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Instant Analysis: Why Facebook Inc. Made WhatsApp Free

By Leo Sun - Jan 22, 2016 at 8:17AM

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WhatsApp drops its annual fee to become a business-to-consumer platform, but will it work?

Facebook's (META -1.01%) WhatsApp recently announced plans to drop its $0.99 annual subscription fee as it approaches a billion monthly active users. The fee, which previously kicked in after the first year, had been the messaging platform's only source of revenue. 

What's Facebook's plan?
Many analysts have questioned the logic behind Facebook's $22 billion purchase of WhatsApp, which was mostly made in stock last year. The app is the most popular messaging app in the world, but it also doesn't generate meaningful revenue with ads or other services. Moreover, Facebook's own Messaging app, which is being developed into its own monolithic platform, seems to be a direct competitor.

Instead of charging a nominal fee, Facebook plans to test out a B2C (business-to-consumer) platform for WhatsApp to allow businesses to directly communicate with customers. At the DLD Conference in Munich this month, WhatsApp CEO Jan Koum claimed that the B2C features would be designed for large corporate customers like Bank of America (BAC 1.28%). Koum also stated that WhatsApp still didn't plan to integrate ads into the app.

A saturated market
If WhatsApp enters the B2C market, it faces a lot of competition. Slack, a popular communication tool for businesses, can already be integrated into various CRM (customer relationship management) apps to manage customer interactions. Twitter (TWTR -0.26%) has also been developing CRM tools to link customers to businesses via a DM (direct messaging) channel. Asian chat apps like WeChat and LINE also offer similar B2C connections. Lastly, Facebook is also adding B2C features to Messenger, which could easily cannibalize WhatsApp's B2C expansion.

For now, it seems like WhatsApp's B2C plans remain in the early stages, so it probably won't generate any revenue in the foreseeable future. Nonetheless, investors should keep an eye on its progress to see if WhatsApp can evolve into a meaningful source of revenue, like Instagram.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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