Last year, messaging app WhatsApp generated just $US20 million in revenue.
So why did Facebook just buy it for $US19 billion?
One reason: Facebook is very aware of the success Chinese company Tencent has had developing its own messaging app, WeChat (微信 in Chinese).
Barclays analysts say WeChat will profit Tencent more than $US1.1 billion this year.
WeChat, with 270 million active users, isn’t as big as Whatsapp, which has 450 million. But WeChat is a far more developed commercial service.
For example, check out this vending machine I saw in China. At first, it looked like any vending machine:
But then I looked at how the machine takes money. Instead of feeding it cash, the snack buyer opens WeChat on their phone, and points their smartphone camera at a QR code. The app then reads the QR code, and charges the WeChat user for the snack. The snack comes out.
WeChat payments are accepted in locations all over China.
That’s not the only way WeChat makes money.
According to the Economist, Tencent will make 85% of that $US1.1 billion selling its users virtual goods — mostly online stickers and new avatars. But WeChat also offers users wealth management services, banking, and e-commerce.
Tencent also uses WeChat to distribute its media brands. When I was in China, the editor of Tencent’s tech news publication told me that a year ago, his outlet was read almost only by desktop readers. Then WeChat featured his publication’s app. Now that half that publication’s traffic is mobile.
The reason WeChat is so successful is that it is an integral part of modern Chinese life.
Hugo Barra, who quit his job at Google to go work and live in China, says he runs his entire social life through an app called WeChat. He uses it instead of the phone, email, or text messaging.
I saw this first hand when I visited China last Fall.
When you meet someone over there that you may or may not want to keep in touch with, you go through a formal exchange of business cards.
When you meet someone you must keep in touch with, you open your WeChat app on your smartphone and present it to your new acquaintance so he or she can scan your personal QR code. Only then are you really connected.
Whatsapp isn’t likely to clone all of the services and products WeChat provids. Whatsapp cofounder Brian Acton famously had a sign next to his desk that read: “No Ads! No Games! No Gimmicks!”
Payments, however, seem like a logical integration. So does banking in general. Both of those services would actually be helpful to Whatsapp users.
One of Whatsapp’s most common use cases is for people who want to communicate across borders. Cross-border money transferring is a huge, old market waiting to be disrupted.