Can Facebook’s WhatsApp Really Reach 3 Billion Users?

Facebook (META -4.13%) CEO Mark Zuckerberg recently claimed that WhatsApp, the mobile messaging app his company is acquiring for $19 billion, will eventually reach "two to three billion people." That would make the service bigger than Facebook, which has 1.3 billion monthly active users.

Facebook CEO Mark Zuckerberg. Source: Flickr

Zuckerberg made that bold statement at an event organized by telecom tycoon Carlos Slim in Mexico City, during which he declared that Facebook was willing to "spend billions of dollars" to bring the Internet to more people around the world.

WhatsApp, the most popular mobile messaging service in the world, reported 600 million active users last month. When Facebook first announced the planned acquisition in February, the company's original goal was for the service to reach a billion users. Is Zuckerberg's new forecast a realistic one? Let's check in on the business of mobile messaging to find out.

A rough reality check
When Facebook first announced the acquisition of WhatsApp, Facebook didn't clearly compare WhatsApp to regional competitors like Tencent's (TCEHY 0.10%) WeChat, Naver's LINE, KakaoTalk, Nimbuzz, and Kik Messenger, which fragment the mobile messaging market across geographical lines:

Sources: Industry websites

WhatsApp's growth is certainly impressive -- it doubled its active user base between last August and last month -- but its top competitors are growing just as quickly. Over the past year, the number of registered LINE users surged 135%, while WeChat's user base grew 86%.

These services grow quickly regionally because they mine a user's phone contacts to generate an instant friends list, just like WhatsApp. This keeps the system controlled as a viable substitute for traditional SMS text messages, while allowing the network to spread from phone book to phone book.

WhatsApp's weakness in China and India is troubling, since customers in those two markets are expected to buy over half a billion smartphones this year, according to research firm Mediacells. Meanwhile, competitors like WeChat and LINE are growing out of their home markets, which means that WhatsApp's growth could peak sooner than Facebook thinks.

The upcoming battle over features and monetization
WhatsApp, which charges a $1 annual fee after the first free year, is rumored to have only generated $20 million in revenue last year. That figure is likely higher now, but WhatsApp still can't measure up to LINE, which reported $335 million in revenue last year, or KakaoTalk, which reported $204 million.

Both services generate more revenue than WhatsApp from a smaller user base because they both evolved from basic messaging services into social networks with stickers, connected games, and in-app purchases. LINE generates most of its revenue from paid and company-sponsored free stickers, while in-app purchases account for most of KakaoTalk's top line.

LINE's app and games ecosystem is growing quickly. Source: Google Play

That approach is the exact opposite of Facebook's. Whereas Facebook slimmed down its website for mobile devices, LINE, WeChat, and KakaoTalk connected games and stickers to its messaging service to create a fully mobile social network. LINE has also aggressively used toys, merchandise, and cartoons to expand its reach across Asia.

Therefore, WhatsApp would benefit Facebook more as an integrated service since it could combine the messaging features and social features of both networks. However, Facebook decided to force mobile users to download the Messenger app instead, which cannibalizes WhatsApp's core market.

A Foolish final word
Mark Zuckerberg apparently believes that WhatsApp will grow to 3 billion users on its own with its $1 per year model.

I don't think that's a realistic goal. WhatsApp is quickly becoming the MSN Messenger of the mobile world, and free apps like LINE and WeChat are redefining mobile chat with social gaming, clever company-sponsored stickers, and aggressive marketing campaigns. WhatsApp's growth could also peak quickly due to its saturation in its strongest markets and weakness in emerging ones like China and India.

To make matters worse, Facebook's own Messenger app will keep getting in the way. Facebook could solve these problems by merging WhatsApp with Messenger into a single app. The combination would certainly be messy and controversial, but it would be a much better defensive move against market disruptors like LINE and WeChat.