How Does GroupMe Make Money + Everything Else To Know

Brent Davis - January 21, 2021

How does GroupMe make money?
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GroupMe is a popular group messaging app. Skype bought GroupMe in 2011, just one year after the company’s inception. Today, GroupMe is owned by Microsoft and has over 12 million registered users. 

What separates GroupMe from other messaging services is its emphasis on group messaging instead of one-on-one chats. The service allows up to 500 hundred users in one group chat. Customers can access GroupMe from both the mobile app and the GroupMe website. Since GroupMe is free to use, you might be wondering – how does GroupMe make money? 

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GroupMe logo

How Does GroupMe Make Money?

GroupMe is completely free, so they don’t make any money from their users. They also don’t make any ad revenue, as they don’t place ads on their platform. GroupMe initially relied on angel investors to raise money. The company managed to raise $10.6 million in 2011 before Skype bought them.

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The founders of GroupMe made a profit from the $85 million sale. Skype reportedly made the purchase to help it reach 1 billion users. As with many tech startups, profitability comes later. GroupMe’s focus has been on customer acquisition as they try to compete with other messaging services. They are in direct competition with other messaging apps like WhatsApp, Kik, Telegram, and Facebook Messenger. Despite this GroupMe has managed to find a dedicated user base with its group concept.

Microsoft eventually purchased Skype and GroupMe. Microsoft has a history of purchasing zero revenue companies to expand their broader customer base.

There are rumors that GroupMe has sold user data to make money, but there is no proof of this at the moment. In order for GroupMe to maintain its user base, they need to continue offering their services for free. This is because most of their competition offers free messaging services. If they were to implement a paid subscription option, there’s a good chance that many users would move to their competitors. 

How Much Money Does GroupMe Make?

GroupMe does not have a traditional revenue stream. The company initially raised money from angel investors as they were growing. After a year in business, Skype acquired them for a huge profit. The app does not have a direct revenue stream, but they are funded by their current parent company, Microsoft. 

GroupMe screenshot

History of GroupMe

Jared Hecht and Steve Martocci conceived GroupMe during the TechCrunch Disrupt Hackathon in 2010. To stand out from other messaging services, they focused on high volume group chats. The app assigns every group chat an SMS phone number that users can send their messages to. This means that people can use the messaging service even if they don’t have access to data. This also allows for much more people in a chat than a standard SMS group. 

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Hacht and Martocci were able to raise $10.6 million in venture capital funding within their first year. Skype approached them in May 2011 and offered to buy the company for $80 million. At the same time, Microsoft was in the process of acquiring Skype, which was finalized in late 2011. The pair won the breakout award at South by Southwest in 2011.

Who Owns GroupMe?

Jared Hecht and Steve Martocci left the company when Skype bought it. Skype’s parent company Microsoft now owns the company. Microsoft purchased Skype for $8.5 billion in 2011 and made Skype a division within the company. Skype was then integrated into Microsoft’s own products. It would replace their messaging service, Windows Live Messanger. Skype for Business would replace Microsoft Lync.

Microsoft continues to develop GroupMe and it is still available for free. The app used to limit groups to 100 users per group, but this has since increased to 500. Microsoft has also integrated Skype with GroupMe. Skype’s Meet Now feature is available within the GroupMe app.

What Is GroupMe Worth?

We cannot determine exactly how much GroupMe is worth. They remain a free service without any definitive revenue streams. GroupMe’s real worth is their user base and the data they could collect from that. Free messaging services have a history of selling for large sums of money because of their large user bases. Skype paid $80 million for GroupMe, while Facebook reportedly paid $19.6 billion when they acquired WhatsApp.

WhatsApp is a much bigger messaging service, and they had over 500 million users when Facebook bought them. This means that Facebook essentially paid $39.6 for each user. Companies like Facebook and Microsoft can harvest your data through the messaging app to use elsewhere.

GroupMe text messages

How Can GroupMe Make Money In The Future?

It’s likely that GroupMe will remain a free service, which means it will be very difficult for them to generate revenue in the future. Since there will always be free alternatives to GroupMe, it would be very difficult to try and monetize the service. 

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One way that GroupMe could make money would be to sell user data to third parties. However, this would likely draw some backlash, and they could lose a large portion of their users. If GroupMe did take this route, they would have to inform their users through their terms of service. 

This platform was a natural fit for Microsoft, who have purchased zero revenue businesses in the past. Although Microsoft provides many of their services for free, they still remain a profitable company. 

How Does GroupMe Make Money: Final Thoughts

The simple answer is that GroupMe does not actually make money. Messaging services like GroupMe will need to remain free, otherwise they risk losing their user base. 

Although the company doesn’t make money directly from its users, it has still been a worthwhile investment for Skype and Microsoft. This gives Microsoft a broader user base and helps them build brand loyalty. 

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Brent Davis has been writing about the financial markets for 10 years and worked in research for the last five years at a Fortune 500 company. Brent's investing strategy is to buy high-quality companies and then let compounding do its thing.