How Facebook Makes Money!

Facebook, the company that has reached more than 3 billion users across world through its different social media platforms including Instagram, WhatsApp, Messenger and yes, Facebook of course. The company that was started by Mark Zuckerberg, during his college life, with a vision to build a global company and a service that could help the people to connect and learn about each other is serving its purpose. But, have you wondered how the company is making tons of money and is so valuable when Facebook charge nothing from its users and providing everything free of charge despite having the monopoly in its domain?

Facebook’s revenue and profits are dominated by showing ads within Facebook and Instagram apps. “Dominated, but by what percent?”, you ask. Facebook ads represents more than 98% of the Facebook’s $86 billion revenue in 2020, that comes straight from its advertisers and the remaining 2% comes from Oculus (the virtual headset), Portal services and some payment fees from developers. Facebook provides free services to billions and make money by showing them ads of advertisers. Therefore, small businesses advertising on Facebook are their real customers. Advertisers pay the price to Facebook that is determined by an auction. There are 10 million+ advertisers that generates the 98% of Facebook’s revenue.

Facebook’s user’s database is the key in providing their customers(advertisers) reliable consumer market that directly targets the customer’s demand. Facebook use the tons of data of consumers through its social media apps, that comprised of simple data like birth, gender, location to the more complex data that is calculate by using sophisticated modeling in analyzing the user’s behavior on Instagram and Facebook. Thus, enabling Facebook to put the users in different categories and let the advertisers select the category that best defines his target audience. Though this division is not 100% accurate, this increases efficiency and precision to a great extent. And the ad fits in your post so well that you might not even recognize it as an ad.

Facebook is not the first and last company using this business model. Despite the Facebook’s big brand name and business practices, users are quite concern about their data privacy. And because the advertisers are the one who are paying the company Facebook concerns are tilted more towards them. You might be aware of the law suit that where Facebook paid a compensation of $5 billion for leaking the database of 87 million users that affected US elections. After this incident, Facebook improved its security and privacy systems and also provide and option for the users to delete their previous data so that company couldn’t access it. Despite these facts, Facebook advertisements are running well and are minting maximum revenue from it.

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Published by Vanshaj Bindlish

Writing about the stuff that I consider worth sharing with you.

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