Who knew that a college student who built a small platform for online interaction of college students will bring Facebook to us one day? Today Facebook has become a Social Media Giant and today it has about 2,5 billion monthly active users(updated December 2019).
In the year 2012, Facebook had crossed 1 billion users making it the only Social Media network to do so. Further in 2015, Facebook launched its lower data consumption app named as Facebook Lite.
As time passed, Facebook separated Messenger from its app and it also integrated a payment method with messenger for the people residing in the US. In messenger app people can talk personally, or send private messages and people can even make free calls worldwide.
Later on, after a huge success, Facebook purchased Instagram which is the second most loved Social Media platform. Unlike Facebook, Instagram had a follower based model. Facebook introduced Instagram stories in order to compete with its well-known competitor Snapchat.
Then Facebook announced its plan to acquire WhatsApp in February 2014. WhatsApp which is an AdFree messaging application which allows users to communicate limitlessly over internet connection worldwide. WhatsApp was sold to Facebook at a huge price of $21.8 Billion which was $55 per WhatsApp user.
With all this success, you’ll surely be wondering that How can Facebook afford to buy these huge companies just by providing a free Social Media platform to the world?
In order to get an answer to this question, let us understand the Facebook Business Model.
Note: The term “Facebook products” includes all the set of apps that Facebook Inc. owns like Facebook, Instagram, Messenger and WhatsApp.
Facebook Business Model
People used to think that someday Facebook will start charging its users to access its services but those were declared as fake news by the company. Facebook works on an Advertising Business Model just like Google.
99% of the Facebook Revenue is generated from Facebook Ads. Facebook ads are really beneficial for companies investing in it.
In 2018, Facebook made around $55.8 Billion and 98% of it was from Facebook Advertising. This clearly shows that facebook is amazingly profitable.
The foremost factors that drove traffic to Facebook Growth were:
- Mobile Advertisements
- The increased cost of advertising
- Demand for Facebook Ads from the marketers
- Engagements of the Advertising Campaigns.
Customers of Facebook
Facebook’s customers are bifurcated into three different types:
- Users: Facebook’s highest number of customers include its users who are willing to communicate with each other worldwide. Also, Facebook has now made its own marketplace where people can sell and purchase serval types of merchandise.
- Marketers: All the Brands and advertisers spend a lot on Facebook to show their promotional ads and offers.
- Developers: Developers worldwide have a dream to work with the technology giants and Facebook is one such platform where the developers will love to work with.
In order to maintain and increase the Customer Base, Facebook was lagging behind because of the Internet Connectivity. When Facebook was launched worldwide the biggest barrier it faced was the internet connectivity. Almost 50% of the population didn’t have an internet connection.
In order to overcome this hurdle, Facebook came up with internet.org. This helped Facebook in Connecting the World as its tagline says. Internet.org is basically dedicated to making the internet accessible to almost two-thirds of the population that isn’t connected to the internet. Similar to Facebook Lite, this too was an initiative to make people use Facebook.
Facebook also introduced Terragraph and Project ARIES to provide high-speed internet experience to everyone on this planet.
Now let us understand the Facebook Advertising Model in depth.
Facebook Advertising Model
Facebook basically earns via ARPU which stands for “Average Revenue per User”. This is because with Facebook we can consider the average monthly users.
Other than advertising the long term goal of Facebook is to increase its monetization for each user.
Motto: Facebook believes “To sustain in the market you should know everything about your company and your competitors too.”
As we noticed that most of the apps provided by the Facebook products aim at generating revenue, some apps are used to generate Data as well. This data includes user information and his behaviour over the internet.
Cost Revenue of Facebook
In order to provide continuous up to date services to its 2 Billion users, here are the activities that Facebook continuously works on. Facebook incurs a cost on below things to make money for itself:
- Platform Maintenance and Development: This activity includes the continuous app updates, game development, etc.
- Data Security and its Maintenance: Facebook has personal information of 2 Billion users and it requires a lot of effort to maintain and save it from the leakage.
- Hiring new talents: Facebook is continuously hiring new Talents on whom it invests money to bring out the best from the services that Facebook provides.
- Acquisition: Invested huge amounts of money to acquire Social Media giants like Instagram and WhatsApp.
- Sales and Marketing Operations.
How does Facebook earn money?
Let us understand how Facebook earns money.
- Self Advertising:
Most of the companies today are relying on self advertisements. Under this, the company can boost their pages and posts to specific audiences on the basis of location, gender, age, etc. No other platform provides this much specific bifurcation to your target audience.
- Engagement Ads:
Apart from the self advertisements, Facebook also provides Engagement Ads facility to the marketers. With this most of the advertisers can utilize the product and hence Facebook remains the primary Campaigner for marketers.
- Payment Revenue:
This section includes the fees that Facebook receives from the developer communities or the wholesellers utilizing the Facebook infrastructure. This includes the Marketplace feature ads, sale of products like poker chips, sale of apps from the developers, etc.
- Sale of Oculus:
Apart from giving all the above services, Facebook also sells the Virtual Reality(VR) products named as Oculus from which it earns a small amount of the revenue.
Yes, Facebook earns a lot of money but a single change in its services can change the mood of a lot of its users. Hence it is mandatory for Facebook to take every step even in advertising with a lot of care. If a user sees too many Ads in their feed or Messenger, there is a huge chance of Facebook losing its customers.
Facebook was founded in 2004 by Mark Zukerberg at Harvard University and since then, it has never seen failure. Over 98% of the revenue comes from Advertising and the rest of the revenue comes from other sources like its acquisitions and Oculus.
Thankfully, with the help of Facebook Advertising, many startups and homemakers have started their businesses successfully with a minimal cost of advertising on Facebook and Instagram.
The best part of advertising on Facebook is that it lets the advertisers target a very specific audience whether it be on the basis of Gender, Age, Location, Interests, etc.
Hope you liked the article. Did we miss anything in the Facebook Business Model? Are you still curious to know more about Facebook? Wishing to know about any other Business Models?
Don’t forget to let us know in the Comment Section below. We’ll surely get back to you there.