The Facebook business model is a multisided platform. Although other brands have called themselves “social network” before, such as Myspace or Orkut, it’s fair to say that the first to turn this digital environment into a successful business model is, no doubt, Facebook.
With over 15 years in the market, Facebook now has more than 2bi users all over the world, and it keeps active and growing. Also due to the acquisitions the company has been taking, of brands – and competitors – as Instagram and WhatsApp.
In spite of all the speculation about selling users’ data, Mark Zuckerberg, Facebook’s founder, states that this has never been – and never will – the network’s revenue stream. Even because it wouldn’t be financially healthy for its own business.
But, if that’s true, then what’s Facebook Business Model? How does Facebook make money? Let’s take a closer look.
More than a social network
According to Zuckerberg, as he was developing Facebook, he wouldn’t have the ambition to build a worldwide enterprise. Unlike that, he would only realize that one “could find almost anything on the internet—music, books, information—except the thing that matters most: people”.
Nowadays, Facebook has several other companies under its “umbrella”. Among them, there Instagram, WhatsApp, Oculus (virtual reality tech), Moves (step counter app), and more.
Facebook Business Model Canvas
Let’s see how the Facebook business model canvas look like
Customer Segments of Facebook
- Users: they are the biggest customer segment of Facebook, and stand for one third of the world’s population! They are all the people who have their profiles in the network and use them to interact and communicate with friends and other people with similar interests around the globe. They don’t pay Facebook anything and, thus, they are not directly responsible for the business revenue. However, they are the basis who make Facebook interesting for the ones who do pay.
- Businesses and advertisers: this is the segment involved in Facebook’s revenue. It encompasses all the brands and businesses that advertise in the social network. They pay to have ads of their products and services in the platform, which, from its side, offers a more qualified audience. Due to information Facebook collect from its users, the company is able to target advertisement into its platform, allowing brands and businesses to have their ads viewed by its target audience. Anyway, although these are the revenue providers, they will only keep their interest as long as the non-paying user base is wide and qualified.
- Developers: it’s the smallest customer segment and it includes the ones who develop apps and games through Facebook’s platform.
Value Proposition of Facebook
As Facebook has three diverse customer segments, each segment will perceive the brand’s value in a different way. That said, let’s divide value proposition by segment:
- For users: the greatest benefit is to keep in touch with family and friends, via text and picture posting, and by interactions through comments and direct messages. This is especially relevant for the ones who travel a lot or live far from their loved ones. Other advantage is the availability of entertainment and information. Facebook is useful both for those who want to get entertained by the lives of their acquaintances, and for people who use it as a source of news and current affairs.
- For advertisers: the possibility of targeted campaigns, focused on their particular target audience, has been of great value for brands. By achieving greater penetration in its main audience, companies also get greater engagement in their customer segment of interest. Another relevant point, especially for small businesses or young companies is that the tools to advertise on Facebook are quite simple, in the best “do it yourself” style, which reduces the need to hire someone to develop their own advertising content.
- For developers: Facebook is an amazing platform for developing apps and games, and it offers a wide range view and disclosure. Besides, there is a great network of providers for advertisement services.
Distribution Channels of Facebook
It’s quite clear that the main distribution channels of Facebook are its own website and app, because that’s where users find each other, and advertisers access their audience. Inside that, the channels can be divided into Feed, notifications, direct messages and stories.
Other channels include the apps stores, other products of the company, e.g. Instagram and WhatsApp, and, of course, the word of mouth power.
Customer Relationship of Facebook
Facebook’s customer relationship is based on its own platform, which is very user-friendly, as it allows users to specify their profile configurations and use, with no hard time. In addition, Facebook has an international sales organization, that works alongside with marketing and advertising agencies, to attract advertisers.
Key Partners of Facebook
- Content developers, e.g. videos, games, texts etc.;
- Developers for compatible operating systems, browsers and hardware;
- Digital influencers;
- Businesses and brands that advertise or directly sell on the platform;
- Marketing agencies.
Key Activities of Facebook
Above all key activities, it is the platform development and maintenance, in order to ensure a positive experience and avoid negative effects in the social network.
Then, besides all the infrastructure that the website demands, to keep it working properly and optimizely 24/7, Facebook also needs to invest in good practices and control bad behavior within the network.
Furthermore, the company focus on user acquisition and engagement, data and information storage and security, talent hiring and retaining, sales and marketing.
Key Resources of Facebook
Within Facebook’s key resources, the only tangible one (but essentially digital) is its platform, which demands technological infrastructure.
Aside from that, the other key resources are the network users and their content production, and the Facebook brand. The active users are the company’s biggest asset. Because, if there aren’t users, there is no audience to view the ads. And to make them engaged, there must be relevant content, to avoid churn.
As for the brand, it’s a very powerful name, still the great synonym for “social network”, indeed.
Cost Structure of Facebook
The biggest share of Facebook’s cost structure revolves around the platform maintenance and its billions of users’ data storage. Besides, there is user CAC (cost of acquisition) by delivering tools which foster user engagement, research and development investment, marketing and advertising, customer support, and all the regular general and administrative expenses of a worldwide company.
Revenue Streams of Facebook
Finally, after analyzing all Facebook Business Model, we get back to the first question: how does Facebook make money?
How Facebook makes Money
The great revenue stream of Facebook is the targeted advertisement, due to the benefit that the platform offers, of allowing the advertisers to reach their target audience, through information the network collects from its users.
And, according to Zuckerberg, that’s precisely why it wouldn’t make any sense for Facebook to sell its users’ data. It would be cutting its own throat, as the platform would be handing over its greatest differential. Soon, the advertisers wouldn’t need Facebook anymore.
Facebook’s trump card is exactly to permit its advertisers to invest money in the right audience. Within more than 2 billion profiles, the businesses are able to have their products/services viewed only by American 25-30-year-old females, who have a degree and are interest in marriage, for example.
That’s the way advertisement became accounting for 97% to 99% of Facebook’s revenue. The other 3% or less is made up of payments received by games played and products sold on the platform, private social network services to businesses, and other products offered by each of the brands under its umbrella, such as Oculus virtual reality device.
Despite all the accusations and controversies, Facebook is still booming. Although many people believe this social network is going to end soon, Facebook’s brand and business are going to certainly remain, investing in new approaches and brand names, as you may have noticed.