Facebook is today considered one of the Big Four tech companies along with Amazon, Apple, and Google. Facebook was founded in 2004 by Mark Zuckerberg and his roommates during his time at Harvard College. However, during its initial release, it was limited membership to students of Harvard and then later also Columbia, Stanford, and Yale before expanding to the remaining Ivy League schools. But for now, let’s move forward to your real question, how does Facebook make money?
How does Facebook work and how does Facebook make money?
Facebook has for the last decade been what is seemingly the biggest social media platform on the planet, with its user-base ranging from the ages of young children to the elderly. According to a Core Datapoints Review, there were over 2.41 billion monthly active users (MAU) as of June 2019. This is one of the most vital pieces of information when we ask ourselves; How does Facebook make money?
Business Model of Facebook
While most of Facebook’s revenue comes from their advertising, they have several other income streams to boast about. Facebook seems to have over the years made it somewhat of a hobby to acquire other, smaller companies to bring their projects to light.
The companies’ digital line-up is huge and seems to grow every year. Here are a few of those companies that you might have heard of:
Instagram was Facebook’s largest acquisition at the time purchased for $1 billion in a mix of cash and shares in 2012. Before this notable move by the social media giant, it has focused solely on bite-size acquisitions, worth less than $100 million. Instagram is today the world’s most popular photo-sharing application, booming with influencers around the world.
Facebook announced its plans to acquire the text messaging application “WhatsApp” in February 2014, offering a staggering sum of $16 billion ($4 billion in cash, $12 in Facebook shares). Facebook later agreed to pay $19.6 billion, adding $3.6 billion to the original price. This move was to offer compensation to WhatsApp employees that stayed on board at Facebook after the acquisition. However, by the time the deal was closed in October 2014, Facebook share prices had gone up immensely to $77.56 from $68. This inflated the final sale price by an additional $1.7 billion. The final price ended up at $21.8 billion in a mix of cash and 184 million shares. This is by far Facebook’s largest acquisition to date and is over 20 times larger than the acquisition of Instagram in 2012.
Jibbigo is a mobile offline language translation application developed by the company Mobile Technologies. Facebook announced in August 2013 that Facebook was acquiring the company for an undisclosed sum.
On the 26th of April 2013, Facebook announced that it had acquired Atlas from Microsoft. Atlas was at the time a leader in campaign management and measurement for marketers and agencies. We can find here the full announcement post. According to a TechCrunch article, Facebook paid closer to $50 million than $100 million for the platform.
Onavo was an Israeli web analytics company that primarily performed its activities via consumer mobile apps. The company was acquired for approximately $120 million in October 2013 but was announced to be defunct in 2019. Facebook had previously pulled Onavo Protect off the iOS App Store in 2018 due to violations of the App Store Terms of Service, forbidding apps from collecting data on the usage of other apps.
Oculus VR is an American tech company founded in July 2012 in Irvine, California. The company specializes in virtual reality hardware and software (which is an industry it has pioneered). It was initially a Kickstarter project that proved to be very successful after raising an incredible $2.4 million, nearly ten times the original goal of $250,000.
Facebook later acquired it in March 2014 despite only having developed its first development prototype of the Oculus VR headset. They split the $2 billion deal $400 million in cash and 23.1 million common Facebook shares, which at the time were valued at $1.6 billion. Facebook also agreed to put in an additional $300 million assuming that Facebook reaches certain milestones.
Facebook’s external messenger app, Messenger, is the new and improved version of the old Facebook Chat. The app has gotten very sophisticated over the years and now offers video and voice-call features. The app also contains mobile games like basketball to play and compete with your friends (something which I have personally found very addicting). You can even use it to send payments to people, assuming that the user provides credit card information or PayPal login information. However, I believe that the true value of the Messenger app is in its data acquisition from its users.
These are all companies that are already generating income for Facebook or at the very least expected to in the future. They could also develop some tech to be incorporated into existing products. They are chump change compared to their advertising revenue, but still significant enough that we must mention it to fully answer the question “How does Facebook make money?”.
Another common misconception is that Facebook also owns the app “Snapchat” but this is not true. Facebook offered Snapchat inc. $4 billion for the app but was turned down. Google later offered Snapchat $30 billion which was also turned down. Snapchat is today still owned by their founding company which now goes by the name “Snap inc.”
How much money does Facebook make?
In 2017, Facebook made a whopping $39.9 billion from digital advertising revenue. This made up of approximately 89% of their annual income of 2019. Facebook has grown to become half of a dominant duo in the world of digital advertisement, with the second half being Alphabet Inc. or as most of you know it, Google.
The reason behind Facebook’s incredibly successful digital advertising is in its abundance of user data. Yes, I said user data. Facebook uses just about every piece of information you give them, willingly or not, to serve as personalized ads as possible.
Frankly, I could end the article saying that the answer to the question “How does Facebook make money” is you.
In March 2018 Facebook was involved in a series of scandals after numerous multinational companies were given access to users’ contact information, friend lists, and private messages. Different companies had different access to various amounts of information. Microsoft’s Bing search engine has access to virtually all the names on every Facebook user’s friends list; Spotify and Netflix had access to user’s private messages; Altaba (formerly known as Yahoo!) had access to content published by user’s friends; And Amazon which had access to the contact information to everyone on the social media platform. These exchanges supposedly took place as recently as last summer. This rendering Facebook’s prior statement that they had stopped selling access to user data years ago invalid.
I recently published a similar article about Reddit, you can read it here. I truly hope that I answered questions you may have had about how Facebook makes money.