After more than an year of the Whatsapp acquisition, there are no signs of Facebook monetizing the service. No ads, no subscription, no nothing.

So how will it ever generate revenue and justify the hefty price tag?

Well, I don’t think they need to generate revenue through Whatsapp itself at all.

The number of mobile users and usage has grown tremendously over the past few years and continue to do so. That is common knowledge. But in spite of all the growth, its still a zero sum game. The total amount of time spent on mobile/apps (total users x average usage) is a large number but limited nonetheless. Every time a new product or app hits success and millions of people start using it, it eats into the time people were spending on another existing product.

So, total mind share is a constant.

Put slightly differently, the amount of digital ad inventory is limited. No matter if its through display ads, banners, in-app, timelines, video, audio. The most engaging product with creative ad formats and relevant ad-targeting, will command advertiser’s dollars.

To provide an analogy, imagine there is a newspaper and its the only place where advertisers around the world can show ads.

• The paper has 10 slots for ads and an ad reseller comes in and buys 7 of those 10 slots.
• It then decides to NOT put ads but something else, something that readers love – puzzles, cartoons etc. on 4 of those slots.
• Now there are only 3 slots remaining for ads and price for those 3 ad slots shoots up drastically, due to limited supply and lots of advertisers wanting to put their ads.

That is what Facebook’s revenue strategy is. Those 4 slots are Whatsapp’s mind share and the remaining 3 slots are Facebook itself 😉