How does facebook generates revenue

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View All Goals. Broadcasts via Facebook Live are on the upswing, and Facebook is capitalizing by making video ads on its signature video platform commonplace. As Facebook continues to explore new advertising platforms, expect Facebook mobile to carry the revenue burden for the company, as mobile advertising grows at a double-digit growth rate on an annual basis. Data generation is something of a cash cow for Facebook too, although the recent Cambridge Analytica scandal , a data breach potentially exposing 87 million users to hackers and data thieves, may have curbed Facebook's data generation revenue.

Of the U. Facebook users should know that company revenues are directly dependent on the 2. But there's a few things Facebook users should know about their user experience on the site:. You can also use the Facebook Settings page to click on "Ads" to see what personal preferences Facebook is sharing about you with advertisers. You can use that page to manage any data or personal interests you don't want advertisers to see on Facebook. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and more.

I agree to TheMaven's Terms and Policy. Consider Facebook's new digital line-up, each of which contributes to the company's profits, or is expected to in the near future: Facebook Payments. This Facebook business generates money through payments, similar to peer-to-peer payment systems like Venmo. This language translation app, acquired by Facebook in , allows Facebook posts and chats to be translated into multiple languages.

Unfortunately, he also has a track record of messing things up along the way by disregarding user privacy and sometimes also saying one thing and doing another. It will be focused not only on advertising and various factors that drive advertising revenue, but I will also touch on other revenue sources, even though they are currently tiny, compared to revenue from advertising. But it is not just standard, run-of-the-mill ads that Facebook shows to its users.

These data and their value are the reason why it makes sense for Facebook to offer its products mostly for free. For example, Facebook has data about whom we communicate with, what content we consume and react to, and even what pages and apps we visit outside Facebook apps.

These are just a few examples, and there are many other data points Facebook collects. Facebook knows our age, religion, ethnicity, interests, political opinions, relationship status, and much more.

Facebook Ad platform allows them not only to show the ads to targeted users, but it also offers detailed performance tracking on how different campaigns and different types of visuals work. Based on that, businesses can test what kind of campaign and for what type of users work best. To win the auction, it is not only about price advertisers offer to Facebook when user clicks on their add.

It would not make much sense for Facebook to show ad campaigns that offered the highest price per click when people would not click on those ads very often. Therefore, an auction considers how often users will click on ads, and it is designed to prefer advertisements that will make the most money for Facebook.

Facebook shares a small part of its gross advertising revenue with partners like app developers that use its ad platform to monetize their apps or video creators that upload videos to Facebook Watch or, more recently, Instagram TV IGTV.

However, compared to the total revenue Facebook is generating, this is just a drop in the ocean. Facebook shows ads across Facebook, Instagram, and also Messenger. There are currently no ads on WhatsApp, although Facebook was working on it for some time, in the end, decided not to do it. In terms of advertising revenue, Messenger is just a tiny contributor, and most of the advertising revenue comes from Facebook and Instagram.

Although most of Instagram revenue comes from an Instagram Feed, Instagram Stories became quite a significant part of it, bringing in one-third of the revenue of Instagram. The video above is a little bit dated in terms of presented numbers, but it is a good summary of how Facebook makes money and how it targets its ads. Still, to keep its business model working, Facebook has strong motivation to provide users a great experience and listen to what they want and need.

But there is another group whose needs and wishes are critical to Facebook, and those are advertisers. Facebook obviously cares a lot about both its users and its advertisers. The fact that more users make Facebook more valuable is nothing surprising. It is true for most businesses, especially the ones monetized by ads. What makes Facebook users much more valuable for advertisers are the granular user profiles that Facebook creates about us.

Advertisers can target their ads based on these profiles to specific audiences and vary the message based on what works best for a particular group of users. What is more, they can very quickly see if the ad campaign worked and made money or not. Its customer base is much more granular, consisting of a lot of smaller businesses. That being said, Facebook eventually does what any successful company has to do to stay successful, which is listening to its customers and making sure their needs are met.

Apart from advertisers and users, another counterparty Facebook needs to consider when running its business are regulators and politicians. The issue is not only its antitrust lawsuit that is coming. It is also about defining the role Facebook, and other social media players should play in the moderation of speech on the internet and defining where is a line for content that should not be acceptable. Facebook found itself in a very tricky position where there is general agreement that Facebook is doing things wrong.

But different groups have pretty opposing views on if Facebook should allow more free speech or less. Mark Zuckerberg gave a speech in in Georgetown, where he made good points about how important it is to protect free speech and committed to protecting it on Facebook as much as possible. He also took a lot of heat when he was protecting these views, particularly about his decision not to censor political ads. It opted for less controversy, which is far better for business and advertisers, even though it was against the ideals, Mark shared during his Georgetown speech.

I beg to differ on this. They showed it on many occasions. For example, recent full-page newspaper ads that attacked Apple changes that forced iOS apps to ask users consent before tracking them outside of the app clearly shows that when there is a conflict between what advertisers want and what users want, they chose advertisers.

They even launched a separate campaign where Facebook promoted the benefits of targeted advertising. That by itself does not make Facebook, an evil company. Many companies offer services for free and make money on the backend from advertising or other fees. But privacy is obviously not one of them, and we should be aware that if legally allowed, Facebook will most probably side with advertisers. Core drivers of Facebook advertising revenue are how many people use Facebook, how much time these users spend on Facebook, how many ads Facebook shows to its users per certain time, and finally, how much Facebook charges for one ad placement.

It is obviously a simplification. Reality is much more complex, and many drivers are also mutually connected and influence each other.

That being said, I like it as a way to summarize what Facebook business is actually about and as a guide when I consider how different actions by Facebook and related events might impact its revenue. Facebook Inc. Accessed Jan.

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