You’ve surely heard that Facebook bought a company called WhatsApp for $19 billion in stock and cash.

What do they do?
WhatsApp exploits loopholes in mobile phone carriers networks to be a very cheap and more robust alternative to SMS or text messages. Put more simply, they let people on phones chat. It’s an alternative to SMS.

How do they make money?
The iOS app costs $0.99. On other platforms they will charge $1 a year after the first year. They don’t run ads or sell games or anything like that.

Will Facebook make a lot of money from the purchase?
Some people think WhatsApp’s revenue model means their 450 million users translate to $450 million a year. Not so fast.

1. $0.99 from the App Store does not mean $0.99 in your pocket. Apple takes their cut.
2. Assuming people will go from a free service to paying is foolhardy, particularly when a large part of your customer base is quite poor.
3. T he business does have expenses. Employees, servers, etc.

So, in it’s current form, it seems unlikely that Facebook will make it’s money back soon. With Earths current population at 7 billion, it would take every man, woman and child on Earth paying to use it for 3 years at the $1/year price for them to make any money.

Were they the only player in their market?
There might be some interesting or different features, but there are dozens of similar companies. Facebook Messenger, BlackBerry Messenger, Skype, WeChat, KaKaoTalk, and any instant messaging program you can think of, plus about a dozen other options.

Why you should go for it with your idea
Look at things through this perspective – WhatsApp was massively buggy when it was first made. There are many competitors in their field. They don’t have a revenue model that supports what they were bought out for.

So maybe you have an idea that’s not even as good as one that lots of other people are doing. One that won’t make money. One that might be put out of business if phone companies change their policies a little. Let’s say it’s 1% as good. What if you could get 1% of $19 billion for your buggy, dumb idea if we helped you make it? Would you settle for $190 million? What if you did it with a bunch of your friends and you got funding from a bunch of your friends and family and you only owned 1%? Would $1,900,000 still be ok?

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