Facebook Business Model Analysis – How does Facebook Work & Make Money?

Facebook Business Model

Found in 2004, Facebook has seen a rise that very few do. Despite all the controversy around Facebook earlier this year, the estimated number of active users for it is over 1.45 billion. Facebook claims that the number of users in the first quarter of 2018 has in fact increased. In a press release, Mark Zuckerberg, Facebook founder and CEO said “Despite facing important challenges, our community and business are off to a strong start in 2018. We are taking a broader view of our responsibility and investing to make sure our services are used for good. But we also need to keep building new tools to help people connect, strengthen our communities, and bring the world closer together.”

This bold statement was followed by even bolder numbers such as 50% increase in advertising revenue, a staggering 49% increase in overall revenue & a 63%increase in the net income.

source

Teenagers in today’s day and age have shifted to much simpler social media apps but people at Facebook have implemented a simple strategy: if you can’t beat them, acquire them. Having already made 66 acquisitions so far, two of their acquisitions of instant messaging apps like WhatsApp and photo-sharing app Instagram for jaw-dropping $19 billion and $1 billion respectively, still remain the highest acquisitions of all time. From a data leak accusations to a full feature film on it, Facebook has seen it all.

source

How does Facebook Work?

Facebook was launched way before the apps came into the picture. Targeting the college/university going students, Facebook was an idea to connect students from all over the US. Sighting the popularity of Facebook, they launched a sign-up form right at the homepage of the website. All you need is a valid email ID. Based on the information you provide to Facebook like your workplace, university or interests, Facebook will show you people that you may know so that you can add them in your friends’ list. There is a search bar where you can find your friends and interests like pages or groups. You can also start a group or a page related to your business or a common interest and invite people to like & follow it.

The Wall: The centre of all is the “wall”. It is like a graffiti wall where people write stuff and you read to it when you pass from there. The wall is a timeline which used to show posts in chronological order earlier but now shows posts based on relevance and popularity. You or your friends can upload a picture or a video, write something or mark an activity like travel or have a meal on the wall. You can also tag the places you are at using the Google empowered location services.

Messenger: Facebook website had an integrated tab for chatting where you could send messages to anyone. You could chat if that person was online at the same time. Now, Facebook has a separate affiliated app for instant messaging called the Facebook Messenger.

Notification: Facebook would notify you every time there is an activity concerning you. It could be someone commenting on a post you liked or someone liking your picture/video/post or it could be a notification to tell you that someone has tagged you in a post. These are push notifications for apps. In the last few years, Facebook sends notifications which are suggestions which may not concern you.

You may also like  OYO Rooms Business Model, How does OYO Rooms make money, How does OYO Rooms Work

Other features: There are dozens of other exciting features on Facebook. With time, Facebook has made some great innovations and introduced features that have changed the way people socialize on the internet. You can create Facebook events & invite people to that. These events provide information about real events. There is a marketplace where you can buy stuff. It is not a conventional e-commerce platform, but a list of things available near your location from local stores, mainly restaurants. You can create a live event as well that will stream you live from your mobile or laptop front camera on the wall of your friends.

The list of exciting Facebook features is really long. Recently, stories were launched on Facebook & other two giant apps owned by Facebook such as Instagram & WhatsApp. Stories are images or videos flashing across your screen in a presentation manner. You can tap on stories to jump to next stories. These stories have a timeline of 24 hours and they auto disappear after 24 hours. Each year, Facebook comes up with innovative features and a change in the user interface that changes the users’ experience.

How does Facebook Make Money?

It’s almost visible that the prime source of revenue for Facebook is the advertisement. Unlike other apps, Facebook does not provide a premium membership option. It’s the same for every user. Sighting the optimization of its biggest source of revenue, Facebook hired Sheryl Sandberg in 2008 who had an expertise in dealing with advertisers. Another source of their income comes from commissions from in-app purchases of virtual goods. Facebook reportedly charges a 30% commission to any such in-app purchase of any virtual entity.

Ads are everywhere on Facebook. Some are sponsored ads & others are simply ads that are based on your geographic & demographic data. For instance, if you have searched for some products on google, it is likely that you will see advertisements for similar products on your Facebook home page. The browser saves your searches as cookies & cache memory and shares it with many other apps who have the algorithm to quickly show you sponsored similar results on their pages. So next time if you search for something & Facebook tries to suggest you something similar, don’t freak out. So far, we could only see ads in public places such as our timeline & on either side of our timeline on the Facebook website. But Facebook is reportedly looking to pop up ads in open & closed groups as well. Groups which have higher frequency are very much likely to have ads in them in the near future.

In the first two quarters of 2018, amidst all the controversies, Facebook managed to generate revenue worth about $25 million. That is $4 million every month in 2018. While some will faint seeing the number of zeros on Facebook’s revenue details, it is worth considering that their highest acquisition WhatsApp is advertisement free & charges nothing to its users. Facebook also earns from selling VR devices as they own the Oculus Rift.

The problem with any rising phenomenon is that you know it is going to end sometime in the future. Around 2012, Facebook used to earn about 84% of its revenue from adverts and the remaining from selling virtual things through in-app games like FarmVille & Candy Crush. The highest earner for Facebook was Zynga. The popularity of poker on Facebook through Zynga who are also makers of FarmVille was at the all-time high around this time. By 2017, that number dropped & they relied very heavily (98%) on advertisements to make money. Soon people stopped paying money for these in-app services & moved on. Quizzed about the further expansions of revenue, COO Sheryl Sandberg said they are looking to expand the bases of their advertisements across different geographic regions.

