How Does Facebook Make Money?

How Does Facebook Make Money?
Despite having over two billion users on its platform, Facebook doesn't actually make any money on content or directly through its user base.

Instead, it makes billions via digital advertising, as Facebook has something that companies really want - access to billions of people around the globe who might buy their products or services. In fact, so many companies advertise on Facebook that in 2017, Facebook earned $39.9 billion from advertising revenue. All in all, the company earns about 85% of its money from advertising.

What forms of advertising does Facebook use to make its money? Here's a list:

1. Self-Serve Advertising
This type of advertising is widely used on Facebook - self-serve advertising enables anyone to create and put up an ad on Facebook. Self-serve advertisements appear on the right side (or "sidebar") on Facebook pages, for individuals, groups, user profiles, events, and third-party pages. Facebook's Ad Manager page helps advertisers create their own ads, offering granular target tools to ensure the ad reaches the intended audience.

2. Targeted Advertisements
Facebook holds a massive amount of personal data on its user base, including gender, age, hobbies, career choices, political preferences, shopping preferences - even their favorite baseball team. That allows Facebook to sell advertising space to companies and organizations who want to hone in on a specific demographic, like video game players or Range Rover owners. Or, more generically, advertisers can target ads to larger groups of people based on political preferences, religion, or even age. Advertisers can use specific tools like Facebook's Dynamic Ads to market their entire inventory of products to users at different income levels, to up their chances of making a sale. Targeted ads are a significant revenue generator for Facebook, and it's all due to the data the company collects on its user base.



3. Facebook Messenger Ads
Facebook's ubiquitous Messenger tool, which enables Facebook users to engage privately on a one-to-one basis, is increasingly being leveraged by advertisers to get the word out on their products and services. The Messenger audience is huge, with two billion user engagements recorded in the fourth quarter of 2017. Facebook is looking to expand its use of messaging advertisements through its 2014 purchase of WhatsApp, the widely-used mobile messaging app.

4. Video Ads
Traditionally, Facebook Live has thrived as a digital tool that allows Facebook users to connect via video, enabling grandparents to check in with their grandkids thousands of miles away or old college friends to reconnect online to share stories of their days back on campus. Increasingly, Facebook views video as an effective means of connecting advertisers with Facebook users via Facebook Live. Broadcasts via Facebook Live are on the upswing, and Facebook is capitalizing by making video ads on its signature video platform commonplace.

5. Facebook Mobile
In 2016, Facebook's core mobile app generated 83% of Facebook ad revenues, making mobile its biggest money-making digital tool. As Facebook continues to explore new advertising platforms, expect Facebook mobile to carry the revenue burden for the company, as mobile advertising grows at a double-digit growth rate on an annual basis.

6. Data Generation
Facebook is estimated to earn 85% of its total revenues from advertising, but ads aren't the only source of income for the social media company.

Data generation is something of a cash cow for Facebook too, although the recent Cambridge Analytica scandal, a data breach potentially exposing 87 million users to hackers and data thieves, may have curbed Facebook's data generation revenue.

While specific numbers are hard to come by, it's estimated that Facebook earns $84 from each of its North American users, and $27 from each of its European users. Of the U.S. and Canadian market, about $81 of that revenue comes from advertising (up from 12% in 2012), leaving approximately 3% in revenue earned from user-based data generation and direct business payments.