Encrypted WhatsApp will Add Incredible Value to Facebook

Facebook (NASDAQ: FB) just took a step that will add an incredible amount of value to its business. All WhatsApp users will now have access to end-to-end encryption for all data sent through that solution.

“From now on when you and your contacts use the latest version of the app, every call you make, and every message, photo, video, file, and voice message you send, is end-to-end encrypted by default, including group chats,” WhatsApp founders Jan Koum and Brian Acton wrote in an April 5, 2016, blog post.

This will add value because it will give people another massive incentive to use WhatsApp. WhatsApp is already the most popular messaging solution on Earth with one billion users. It achieved that with another giveaway – the elimination of the 99¢ formerly charged to people who downloaded the app.

Now it is offering end-to-end encryption of the kind that was formerly only available on the Apple iPhone or from sketchy second tier messaging services for free. Apple (NASDAQ: AAPL) sold 74.78 million iPhones in the first quarter of 2016 according to data supplied by Statista.

Acton and Kaum at the office.
Acton and Kaum at the office.

How WhatsApp Encryption could add Value to Facebook

Encryption helps drive iPhone phone and iPad sales which add value to Apple. The world’s most popular smartphone maker reported revenues of $234.99 billion on December 31, 2015.

There are several ways in which encrypting WhatsApp could generate significant amounts of revenue for Facebook. Some intriguing and perhaps theoretical possibilities include:

  • As a free or low-cost communications solution for professionals such as attorneys and accounts that need to keep client information confidential. This could be a major selling point in places like India and Latin America.

 

  • For financial transactions including payment applications such as Venmo and PayPal. This would be a popular feature in countries like Argentina and Italy where many people want to avoid government scrutiny of money transfers.

 

  • As the basis of a payment app or digital wallet such as Apple Pay or PayPal (NASDAQ: PYPL). PayPal’s revenue increased by $1.223 billion over the course of 2015, rising from $8.025 billion in December 2014 to $9.248 billion a year later.

 

  • To facilitate ecommerce including games, app sales and physical products. The International Business Times reported that the profits of Chinese telecom Tencent Holdings Ltd. (OTC: TCEHY) increased by 59% in 2013. The increase was driven by ecommerce facilitated by Tencent’s popular messaging solution WeChat. WeChat had 355 million users in third quarter 2015, a Statista chart indicated. WeChat Currently has 697 million users. WhatsApp now has a billion users around the world.

 Facebook-Headquarters

  • To connect people that do not have access to computers to ecommerce companies such as Alibaba (NYSE: BABA) and Amazon (NASDAQ: AMZN). This could drive such companies’ expansion in growing markets such as India and Africa as well as Latin America. Many people in developing nations own smartphones but have no access to computers.

 

  • To connect people in developing nations to the international banking system and facilitate money transfers between individuals. Such transfers could become a huge profit generator for WhatsApp. The World Bank estimated that immigrants from developing nations remitted $414 billion to friends and relatives back home in 2013.

 

  • As a low cost cloud data storage center for people in developing nations and others.

 

  • To distribute digital entertainment including music, videos, movies, games and books or articles to people around the world.

Free end-to-end encryption will increase the usage of all these services by providing higher levels of privacy and security. If WhatsApp gets a reputation as the most secure messaging service around it become the natural solution for financial solutions, ecommerce and other forms of business communications.

Media reports indicate that the level of security and privacy provided by this encryption is high. Here is how Mark Friberg described the encryption in a recent Wired article.

“With end-to-end encryption in place, not even WhatsApp’s employees can read the data that’s sent across its network,” Friberg wrote. “In other words, WhatsApp has no way of complying with a court order demanding access to the content of any message, phone call, photo, or video traveling through its service.”

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If these claims are true, WhatsApp is in a position to become the go-to solution for money transfer, financial transactions and many kinds of ecommerce. Mark Zuckerberg and company could be sitting on one of the world’s most valuable ecommerce products.

Is Facebook the Greatest Value in Silicon Valley?

It is obviously too early to estimate how much revenue WhatsApp encryption could generate Facebook because the feature was only launched on April 5.

The effort faces many potential roadblocks including government efforts to ban encryption. Last year Prime Minister David Cameron’s government tried to ban WhatsApp in the UK for “security reasons” but had to back off because of a popular outcry.

Yet given Zuckerberg’s history of adding revenue to his company, it could be a fairly safe bet. Facebook’s revenue has increased by $14.219 billion since 2011. The social network reported revenues of $3.711 billion in December 2011 and $17.93 billion in December 2016.

Given that track record it is safe to assume that Zuckerberg has a plan to generate a lot of new revenue from WhatsApp. If it that process is as successful as the one he already has, the contention that Facebook is the greatest value in Silicon Valley could be proven true.