You may also like  How does Meituan Work? Insights into the Business Model & Revenue Model of Meituan

Facebook Business Model

Facebook revenue & the concept of Facebook is correlated in a very strange way. While most companies strategize on generating revenue, Facebook strategizes in generating data. The more people share, the more they socialize & inter-connect. This helps Facebook to pitch a nice idea to its advertisers. Facebook may not have sold their analytic data to companies but let’s face it, we all love to share details about things like what we like, where we are and what we are doing. Any company who would know these details would pay a handsome amount to the platform that caters this data.

Facebook enhances their features & encourages users to share their social life with them in dynamic ways. Every day, people are expressing their views on various things about their lives & on general topics as well. Be it any revolution or any newly released music or a movie or even general elections in any country. Social media & Facebook, in particular, has been the biggest platform. For apps like cab booking or food delivery or photo sharing, there is a very limited information available about users to the advertisers. So they just risk advertising their products to them expecting them to like it. But with Facebook, they know the likes, dislikes, political inclination, choices of food, views on cinema & also geographic locations of every user. This helps the companies target their audiences in a huge way. That’s exactly the reason why some Facebook ads cost way more than television or radio commercials.

To invite more people to social media, Facebook is also partnering with authorities to provide internet access to underprivileged areas. They have named this movement as internet.org. They claim that this is their way to give something back to the world, but it doesn’t require a lot of thought process to make out that this is yet another strategy of Facebook to attract more people to share their social lives by providing them internet access. Facebook lite was introduced to achieve the above-mentioned goal.

Facebook is also very infamously known as “giant killer”. A term used for companies who just kill their competitors. With the money power, Facebook has the ability to acquire any platform. Their record-breaking acquisition of WhatsApp tells us exactly that. Facebook will eventually take over any service that poses continues threat to them. Their devoted pursue to acquire Snapchat is world known. While they failed to takeover Snapchat, Facebook introduced Snapchat’s most popular feature “stories” to all their platforms. This way, the user does not have to go to another app for any popular feature as Facebook will either acquire those services or introduce those features on all their platforms.

Facebook – The Ultimate Social Network

For arguably the biggest controversy Facebook has been in, founder Mark Zuckerberg was asked to be present for a congressional testimony in the USA. This led to an increase in Facebook’s market cap by $34 billion. This was a huge blockbuster for every media outlet as well. With $50 billion annual revenue, growing 50% every year, Facebook is a mammoth in the world of technology. The whole suspicion on the data leak was based on a simple question that while all giants including youtube, Amazon & Netflix are struggling to make money from just advertisements & are relying heavily on revenue generated from paid premium subscription, why isn’t Facebook even blinking an eye on this? Why & how can afford providing services & generate such large revenue without the help of a paid subscription? Zuckerberg has very smartly self-proclaimed himself as the volunteer that helps people “build a community & bring the world closer together”, which has been their released motto for years. To respond to that suspicion & also remarks made by many competitors including Apple CEO Tim Cook, Zuckerberg had the following to say:

You may also like  Instagram Business Model - Everything You Need to Know about How Instagram Works & Revenue Analysis

“The reality here is that if you want to build a service that helps connect everyone in the world, then there are a lot of people who can’t afford to pay. And therefore, as with a lot of media, having an advertising-supported model is the only rational model that can support building this service to reach people…But if you want to build a service which is not just serving rich people, then you need to have something that people can afford.”

source 

While many suggest that Facebook should start premium services to increase their average revenue per user, we have to understand that Facebook, unlike any other content creating platforms, does not offer content. It is merely a medium to share content. Thus, according to a survey done by recode.net, less than 10% people would actually want to experience ad-free Facebook, unless Facebook ads pop right in the middle of someone’s shared post. Among them, most (over 40%) suggested that they would pay no more than $5, which is twice lower than that of youtube & Netflix’s subscription fees, per month for these services. Note that the double-edged sword of charging your users for better experience might be termed as discrimination which is exactly the opposite of Facebook’s lifelong philosophy & might push a lot of its current users away. In either way, there is no visible twilight to Facebook’s popularity. On the contrary, their acquisitions WhatsApp & Instagram have experienced a never before seen rise in active users & it goes without saying that Mr Zuckerberg is always hunting down any competitor he locks horns with. Love it or hate it, you can’t simply ignore it.

source 

How to Start a Website Similar to Facebook?

If you are attracted with the facts and figures of Facebook and also want to start a similar Website like Facebook then take a look at a customizable ready-to-go Facebook clone script for your start-up.

Share your thoughts with us!

What is your opinion regarding the article on Insights into the Facebook business model? Tell us in the comment section below.

Take a look at other interesting business models from the social media industry.

pixelstats trackingpixel
mm

Arrista is an experienced content writer. She likes to read & write about digital startups across industries.

6 Comments
  1. Facebook revenue & the concept of Facebook is correlated in a very strange way. It’s almost visible that the prime source of revenue for Facebook is the advertisement. thanks for sharing, Helpful it is.

    Best Regards,
    Ali H.

    • as written in the blog, Facebook should start premium services to increase their average revenue, don’t you think so?

  2. well done on the business model blogs, well put together and researched and helpful at the same time, found yourself another subscriber. Good luck!

  3. exactly, a simple strategy by facebook is, if you can’t beat them, acquire them and that’s how facebook makes money. NCrypted I would like to take a help for my business, let me know a preferable way to contact you.

Leave a Reply


*