Why is WhatsApp Currently Paying $28 Million Per Year to Twilio?

WhatsApp's use of Twilio for SMS verification services is a strategic decision that has been in place since May 2016. This arrangement has helped WhatsApp manage its user verification needs effectively and focus on enhancing its core messaging features. In this article, we will explore the reasons behind this choice and the implications for both WhatsApp and its users.

The Importance of SMS Verification in User Signups

When a user signs up for WhatsApp, they need to verify their phone number to ensure that the account is legitimate and belongs to the user. This process is crucial for maintaining the integrity and security of the platform. Twilio provides the backend services to send these SMS messages efficiently and reliably, ensuring that the verification process is seamless and secure.

Key Reasons for Using Twilio

Several key factors contribute to WhatsApp's decision to use Twilio:

Speed to Market

Using Twilio allowed WhatsApp to quickly implement SMS verification without the time and resources required to develop an internal solution from scratch. This speed to market is critical in the highly competitive world of messaging services.

Expertise and Infrastructure

Twilio specializes in communication APIs and has extensive experience and infrastructure for handling messaging at scale. Developing a comparable system internally would require significant expertise and investment, which would be a resource-intensive task.

Focus on Core Product

By leveraging Twilio for SMS verification, WhatsApp can focus on enhancing its core messaging features. This focus on core product development is essential for maintaining the quality and user experience of the service.

Scalability

Twilio's platform is designed to handle large volumes of messages, which is crucial for a service like WhatsApp that has millions of users. Building a scalable solution would be a complex and resource-intensive task, making Twilio the more practical choice.

Cost-Effectiveness

While $28 million might seem high, it could be more cost-effective in the short term compared to the long-term costs of development, maintenance, and scaling of an internal solution. Outsourcing to Twilio allows WhatsApp to manage its SMS verification costs more efficiently.

Fast forward to the present, and one of the reasons WhatsApp has built such an amazing company is that they intentionally tried to have as few employees as possible. This decision reduces their communication burden and allows them to focus on hiring only the best talent. However, this does not mean they have lower expenses since outside services are not cheap.

Global Network and Telephony Challenges

WhatsApp uses SMS messages for validation during new user signups and device swaps. Twilio has a global network of direct connectivity with most carriers worldwide, which is both a significant advantage and a complex challenge to replicate.

Running a telephony network is not core to WhatsApp. In fact, they are working towards eliminating SMS messaging and PSTN call revenues for carriers around the world. Why spend internal resources on a technology they are trying to phase out? This is a strategic move that demonstrates their long-term vision for the platform.

Further Insights: Voice Calls and Custom Services

Some have suggested that the $28 million spend is on SMS alone. However, assuming 1 billion new signups and device swaps per year, resulting in 1 billion SMS messages, this seems like an effective rate of 2.8 cents per SMS. Considering some of the atrocious SMS rates in certain countries, this is still very high at wholesale rates.

WhatsApp does offer a voice call verification mechanism, which may explain the high spend. Voice calls cost more than SMS, and if true, it would suggest that a non-trivial number of users use voice call validation.

Twilio may also provide other custom services to WhatsApp, such as analytics and SS7 location services. These services contribute to the overall cost and value proposition of the partnership.

Conclusion

In summary, leveraging Twilio has allowed WhatsApp to efficiently manage SMS verification while focusing on enhancing its core messaging features. The cost-effectiveness, speed to market, and expertise of Twilio make it a strategic choice for WhatsApp. However, as they move towards eliminating SMS messaging, the partnership with Twilio may evolve to meet their changing needs. This strategic decision is crucial for maintaining the security and integrity of WhatsApp's platform.