in most countries in the world (the US and China as the only exceptions) for the past few years, they now can make/forecast a larger revenue per user and thus support its upcoming big move.

    • Lauren Hockenson

      As someone who has had both on their phone and communicated with people across the world with it, WhatsApp has a much better overall interface vs. Skype. That, and it facilitates asynchronous communication much better — Skype can be a bugger when its left on all the time, and doesn’t push notifications as handily.

      • Lauren,

        Storageous makes a good point. If Skype finally got around to rethinking and redesigning its UI, why would anybody need or use WhatsApp?

        This is not me going negative on WhatsApp as this question hangs on every one of their contemporary OTT messaging services. Skype brings a user base with no equal and you can rest assure that they wont try to squeeze fees out of you as they already figured out their monetization strategy and it works pretty well.

        • Are you a Whatsapp user? I had the same doubts about them (why use it when you have Skype or Facebook) until I installed the application and started using it. What differentiates is the ease of use AND the ease of connecting to your real social circle., those you contact in real life, i.e. your phonebook!

          Since joining I’ve never looked back. Well, its usefulness depends on how many users you have in your phonebook. But I was surprised to see many of my contacts on Whatsapp and growing.

    • Yuvamani

      Skype does not even compare to whatsapp in terms of being an SMS/text replacement app. Specifically you need to know skype name of a user to skype him (info which is not available in your google or facebook contacts) .. Also I usually end up using skype with my close family and business and rarely with friends

      Whatsapp increasingly directly competes with Facebook Messenger and Google Hangouts (and other messaging startups but thats different) Thats the real worry. Those companies have huge user bases where all your contacts are going to be on their platform. Also facebook and google contact integration is now common on all smart phones.

      As of now whatsapp is still winning. But these incumbents are the ones which pose the biggest threat.