The Facebook business model is a multisided platform. Although other brands have called themselves “social networks” 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 2 billion users all over the world, and it keeps active and growing.
Also, due to the acquisitions that the company has been taking on brands — and competitors as well —, like 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’s Business Model? How does Facebook make money? Let’s take a closer look.
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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 are Instagram, WhatsApp, Oculus (virtual reality tech), Moves (step counter app), and more.
Facebook’s history goes back to 2003, when the founders Mark Zuckerberg, Eduardo Saverin, Dustin Moskovitz, and Chris Hughes were studying at Harvard University. It began as an online service where students would judge each other’s appearance, called Facemash — but it was shit down on only two days, for violating some policies. In January of the next year, the four of them developed thefacebok.com, a social network for Harvard students to post photos and personal information.
As its popularity grew, thefacebook.com was open for students from other institutions to join. By the end of 2004, over one million people had registered and, in the same year, companies such as MasterCard offered to pay for advertising on the website.
In 2005, the social network removed the “the” and became only Facebook, and high-schoolers and students from outside the United States were allowed to join. That enabled the website to jump to six million users.
The next year, anyone above 13 years of age would be welcome. In 2008, Facebook surpassed MySpace and, four years later, it became a public company, with its initial IPO raising $16 billion, which lead its valuation to $102.4 billion.
Facebook is owned since its foundation by Mark Zuckerberg, through its holding group, Facebook Inc. After acquiring Instagram and WhatsApp, Zuckerberg decided it was better to rename the holding group to separate the Facebook social network from the group. So, in October 2021, Facebook Inc. was relabeled to Meta Inc., with Zuckerberg as its CEO and owner of all the companies of the group.
Facebook’s mission is to give people the power to build community and bring the world closer together.
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 interested 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, a Virtual Reality device.
Let’s see what the Facebook’s business model canvas looks like:
As Facebook has three diverse customer segments, each segment will perceive the brand’s value differently. That said, let’s divide the value proposition by segment:
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 app stores, other products of the company, e.g. Instagram and WhatsApp, and, of course, word of mouth power.
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 them with no hard time. In addition, Facebook has an international sales organization, that works alongside marketing and advertising agencies, to attract advertisers.
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.
Above all key activities, it is the platform development and maintenance, in order to ensure a positive experience and avoid negative effects on the social network. Then, besides all the infrastructure that the website demands, to keep it working properly and optimized 24/7, Facebook also needs to invest in good practices and control bad behavior within the network. Furthermore, the company focuses on user acquisition and engagement, data and information storage and security, talent hiring and retaining, and sales and marketing.
The biggest share of Facebook’s cost structure revolves around platform maintenance and its billions of users’ data storage. Besides, there is user CAC (cost of acquisition) by delivering tools that foster user engagement, research and development investment, marketing and advertising, customer support, and all the regular general and administrative expenses of a worldwide company.
Below, there is a detailed swot analysis of Facebook:
-> Read More About Facebook’s SWOT Analysis
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.
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