Meta Inc. (formerly Facebook) launched in October 2021, as a parent company for all the sub-brands and resources owned by Facebook. Now, Facebook has become a part of Meta Inc.
Facebook is the most popular and used social media platform. With around 2.7 billion people using Facebook, it connects people and innumerable businesses representing the whole as a Social Media Gaint.
Facebook generates a big chunk of revenue through advertisements. Yet, the revenue model of Facebook keeps changing. Most of the story is yet to tell!
Facebook is a well-established market player crushing down its competitors in the social media ad game. Have you ever wondered how does Facebook manage to stay on the top when it comes to generating revenue?
Let’s talk about the revenue model of Facebook in a while.
But first, Let’s learn a few basic things that will help you understand the revenue model of Facebook more clearly.
Pillars of Facebook/ Meta
Meta Inc. is the parent company for a wide range of sub-companies. However, among all these sub-companies, there are a few that act as a pillar for Meta Inc. and are also an integral part of the business model of Facebook. These pillars are nothing but the revenue model of Facebook.
The six main pillars of the revenue model of Facebook include:
- Facebook: Facebook is the biggest social media platform with over a billion active users. It allows user to share their daily life and to keep socializing with their friends and family.
- Instagram: It is a community application where people can share their stories through photos, videos, and direct messages. The platform is now growing towards e-commerce through Instagram pages similar to Facebook.
- Whatsapp: It is a secure and private one-on-one instant messaging app. Facebook bought the company in 2014 for $19 billion.
- Messenger: It is also an instant messaging application operated through a Facebook account or phone number. Whatsapp only allows you to connect with people who have your contact details.
- Oculus: Oculus is a brand that manufactures Virtual reality(VR) headsets and it generates revenue by selling different VR products. Facebook bought Oculus VR in the year 2014 stepping into the VR technology and market.
- Metaverse: One of the most well-known virtual worlds now in use is the metaverse. Users can create their avatars and explore a variety of settings thanks to it. Users can play hundreds of games on the platform, and there are thousands of different shops where they can buy one-of-a-kind digital assets.
Facts About Facebook/ Meta
- Facebook has almost 2.8 billion monthly and 1.8 billion daily active users.
- Meta Inc. includes a wide range of social media platforms like Facebook, Instagram, Whatsapp, and Messenger. All these social media platforms have huge active users.
- It has the largest reach. That means almost 60.6% of active internet users are using Facebook and its other applications. The numbers, as I say, have only risen.
- In FY 21, Facebook/ Meta generated a revenue of $117.9 billion through the advertisements revenue alone in just the first quarter of the year.
- Geographically, Facebook generates most of its revenue from the US and Canada followed by Europe and Asia, and then the rest of the world.
- Facebook has more than 80 million small businesses running through the Facebook pages. Facebook Marketplace allower entrepreneurs to conduct their business through their specified marketplace.
Now that you know a few facts about Facebook, You might be curious how Facebook can make such so much money at the time of killing through competition. How interesting would it be to know the secrets behind the revenue model of Facebook, right?
Come on, let’s have a look…
Almost 97% of the total revenue generated by Facebook is through target advertisements known as Facebook Ads. It charges advertisers based on the CPM (Cost Per Million) and reflects the ads on the feeds and stories of social media platforms like Facebook and Instagram. Overall, target advertisements single-handedly support the revenue model of Facebook /Meta.
What Facebook does is, it auctions the space for feeds and stories within its different platforms like Facebook, Messenger, and Instagram. An auction allows displaying advertisements on multiple platforms per the target audience.
Most competitor brands do display advertisements but why does facebook succeed in the ad run game crushing all other companies?
Facebook is a Black Hole of user data, where around 1.13 billion active users consistently feed into it expanding its size. Unlike other companies, Facebook does not sell data to generate revenue. It rather uses the data to target the most suitable ads to its audiences.
Facebook has the data of every user about what they like, what type of content they consume or react to even to whom they are communicating. It tracks down every user activity within and outside its page.
