So many people have asked the question “How Does Facebook Earn Money,” This article will highlight exactly what you need to know on how does Facebook earns money.
Facebook is a social networking service that offers several ways to connect, share, and stay in touch with their friends.
Mark Zuckerberg founded Facebook in 2004. Menlo Park, California, is home to Facebook’s headquarters. The Facebook app has over two billion monthly active users as of March 2018.
The company creates revenue by selling advertising space on the website. Users generate their posts and share content like news articles or videos that they find interesting or informative.
This type of content is sponsored posts, advertisements for many businesses and organizations that want to reach Facebook’s audience.
Facebook makes money when people click on these sponsored posts to their website or app because Facebook charges the company for each click-through.
Also Read: How Do Websites Make Money
How Does Facebook Earn Money
Although it has over two billion users, Facebook does not make any money from the content or directly from its user base.
Instead, it makes billions through digital advertising because it offers something that businesses want: access to billions of individuals worldwide who might buy their goods or services.
Indeed, so many companies advertise on Facebook that the company made $39.9 billion in advertising income in 2017. Overall, advertising accounts for around 85% of the company’s revenue.
Despite an increase in privacy scandals and public outrage, Facebook continues to grow.
But how does this work with all of those customers who are not paying anything to use these apps?
What types of advertisements does Facebook employ to generate revenue? Below is a rundown:
#1. Through Facebook Ads
Facebook ads are the most important source of revenue for Facebook. They are what pays for the company’s servers, research, and development.
These ads are also responsible for most of its profits. The more data collected about each user, the better targeted these ads can be to their interests. This means that advertisers will pay more to reach these people with their ads.
This explains why Facebook can charge higher rates for their advertisements than other social networks or search engines can charge.
It is your role as a marketer to create a consumer persona. You should know your consumers’ age, gender, socioeconomic standing, education, hobbies, and pain areas.
The more you know, the better your chances of starting a successful business are.
You will become a sales machine if you can clearly identify your potential clients and then give them an ad that highlights the value of your business.
That is exactly what Facebook permits advertisers to do. It offers marketers excellent segmentation, targeting women aged 25-40 in Alabama who enjoy tennis, for example.
Marketers are charged on a cost-per-click (CPC) or cost-per-thousand-impressions (CPM) basis.
#2. Facebook Does Earn Money Through Video Ads
Facebook announced the new monetization policy to encourage businesses to generate and host video content on the network.
The new method is based on Facebook’s recommended video feature, which suggests videos similar to what the viewer has recently watched.
It’s like when you first started watching YouTube, and the system gave you a list of suggestions based on your early views or searches. Sound will be switched on in all such commercial videos.
The number of views, the number of ads viewed in a single view, and the amount of time spent on each video will determine how much money is made from sponsored Facebook videos.
The developer of an advertisement will receive 55% of the overall cash, with the rest 45% going to the platform.
Mobile users are the primary viewers of such Facebook videos, accounting for 34% of all video views on the platform.
At this point, Facebook looks a lot like YouTube, where half of all viewers watch on mobile devices.
Earn Facebook Money From All Types Of Videos
Content creators upload an eclectic variety of videos on Facebook, ranging from Live to short and long-form. Since releasing in-stream advertisements, Facebook has added pre-roll, mid-roll, post-roll, and image ads, as well as Live-specific formats.
Video creators can now make money from videos as little as one minute long, with a 30-second commercial that is minimally interruptive.
An ad can be aired 45 seconds into videos that are three minutes or longer.
In-stream advertising could previously only be used to monetize videos that were three minutes or longer, with an ad appearing no sooner than one minute.
#3. Facebook Messenger Ads
Advertisers are increasingly using Facebook’s omnipresent Messenger platform, which allows users to communicate privately on a one-to-one basis to spread the word about their products and services.
Messenger has a massive user base, with two billion user interactions in the fourth quarter of 2017.
With the purchase of WhatsApp, a popular mobile messaging service, in 2014, Facebook hopes to extend its usage of messaging marketing.
