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The WhatsApp story

WhatsApp was founded in 2009 by two former Yahoo! employees, Jan Koum and Brian Acton. It started off as an app enabling users to update their status but reached new heights once it introduced its “killer” feature: the ability to send instant text over the internet. This allowed for cheap, instant, global communication, something that simply wasn’t possible using traditional SMS infrastructure. This feature, combined with Apple’s recently introduced push notifications, led to exponential growth that left the founders baffled and the VCs salivating.

In order to truly comprehend the WhatsApp story, it is important to understand the values on which it was built. As a child, Jan Koum moved to the US, fleeing Ukraine which was then part of the USSR. His experience with the communist regime and the suffocating surveillance imposed by the comrades in charge led him to place privacy and end-to-end encryption into WhatsApp’s core.

“I grew up in a society where everything you did was eavesdropped on, recorded, snitched on. Nobody should have the right to eavesdrop, or you become a totalitarian state—the kind of state I escaped as a kid.” - Jan Koum for Leaders

Another element that sets WhatsApp apart from many of its Silicon Valley contemporaries is the founders’ disdain and reluctance towards using advertising as a monetization model. One of WhatsApp’s earliest mottos was “no ads, no games, no gimmicks”.

In order to circumvent that self-imposed restriction, the founders experimented with a few business models including a weakly enforced $1 annual fee, which applied in different ways to different users around the world. All in all, however, WhatsApp chose to survive the Silicon Valley way: continue raising to fund its expansion, while pushing back the issue of “revenue” to a later date.

WhatsApp became especially popular in emerging markets, where users benefitted from the simple and lightweight product which for many people was the first digital product they actually used. In 2014, WhatsApp had over 450 million monthly users, with an average growth of 1 million users a day. Its financials for the first half of that same year were not as impressive, with the company incurring a hefty $232.5 million net loss during the period. Nevertheless, the user base’s outlandish growth, and the fact that WhatsApp was essentially bringing new swaths of the population onto the internet for the first time, was enough to convince a company that prides itself on “connecting the world” to get in on the action.

In 2014, Facebook (now META) acquired WhatsApp for $19 billion, leaving many analysts puzzled at the price tag for a business making $2.6 million in monthly revenue at the time of the acquisition. Both WhatsApp founders initially joined Facebook as part of the deal, but things didn’t end well. Brian Acton left the company and even participated in the #deletefacebook movement over disagreements about user privacy. He would then go on to found Signal, a non-profit which is trying to build a pure, totally encrypted, and ad-free version of WhatsApp. Jan Koum on the other hand would also end up leaving Facebook a couple of years later over similar concerns.

The reasons startups are building on WhatsApp

As of 2021, WhatsApp has over 2 billion active users. It is important to note that while WhatsApp is still not that popular in the US, it is quite literally ubiquitous in other markets such as Africa, India, and LATAM. To put that claim into numbers, Statista reports that WhatsApp enjoys a 98.9% messaging app market share in Brazil and 97.1% in India. If you’re like me (born and educated in the West), you probably started using WhatsApp when you made some international student friends at university, and have never stopped using it since.

Therefore, the trend of startups building on WhatsApp is most prominent in emerging markets rather than the USA or Europe. But what do I mean by “building startups on WhatsApp?”

The main use cases I am referring to are:

• Startups using WhatsApp as the main distribution channel for their product

• Startups building a product that fully integrates with WhatsApp, such as a WhatsApp chatbot capable of performing different actions

• Startups enabling their users to build their own e-commerce presence directly on WhatsApp

Building on WhatsApp also comes with a multitude of advantages.

For starters, it ensures that the learning curve for using one’s product is minimal. Indeed, even digitally-unsavvy people in emerging markets have and know how to use WhatsApp. Building directly on top of it enables founders to distribute their product and onboard new users faster, without having to teach their new users how to use the product.

Second, the ubiquity of WhatsApp, with its 2 billion users worldwide, provides founders with a highly engaged, immense target market. The fact that WhatsApp users interact with the app multiple times a day also ensures that a startup’s product will be omnipresent in their users’ “digital time”.