You can even notice the relevance of Facebook ads just spend a few hours on e-commerce sites and try adding a few products to your cart. I can guarantee that Facebook will place ads on your feeds related to the products you have searched on e-commerce sites.
Facebook uses algorithms based on well-structured Machine Learning programs that filter out and continuously monitor profiles according to taste and preferences, ultimately allowing advertisers to choose high-performing target audiences.
This feature helps advertisers save money on surveys to find audiences and allows them to use that money for better campaigns. It is how Facebook ads are consistently growing on social media platforms pushing down the competition like Google and Twitter.
To put it simply, users are the main assets or revenue generators to Facebook, which is highly dependent on users’ precious data in this age of The Data War.
Facebook has created a separate section for marketers or advertisers – Facebook Marketplace. Marketers can use this platform to sell their services like clothing, shoes, jewelry, etc. Marketplace helps in creating a very small area in the revenue model of Facebook.
Revenue through Payments
Facebook is already dependent on Ads for a big chunk of its revenue which is 97%. However, a few other sources of income do not play a huge role but contribute a small portion to revenue figures.
Have you ever made an in-game purchase while playing games on Facebook like Candy Crush, Farmville, Criminal Case, Angry Birds, etc.? These purchases through the games that you play are also included in the revenues of Facebook.
Apart from that, Facebook has personal payments app – Facebook Pay. It is similar to other payment apps like Amazon pay, Paytm, etc. However, the user base of Facebook Pay is low but contributes a small portion to the revenue model of Facebook.
Facebook also uses different methods of affiliate marketing to generate revenue. This method is somewhat related to Facebook advertising.
Facebook works with different businesses and advertises its products and services. Say, for instance, that studios pay Facebook to display their advertisements for movies, television programs, games, etc. Several electronic manufacturers, including Apple and Samsung, work with Facebook to promote their recently released products.
It is distinct from Facebook ads, where advertiser grows their brands, enable users to make purchases, etc., and it makes money from these ads.
The leap of Meta (formerly known as Facebook) to Web 3.0 has created magnificent curiosity about the vivid user experience. Metaverse is an immersive, 3D simulated space that allows users to experience the virtual world. Users can use this platform to interact and socialize with each other in their unique avatars through the VR headsets.
The Metaverse is a completely new concept however, its business model follows the traditional ideas but in an exciting way. The major chunk of Metaverse as a revenue model of Facebook are as follows.
Metaverse Advertising: Virtual Influencers Lil Miquela, Imma, and Miquela in metaverse endorsing popular brands including Calvin Klein, Balmain, Dior, and Valentino pay a cut to Facebook. Similar kinds of other advertising regularly on the Metaverse is readily contributing to the Business Model of Facebook.
Digital Land: The Metaverse allows users to purchase ownership of their island (Digital Land), which they can use to establish a business. This kind of project’s income model is comparable to a conventional internet business plan. Users rent space in the virtual world for a monthly charge.
Digital Goods: Virtual Goods are intangible goods in virtual reality. Mostly virtual good is seen in games that include weapons, characters, furniture, clothing, and more. However, a fully customized virtual world like Metaverse will provide these goods for your digital avatars.
Our Thoughts on the Revenue Model of Facebook
The revenue model of Facebook is solely dependent on its ‘Target Advertisements’ which implies that, if Facebook loses its grip on the advertising field, there are no other sources of revenue for the company, and we could experience the downfall of the Social Media Gaint.
Facebook has reached the height where they need to get access to multiple sources of revenue, depending on ads may not be a prudent idea.
However, Facebook/ Meta has already stepped into the universe of Web 3.0 with its massive step into the world of metaverse and web 3.0. Meta is fueling itself with a cash burn of $2.96 billion in the initial 3 months of 2022 and it has not generated even a single penny for the company. The losses might be due to the initial phase of the company and more losses can be expected from it in the coming days. But the revenue model of Facebook is highly centralized and it may enter some pretty shaky territory as a business if the major revenue stream suffers a blow.