As a small business consultant who assists entrepreneurs with marketing and monetization strategy, I‘m often asked: "How does Facebook make money?"
It‘s no secret that Facebook, with over 2.9 billion monthly active users, is an extremely profitable technology giant. But when you consider that Facebook offers free services to users, it begs the question – how do they generate revenue?
In this comprehensive guide, I‘ll break down 8 key revenue streams that enable Facebook to rake in billions in profits every year.
1. Targeted Advertising
Advertising accounts for over 98% of Facebook‘s total revenue. By leveraging detailed data about its users and delivering highly targeted ads, Facebook has created an extremely lucrative advertising model.
In 2022 alone, Facebook generated $135 billion in advertising revenue.
There are a few key reasons why Facebook ads are so profitable:
Precision Targeting
By collecting data points about age, location, interests, and more, advertisers can target Facebook users with incredible accuracy.
Ad Formats
Facebook offers numerous ad formats including video, image, carousel, Stories, and more, giving advertisers flexibility.
Auction-based Pricing
Advertisers bid against each other in an auction process to show ads to certain users. Prices vary drastically based on targeting.
Facebook‘s advertising revenue from 2009 to 2022. Source: Statista
As a small business owner, focusing your marketing budget on targeted Facebook ads can deliver an extremely high return on investment.
2. Facebook Marketplace
Facebook Marketplace allows people to buy and sell goods locally. Sellers list items for sale, and interested buyers can contact them through Messenger to arrange pickup or delivery.
There are over 1 billion monthly active users engaging with Marketplace content.
Facebook primarily profits from Marketplace in two ways:
Listing Fees
While listing an item is free, sellers can pay to promote listings to gain more visibility.
Sale Commissions
Whenever an item is sold on Marketplace, Facebook charges a 5% fee on the purchase price.
Facebook also provides the option for buyers and sellers to arrange shipping through Facebook. In these cases, Facebook charges a commission on the shipping label price as well.
3. Facebook Payments
Facebook processes an enormous volume of payments made through its family of apps including:
- In-app purchases: Virtual goods bought within Facebook games
- Peer-to-peer transfers: Users sending money to friends
- Nonprofit donations
- Facebook Shop transactions
For each payment processed, Facebook charges a standard processing fee plus a percentage of the transaction value. This has developed into a sizable revenue stream given Facebook‘s massive user base.
In 2021 alone, Facebook Pay processed $132 billion in payment volume.
4. Oculus Store Fees
Facebook owns Oculus, the prominent virtual reality headset company. The Oculus Store offers VR games, apps, and experiences for purchase.
Like other app stores, Facebook charges developers an initial 30% fee on every transaction, giving them another revenue stream.
5. Internet.org
Internet.org is Facebook‘s initiative to provide free basic internet services to users in developing countries. By partnering with mobile carriers globally, Facebook has brought connectivity to millions who can now access Facebook services.
The revenue model relies on getting users hooked on the free basic services, then convincing them to pay for upgraded data packages which allow broader internet access. Facebook takes a share of the data package profits.
This initiative gives Facebook exposure to difficult-to-reach markets, providing revenue potential as those markets continue to develop.
6. Developer Platform Fees
The Facebook for Developers platform allows programmers to integrate Facebook functionality like Login and Share buttons into their own sites and apps.
Developers pay initial onboarding and annual subscription fees in order to access these toolkits. With millions of sites leveraging Facebook APIs, these fees contribute noticeably to revenue.
7. Content Partnerships
Facebook has invested heavily in developing original video content through its Facebook Watch platform. They have partnered with content creators and media companies to develop reality shows, comedies, informative series and more.
These partnerships come with lucrative revenue-sharing arrangements. Advertising shown alongside partner videos provides additional income.
Additionally, Facebook pays popular influencers and creators to produce Live shows and short-form videos, which attract audiences and drive traffic.
8. Data Licensing
Facebook has also monetized its data by providing aggregated statistics and insights to researchers, governments, and brands to inform decision-making. While they do not sell individual data, these bulk analytics packages can provide substantial revenue.
For a company providing free social media access to billions, Facebook has devised an extremely profitable business model by monetizing nearly every aspect of that audience.
Through targeted advertising, commerce, payments, content partnerships and more – Facebook‘s revenue continues growing at staggering rates. They‘ve set the standard for capitalizing on a massive user base.
