WhatsApp – the gold mine of private data?

Authors : Seongjin Bien, Zahabiya Malubhoy, Viktoria Langwallner, Teresa Doering

whatsappfacebook

What is the most essential app for our smartphones that we cannot live without? When we ask this question, many will answer “WhatsApp”.

Founded in 2009 by two former Yahoo employees Jan Koum and Brian Acton, this popular messenger initially started out as a platform to simply view statuses against a contact’s name. When Apple launched push notifications on the iPhone, Koum updated WhatsApp such that every time there was a status change, it would ping everyone on the network. This turned the app into an instant messenger, allowing people to reach others halfway across the world on a device that was constantly by their side.

WhatsApp was first launched in the App Store, with iPhone users having to pay a first time installation fee, and Android users a yearly fee. In the first month that it hit the market, WhatsApp had 250 million users, unprecedented for a smartphone app. Although it generated a meagre revenue of only about 200 million dollars, WhatsApp’s potential attracted the attention of social media giant Facebook. In 2014, Mark Zuckerberg purchased WhatsApp for a staggering sum of 19 billion dollars. Moreover, in February 2016 WhatsApp announced it will no longer charge the annual subscription fee of $1 which had been introduced in 2013.

So the question arose: how does a service with one billion users and 42 billion messages daily offered for free make profit? Offering the app and maintaining it does cost money. The initial cost in this case would be the costs needed for the founding of the company and the acquisition of physical hardware such as objects for the employees’ offices and servers. As the fixed cost, there are the salaries for the company’s 55 employees who manage more than a billion users. On top, access to the internet and maintaining servers and utilities have to be paid on a recurring basis.

More importantly (and perplexingly) why would any company, especially one as typically business oriented as Facebook, put so much money into a non-profit enterprise? Despite being a commercial business, WhatsApp is famous for not charging its users any money whatsoever. What does this imply? For being provided with the app for free, one pays the company with something much more valuable than money: data.Because if it’s for “free”, you are the product.

WhatsApp is cost-driven: the focus is heavily on creating the lowest price for the customer as possible (in this case, even offering it for free) focusing on the quality and the value of the product rather than the price. More than 42 billion messages are transferred via WhatsApp on a daily basis, and 100 million voice calls are placed. Additionally, users can share text files, images, videos (with an upper data limit of 20 MB) and their location, all in real time, and free of charge, except any data charges may apply.

In its early years, the popularity of WhatsApp was owing to its promise to never share user data with other companies for profit, commitment to having no advertisements and simplicity. WhatsApp has demonstrated extraordinary growth in its user base probably unparalleled in history.whatsapp-growth

The service WhatsApp offers is neither novel nor revolutionary. However, unlike all other messenger apps, WhatsApp provides the users with what they really want, without any other features that do not contribute towards that function. Even today, the WhatsApp’s team is dedicated providing a clutter-free application, excluding all features that could hinder this simple communication. This continued support and upgrades to the application play a huge role in both retaining and recruiting new users for the app. Owing to its utter simplicity, WhatsApp generates new users everyday by the “networking effect” – the more people use this app, the more valuable it gets to each user, because it becomes a more and more indispensable tool in communication.

Multiplied with the hundreds of millions of users using WhatsApp in 2015, charging $1 annually would have generated a considerable surplus. But money was not what Facebook had in mind for WhatsApp.

In early 2016, the leadership of the company decided against it in order not to lose customers not able to use a credit card, especially teenagers. By purchasing WhatsApp, not only can Facebook use the contacts every user has on his or her phone in order to attract new customers, it can also use data created within WhatsApp conversations, voice calls, pictures or statūs.This access to new contacts makes the need for excessive marketing (from Facebook’s end) unnecessary as WhatsApp never had to advertise itself on a large scale but could rely on  the ‘word of mouth marketing strategy’ – successfully.

The data acquired via Whatsapp can be used for market analysis and research and thus sold to third-party companies. These companies are therefore capable of providing an improved customer service – although this happens behind closed doors and is not publicly viewable. And since WhatsApp creates a huge amount of personal data due to the large customer base, companies evaluating this data can expect a very diverse and representative customer platform. The money which has been generated like this is called Brokerage Fees. However, it also raised criticism concerning issues such as privacy and security of personal data.

However, in addition to its impressive number, there are some noticeable characteristics about the users.personals-whatsapp

Looking at the graph, it becomes immediately clear why WhatsApp was valued much higher than initial estimates by Facebook — by obtaining WhatsApp and getting access to its user base’s information, Facebook is able to access data of users that do not use its main service. WhatsApp users generally prefer to have a direct contact with the people they want to keep in touch with, and they tend to be more aware of privacy-related issues on the Internet. WhatsApp’s past reputation with its guarantee of user privacy and implementation of end-to-end encryption therefore makes it a very attractive application for communication for such people. All this points to them generally avoiding other social networking services such as Facebook who have been embroiled in user privacy-related scandals.smartphone-activities-chart

WhatsApp users are generally more active in other mobile activities as well compared to nonusers. With this information, companies can better target the advertisements even to people who are not frequent SNS users.

