WhatsApp's Billion-Dollar Lean Machine
How flipping the playbook enabled the messaging platform to scale to half the world
The state of mobile messaging in the early 2000s was bleak. Early internet companies like Yahoo and MSN popularized instant messaging with cool extras like in-chat games and live viewership. But even with the rise of mobile devices, messaging options were limited and lacked innovation.
Motorola was a pioneer in the cell phone world with the launch of the DynaTAC 8000X. This bulky phone cost a whopping $4,000 and took almost 10 hours to charge, offering just 30 minutes of talk time. Fast-forward nearly two decades, and mobile device usage had exploded, driven by features like full keyboards, internet access via WAP, and the transition to 3G networks that made connectivity faster and more affordable.
By the early 2000s, the adoption of flip phones peaked, solidifying a mobile-first world. However, messaging technology struggled to keep pace with hardware advancements. SMS, launched in the 90s, was clunky and expensive - costing up to 20 cents per message in 2008. As a result, SMS usage was low, with the average user sending only 35 texts a month at the turn of the century.
SMS had its limitations: messages were capped at 160 characters, leading to abbreviations like "LOL," "TTYL," and "BTW." Issues like unreliable delivery and out-of-order message threads were common frustrations.
Building WhatsApp
Hidden within this mobile boom was Yan Koum, a young engineer who had recently left a 9-year stint at Yahoo. After taking some time off to travel, Koum found himself messing with the newest development in the mobile phone space: the 1st generation iPhone. XCode 3.1 brought SDKs for iPhone, allowing developers to build and publish applications on the iOS AppStore.
So, Koum decided to download XCode and play around with what it had to offer. The possibilities were crazy - the iPhone had a full TCP/IP capability, full internet and networking capabilities, and access to selected Apple APIs that allowed developers to tap into parts of the end user’s experience.
These networking capabilities are what propelled the launch of WhatsApp v1.0. When Koum was away taking time off to travel, he struggled to communicate his status to people in his contact book. PC-native instant messaging platforms still prevailed, meaning it was almost impossible to communicate with people if you were away from a computer.
Enter WhatsApp, a status app to help users communicate whether they are busy, away from their computers, traveling, or more. Despite signs of organic growth, this first version ended up being a failure.
Finding The Value Prop
The focus in business is generally fortifying revenue streams and figuring out new ways to monetize the product. Cost is simply a by-product or even something justified to drive future growth. But what if it couldn’t be that way?
The business of messaging platforms is tough because you’ve got to maintain a highly performant platform with little promise of money or monetization. People already pay for their phone plan - what’s your platform providing that iMessage or SMS doesn’t already do? Some platforms argue for privacy, some cater to professional or academic use, and others are industry-specific. Bottom line, catering to a niche seems to be an acceptable justification for charging a fee.
WhatsApp wasn’t substantially unique or different. Instant messaging platforms, SMS, and even copycats popped up along the way to try to take their own piece of the pie. Furthermore, WhatsApp’s adherence to user privacy and ad-free principles was strong. Even when Koum sold the company to Facebook for $19.3 billion, he made the Zuck swear to never mess with user privacy or run ads. His strong adherence to these values eventually even led to him leaving the company in 2018.
The app’s revenue model in 2012 was simple but flimsy: 1 dollar to use the app and 1 dollar every year to keep your subscription. However, it sufficed! At the time Koum sold the company, the platform was already pulling in $700 million a year, far exceeding expectations. Growth exceeded rival platforms, as the user count far exceeded 450 million well into Year 4.
Regardless, a flimsy long-term revenue model meant viewing the business the other way around: optimizing cost rather than focusing on revenue drivers. Fun fact, WhatsApp maintained a mind-boggling $7 million average revenue per employee due to a lean team of only 35 engineers. This meant simplifying the stack and focusing on what was needed - a minimalistic approach to problem-solving.
“Do one thing, and do it well”
Koum has frequently been quoted for his emphasis on focus, and this was especially true for WhatsApp. Because of WhatsApp’s long-term funding restrictions, the engineering effort had to be laser-focused towards a single pillar. Given the core of WhatsApp is message-based communication, this had to be messaging. An emphasis on minimalism even carried down to their tech stack. Choices of Erlang, FreeBSD, and XMPP helped simplify what their engineers were working with while also being able to handle throughput and scale.
Erlang specifically is a great choice for a messaging platform. Erlang was suited to juggle communications between a huge number of users and was very malleable with deploying new code on the fly. Additionally, the language was built to handle concurrency which was especially useful in real-time messaging platforms.
FreeBSD was the OS of choice for WhatsApp’s servers due to its cost-efficiency and open-source stability. Koum and Acton became familiar with it during their time at Yahoo and observed it in use at other tech companies such as Dell, Netflix, Juniper Networks, and more. XMPP was a natural choice as the messaging protocol standard and due to its ability to offer almost near-real-time exchange of data.
WhatsApp Today
Since Facebook acquired WhatsApp in 2014, the platform has grown to over 2 billion active users, driven by major markets like India, Brazil, and Indonesia. India alone has over 500 million users.
Source: Rasayel Blog
While WhatsApp's original simplicity remains, it has relaxed a bit, thanks to financial support from Meta and revenue from WhatsApp Business. The company now employs nearly 3,000 people and brought in over $1.27 billion in revenue in 2023.
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