Mark Zuckerberg started a social-networking website out of his college dorm room and may look like an average 34 year old programmer. But with a growing user base of more than 2 billion people, Facebook shows the sheer brilliance and commitment Zuckerberg has made to transform the way we interact and connect. This tech prodigy dropped out of Harvard for focusing on developing this platform, although he did receive an honorary degree in 2017.
Statistics reveal that the network’s revenue escalated from 7.87 billion in 2013 to 40.7 billion dollars in 2017. With an estimated net worth of $69.7billion, Zuckerberg was named the fifth richest person in the world, in the Forbes’ 2017 annual list.
Most industry insiders have acquired a fair understanding of the company’s monetization models, many of us are still unsure of how Facebook makes money. Currently, Facebook ranks as the world’s most visited website after Google. However, when its earnings are compared to the revenues of Google, the case comes as quite an interesting affair.
Since its initial days, Facebook is not well known for its money making antics. The founder behind this incredible networking site, Mark Zuckerberg, was reluctant to use advertisements on the website.
A Reuters report reveals that more than 5 million businesses advertise on Facebook every month. These include small to medium and large sized corporations such as DELL, Nestle, HSBC and many others.
Apart from ads, the companies also pay Facebook to help boost the distribution and popularity of all posts from their business pages. To put it simply, the businesses pay for everything from sponsored stories to sidebar ads.
Sidebar ads: Cost hovers around $1-$5.
Sponsored stories: For roughly 50 cents per click
Promoted posts: Usually cost around $5 at entry level but the total cost depends on the number of users targeted
Since Facebook’s user base continues to grow by the minute, the revenue it makes from advertising is also increasing. Looking at the kind of money Facebook is making, it seems as if Mark Zuckerberg has struck a gold mine. But users are surprised to know that the network earns its revenues from far simpler sources.
The network’s most important revenue channel is advertising. Facebook is said to generate over half a billion in revenue each year, with the vast majority of funds come from advertising.
Self-Serve Advertising
Another major way how Facebook is making money is through its self-serve advertising platform. Anyone can set up their own advertising campaign on Facebook. All such advertisements are displayed in the sidebar of most of the site’s pages including groups, profiles, events and third-party applications.
One of the best advantages of the site’s self-serve advertising platform is its superior targeting features.
Facebook has meticulously worked on their targeting capabilities and have produced impressive results, over the past few years. It is now capable of limiting advertising to metropolitan areas with multiple target variables including: age, relationship status and even profile keywords. The site has also introduced the Facebook Ads API. This is a limited program that is only offered to agencies and advertisers who have applied and been approved by the network. The system enables the API partner to run campaigns via the API, instead of running it through the platform’s own interface.
This successfully reduces the friction influential advertisers may face, while modifying existing and posting new ads. Sources reveal that Zynga, the developer behind the most celebrated games on Facebook (such as Farmville), continues to be the largest buyer of Facebook’s self-serve ads.
Entrepreneurs and professionals such as lawyers, doctors and restaurant owners also have a major role in generating Facebook’s revenues which are generated by the self-serve advertising platform.
Engagement Ads
Apart from the network’s self-serve advertising product, Facebook also generates a significant chunk of their earnings through their engagement ads. These ads are the network’s solutions for large brand advertisers and are placed on the site’s homepage. As a user logs in, he can interact with advertisements, placed on the right-hand side of the homepage.
The network has been working on formulating ways to engage brand advertisers in multiple ways. It recently stepped up its game by launching Brand Lift, which is basically a product that enables big brands to test the efficiency of their advertising campaigns, immediately after a campaign is being run. The network believes that such an increased level of measurement is sure to support brand advertisers and encourages them to spend more on Engagement Ads.
Zuckerberg laid out a detailed explanation for how the network generates money with user data, during an exchange with Senator John Cornyn. It is true that Facebook earns its revenues through advertising but the network doesn’t provide data to advertisers, instead it does all the work for them.
Time and again, rumors of Facebook becoming a paid membership site have surfaced. However, the network denies all such claims and has stated that Facebook would always be a free networking site. The tech guru and his wife Priscilla are also renowned for their charitable donations.