Another important statistic is that more than half of WhatsApp’s user base is under 36 years of age, a group comprising about 500 million people. This is a critical demographic for brands and advertising firms, as the data gathered from the group can provide better predictions towards market trends and how to best optimize their products for both present and future, when the now-young people’s buying power becomes bigger and bigger as their income generally increases with age.whatsapp-age

As 500 million people are more than enough to represent their own demographics, WhatsApp’s data gathered from them has tremendous value in this regard.

But how could the terabytes of data, almost entirely in text, be used for such purposes? There already exist software and algorithms used by other technological giants such as Facebook and Twitter that are able to efficiently go through huge volumes of text-based data to extract valuable information that can be used for profit. Applying similar techniques to WhatsApp generated data can yield potentially invaluable information about people’s innermost habits, prevailing trends in preferences and attitude towards different products and services that is unlikely to be obtained by data mining publicly shared information from Twitter and Facebook.

In conclusion, while WhatsApp itself does not use its users’ data to provide a better service to the customers, the data from more than a billion users stored in its servers has tremendous value to many different companies around the world. With rapidly improving data mining methods for texts, the impact and value of data WhatsApp gathers will continue to increase, exposing the users’ most private habits and characteristics for analysis. Certainly, it may be the case that the information will allow products and services to be better tailored for its users, yet whether it will be the only way the data will be used, only time will tell.

SWOT Analysis

Strength
  1. High awareness and huge customer base
  2. Increasing user base due to network effect
  3. High brand equity (also due to Facebook)
  4. Advertisement and clutter-free
  5. Loyal customers with over 1 billion monthly active users
  6. Available for free for all platforms
  7. Continuous updates to the app
  8. Extremely strong application durability (almost bug-free)
  9. End-to-end encryption
  10. Available in all platforms (Android, Windows, iOS, OSX), Linux
Weakness
  1. Decrease in customer trust due to data sharing with Facebook and fear of privacy breach
  2. Only 18 developers (slower update development and implementation)
  3. Limited features compared to certain competitors (LINE, KakaoTalk, etc.)
  4. Can only be used if the user has a compatible smartphone
Opportunities
  1. Increasing Internet usage especially in developing countries
  2. Increasing smartphone users
Threats
  1. Intense competitions from many similar apps
  2. Substitutes are available

References:

1. @. (2016). The $19 billion question: Who uses WhatsApp and why are they so important to Facebook? – Marketing Forward Blog. Retrieved November 20, 2016, from http://www.experian.com/blogs/marketing-forward/2014/02/21/the-19-billion-question-who-uses-WhatsApp-and-why-are-they-so-important-to-facebook/
2. @. (2014). Analysis of Facebook’s Acquisition of Whatsapp. Retrieved November 23, 2016, from http://www.edupristine.com/blog/facebook-acquisition-WhatsApp

 

3.  Page, V. (2015). How WhatsApp Makes Money. Retrieved November 18, 2016, from http://www.investopedia.com/articles/personal-finance/040915/how-whatsapp-makes-money.asp

4.  50 Amazing WhatsApp Statistics. (2016). Retrieved November 15, 2016, from http://expandedramblings.com/index.php/whatsapp-statistics/

5.  Morris, I. (n.d.). WhatsApp May Have The Perfect Way To Make Money. Retrieved from http://www.forbes.com/sites/ianmorris/2016/01/27/whatsapp-may-have-the-perfect-way-to-make-money/#337c52ff4f12
6. Finlay, S. (2014). Predictive analytics, data mining and big data: Myths, misconceptions and methods. Basingstoke, Hampshire: Palgrave Macmillan.
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One thought on “WhatsApp – the gold mine of private data?

  1. Thinking back to an event short time before the start of this semester phone numbers from Whatsapp were given to Facebook to optimize the advertisement in the latter stated-social media. The powerful database of Whatsapp could therefore potentially transfer any personal information to its parent company Facebook.

    WhatsApp said: “We won’t post or share your WhatsApp number with others, including on Facebook, and we still won’t sell, share, or give your phone number to advertisers.”

    However when checking the newly introduced private policies the following statement appeared:
    “messages you may receive containing marketing could include an offer for something that might interest you”.

    This indicated that despite the promise of not sharing any phone number related information, the offered advertisements on Facebook could be more personalized meaning that privacy data was taken from the WhatsApp database.
    As a new feature for the update, an end-to-end encryption which is supposed to prevent anyone else from reading one´s messages was added. But, it was already impossible before to prove whether anyone is reading these messages, thus with an encryption the option to prove this is still not given. Consequently, is leaves the new feature in doubt.
    https://www.theguardian.com/technology/2016/aug/25/whatsapp-to-give-users-phone-number-facebook-for-targeted-ads

    Anyway, I enjoyed reading your case study and listening to your presentation. Reasonably, the might of the WhatsApp database and its economic value are huge and for many it is hard to imagine how much their own data in form of text messages or pictures is actually worth.

    Liked by 1 person

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