Lastly, WhatsApp’s extremely simple UI and absence of complex features make it easy for founders to make their products visible. No ads, no feed, and a grand total of 5 pages make for an undistracted user experience. In other words: once their target user starts using their product (whether it’s a chatbot, a group, or an “extension”), the founder can be assured that their product will be visible in the user’s WhatsApp interface.

“Today, we see products that live solely on top of other apps, like WhatsApp or Shopify. As more and more layers of infrastructure are built, entrepreneurs can focus on their core offering, and reach the market faster.” - Antler

WhatsApp for Business vs WhatsApp API

The WhatsApp team has understood that enabling businesses to build upon it was not only a smart business idea, but maybe the occasion to finally make some decent revenue. The company launched two distinct products with that goal in mind:

WhatsApp for Business

Aimed at SMEs, this free app enables business owners to set up their store’s digital presence through a separate WhatsApp number. This is practical for business owners, who can set up a direct and personalized line of communication with their customers, without needing to make them download yet another app.

“Launched in 2018, the WhatsApp Business App is aimed at smaller businesses that want to establish an official presence on WhatsApp’s service and connect with customers. It provides a set of features that wouldn’t be available to users of the free WhatsApp messaging app, like support automated quick replies, greeting messages, FAQs, away messaging, statistics and more.” - TechCrunch

WhatsApp API

Aimed at enterprise use cases, the WhatsApp Business API was built for larger companies managing a larger customer base. The whole point of the API is to integrate it into existing tools the company might already use, such as its CRM. Additionally, the API ushers in more complex features such as automated sequences, multiple users, and more importantly the ability to integrate with other SaaS products. For example, a company such as WATI is building a dashboard enabling companies using the WhatsApp API to visualize, manage and operate the large set of opportunities the API offers. WhatsApp charges a tiny fee on each interaction between a business and a customer, which obviously adds up given the sheer scale of the API’s utilization.

“WhatsApp Business API effectively solved all the WhatsApp for Business issues by releasing features such as bulk messaging, integrations, and multiple logins. Further, it brings in quite a few automation features that can be integrated with CRM tools or business platforms.” - Ameyo

Case study: Truora

The WhatsApp for Business and WhatsApp API laid the ground for startups to build full-fledged products on top of the app’s infrastructure. Let’s deep-dive into one of those.

Truora is a Colombian startup founded in 2018, which enables companies to verify their users’ identities using WhatsApp. Indeed, Truora clients can build personalized KYC (Know Your Customer) workflows, which they then run via a WhatsApp chat with the user they are trying to verify. The filled-out information is then transferred to Truora’s no-code dashboard, which cross-checks the information with thousands of criminal records.

Truora has also ventured into the customer engagement space, enabling its clients to build customized customer support workflows, allowing customers to ask questions and get automated (yet thought out) responses directly from a WhatsApp chat.

After going through YC in 2019, Truora raised a $15M Series A led by Propel Venture Partners and Accel.

Truora is one of many startups building on top of WhatsApp’s infrastructure. E-commerce is evidently another sector where startups are heavily building on WhatsApp, with startups such as India-based Dukaan enabling users to easily create their own customizable digital store and easily use WhatsApp as a distribution/communication channel. These types of apps have been especially relevant and useful for small corner shop owners, who quickly found a utility for them during the pandemic.

Conclusion

Building on WhatsApp has evident downsides, such as the reliance on a single app (which we recently found out wasn’t indestructible). META’s subpar record on data privacy is another cause for concern. Furthermore, the fact that a product is built on another one limits the wiggle room when wanting to implement more features.

Overall, however, founders building on WhatsApp might have found the easiest way to bring low-tech users into the digital world, by being present in the only app most of them know how to use. It is a pragmatic solution to a real problem. Starting to build on WhatsApp also doesn’t forbid a startup from ever building an in-house product. Rather, it acts as a low-tech and potentially extremely impactful MVP or more. WhatsApp releasing more and more features such as the API enables startups to keep their product on WhatsApp for longer and longer.

Taking a macro view, this trend is the logical continuation of what’s been happening for years, and which constitutes the basis of innovation: being able to build a more potent product by basing it on already existing infrastructure.

The Realistic Optimist provides weekly, in-depth analyses of some of the hottest stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)