Two People Texting
The telco operators charge up to $.25 for a text message. The cost to the operators is a few cents at most. That huge profit margin is going to decrease. WhatsApp handles 50 billions text messages every day, which is believed to be more than all the telcos in the world handle. The first year of WhatsApp unlimited use is free; then you pay $.99 per year. That is cents, not dollars. If you have access to WiFi, your incremental cost for messages is zero because WhatsApp uses the Internet directly and bypasses the operators other than for the basic Internet connectivity.
People increasingly, myself included, use text messaging as an alternative to email. If you want to send a document or lengthy message, email is superior, but for a lot of personal and even basic business communications, texting is just fine. The excellent voice recognition on today’s smartphones makes text messaging work like walkie-talkies. WhatsApp makes texting really easy, and they do not save a copy of your messages. They deliver it for you and consider that end-of-job. This privacy approach is very appealing to their 450 million users.
I have been using Apple’s Messages app for a long time, and I like it because I can text from my phone, iPad,, laptop or desktop and iCloud keeps all the messages in sync. The only problem with this messaging approach is that it only works between people with Apple devices. WhatsApp, acquired today by Facebook for $19 billion, has a very slick text messaging app that works on virtually any platform. This is a big advantage, even over the otherwise wonderful Apple ecosystem.
Was WhatsApp worth $19 billion? Facebook thought so, and I have to agree. On the surface the price tag sounds unreal. However, there are scenarios that would make it seem like a bargain. If the current user base is 450 million as claimed, the potential growth is large. Texting outside of the U.S. has always been more popular because it works on “dumb” phones and does not require an expensive data plan from telco operators. The are 7 billion people in the world. Suppose 3 billion adopt WhatsApp. Further suppose the 99 cents per year goes to $5 — still basically free. Three billion times 5 is $15 billion in revenue. Even at $1.99 per year, yields six billion — a three-year payback. How would the developing world’s population pay for WhatsApp? Credit cards? Nope. Bitcoin is a natural.

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