#4. Through Data Generation
Ads are believed to account for 85% of Facebook’s total revenue, but they aren’t the sole source of cash for the social media platform.
Facebook’s data generating revenue is also a cash cow. However, according to a BBC news article on the Cambridge Analytica scandal, which involved a data breach that exposed 87 million users to hackers and data thieves, may have slowed Facebook’s revenue generation.
While exact figures are difficult to come by, it’s estimated that each of Facebook’s North American users earns $84 and its European users earn $27.
Advertising generates roughly $81 of income in the United States and Canada (increasing from 12% in 2012), leaving about 3% in revenue from user-based data collection and direct business payments.
#5. How Does Facebook Earn Money: Through Facebook Mobile
In 2016, Facebook’s core mobile app accounted for 83% of all ad income, making it its most profitable digital product.
Expect Facebook mobile to shoulder the income load for the firm as it continues to explore new advertising channels since mobile advertising expands at a double-digit yearly rate.
#6. Through Oculus/VR
In 2014, Facebook paid $2.3 billion for a firm named Oculus.
Oculus is the world’s leading manufacturer of consumer virtual reality headsets. The Oculus Rift, Oculus Go, and Oculus Quest are their most popular items.
Because each Oculus headset costs several hundred dollars, Facebook profits from each sale. However, Oculus also has an app store to buy apps and games for their Oculus headsets.
In comparison to the advertising industry, Oculus generates a small amount of revenue. They don’t say how much it is, but it’s likely a significant portion of Facebook’s non-advertising revenue, accounting for 1.5 % of total revenue.
Oculus is now investing heavily in research and development and producing augmented reality (AR) headsets that may become popular soon.
Similar to Apple App Store and Google Play Store, the Oculus app marketplace might become a major revenue generator in the future.
Facebook announced on their most recent earnings call that the Oculus app store achieved $5 million in sales on Christmas Day alone.
Does Facebook Sell Your Data?
It’s crucial to note that Facebook does not sell your data directly; instead, it allows marketers to segment their target audience based on their interests, hobbies, age, and various other criteria such as income and credit card debt.
“What we allow is for advertisers to tell us who they want to reach, and then we do the placement,” Mark Zuckerberg said during a Senate hearing in early 2018: “What we allow is for marketers to tell us who they want to reach, and then we do the placement.”
However, some people fear Facebook is selling that information.
How Much Revenue Does Facebook Generate From Ads?
Facebook generates around $40 billion in annual revenue.
Since the launch of the Facebook Audience Network in 2011, they have generated advertising revenue without needing to spend money on ad distribution.
Today, Facebook Audience Network reaches over one-quarter of the world’s population, reaching 1.4 billion monthly active people on average.
This makes Facebook Audience Network one of the largest sources of display advertising in the world.
Their average revenue per user is $10, and they can generate $40 billion annually with just multiple processes in place.
What Makes Facebook Ads the Best Marketing Tool?
There’s no doubt that Facebook’s organic reach has dwindled for most advertisers in recent years. That isn’t to say you should abandon this social media platform just yet.
Facebook ads are one of the most effective marketing tools as they have a high click-through rate and an impressive conversion rate.
Other Ways On How Does Facebook Earn Money?
Facebook also earn money by collecting interest on its enormous cash reserves.
The company is producing considerably more money than it can spend since it is so profitable.
The company’s profits come from a variety of sources. The core Facebook platform generates revenue from advertisers and companies that pay to promote their posts or videos on the site.
In 2017, Facebook generated 86% of its ad revenue from mobile devices. It also sells items within its social networks, such as games and virtual goods, and offers subscriptions to its website for US$4.99 per month or US$29.99 per year.
Advertising generates the majority of Facebook’s revenue. Their software provides for extensive user segmentation based on a variety of parameters.
Although Facebook does not charge you, it does benefit from your data.
By clicking on “Ads” on the Facebook Settings page, you can see what personal preferences Facebook shares with advertisers.
You can use that page to manage any personal information or hobbies you don’t want advertising to see on Facebook.
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