Facebook

15 Jan 2014

Today morning while I rushed to Faasos’ to pick up a quick wrap, I overheard 2 young girls discussing FB updates over their morning breakfast. On way to office, I saw so many people dig into their mobiles, surfing FB. I came to office and saw a colleague busy editing a picture which he said he wanted to post as his profile pic on FB. I realized, yet again, FB has touched each of our lives and it has become an important engagement activity!

Facebook has over 900 million active users. Now that’s quite huge: If Facebook was a country, it would be the third largest in the world, after China and India! A quick glance at FB stock shows that it is being traded today at $57.74 which is 3.27% up than yesterday.

That’s great news. But ever wondered how FB is making money?
A quick google search – and I learnt that FB’s major revenue is from its ads! The ads that show up on your website make money for FB! FB’s 2013 Q3 revenue increased by 60% with strong ad sales.
A smaller part of FB revenue comes from its other payments like games (made by Zynga) and FB takes 30% revenue from it and from FB gift shop and FB credits.

But gradually the internet world is shifting from PC to mobile. More than 50% of Facebook users access FB through their mobile. If you notice, since a couple of months some sponsored ads have started appearing on your mobile app. These are much less than the ads you see on your web page, but FB is gradually coming up with different monetization strategies for mobile users.

The money-making model that Facebook adopts is called “Advertising Based Revenue Model”. There are 2 types of advertisements: Direct and Contextual. Direct ads provide more revenue – there are fixed places for the ads (like hoardings you see on the road, or like the “sponsored ads” that FB shows in the form of “suggested pages”). Contextual ads are those that come up depending on the user’s profile: user’s search history, the pages he likes, the posts he read, his friend connections – all this is analyzed programatically and ads relevant to the users come up for him. A third party is involved in the contextual ads – which makes profit margins less in these type of ads.

Another big giant that gets its revenue from ads is Google. Wordstream, an internet marketing software site, analyzed that Google ads are 10 times more likely to be hit by users than FB ads. Which means, FB still lags behind Google, in generating revenue. Advertisers would prefer selling their ads to a site which promises better sales for them. Hence, companies that are based on ad-based revenue model need to keep coming up with innovative strategies to stay in the competitive market. Whether Facebook will come up with better ad-maketing strategies to overtake Google, or will it fall behind? Time will tell 🙂

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