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Business Operations Business Models

How Does Facebook Make Money (Business and Revenue Model)

The Facebook business model

How Does Facebook Make Money?
Here’s what you should know:
  • What is Facebook, and how does Facebook work?
  • How does Facebook make money?
  • Advertising
  • Other Revenue
  • Facebook’s Subsidiaries, Acquisitions, and Exits
  • Facebook’s profit and revenue
  • What is the Facebook business and revenue model?
  • Facebook’s funding and valuation

How does Facebook make money if it’s free? Here is a full, in-depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the Facebook business model, their year-over-year revenue, and how Facebook works.

What is Facebook, and how does Facebook work?

Facebook is a social networking platform that enables its users to connect with friends and family.

Founded in 2004 by Mark ZuckerbergEduardo SaverinAndrew McCollumDustin Moskovitz, and Chris Hughes, Facebook is now the 34th largest corporation, by revenue, in the United States according to the 2020 Fortune 500 list and has a valuation of roughly $720 billion.

How Facebook works is: An individual or business can create a Facebook account using their email or phone number. Once signed up – users can connect with friends, family, customers, fans, etc. through friend requests, status updates, direct messaging, and video chat.

Some of Facebook’s competitors include Twitter, Pinterest, LinkedIn, Snapchat, and other social media platforms.

Facebook App in Apple App Store | Facebook Business Model | How Does Facebook Make Money?
Source: Apple App Store

How does Facebook make money?

Some of Facebook’s statistics include having more than 2.8 billion monthly users worldwide and over 10 million active advertisers using their Facebook platform.

So how does Facebook make money off of all those users and advertisers?

Below is a breakdown of how much money Facebook makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 2 ways of how Facebook makes money (in 2021):

Facebook has a revenue model that makes money in two (2) ways – advertising and other revenue.

#1. Advertising

Facebook makes its money from advertising. To be exact – $84.17 billion or 97.9% of Facebook’s total revenue of $85.97 billion came from advertising in 2020.

To date, there are more than 10 million active advertisers and over 2.8 billion monthly users on the platform to advertise to.

The way Facebook advertising works is: Advertisers first create a Facebook Ads Manager account from their existing Facebook account. Once the account is set up, they can then create ad campaign’s to tailor the target demographic, setting the budget, choosing which ads to run, etc.

The ads are then displayed to Facebook users across Facebook, Instagram, Whatsapp, Messenger, and other Facebook-owned platforms. And depending on the budget they set and other factors, they will receive clicks and impressions on their ads.

Facebook Advertising | How Does Facebook Make Money?
Source: Facebook

Note: 97.9% of Facebook’s total revenue came from advertising in 2020.

#2. Other Revenue

Facebook also makes money through a few other services, but none nearly as large as their advertising revenue.

“Other revenue” as labeled on page 64 of Facebook’s 2020 Form-10K is, “revenue from the delivery of consumer hardware devices, net fees we receive from developers using our Payments infrastructure, and revenue from various other sources.”

Note: “Other revenue” makes up just 2.1% of Facebook’s total revenue.

Facebook’s Subsidiaries, Acquisitions, and Exits

To date, Facebook Inc. has made a total of 90 acquisitions. On top of that, Facebook also had 36 investments and 16 lead investments.

Some of Facebook’s most notable acquisitions include the purchase of Instagram for $1 billion, Oculus for $2 billion, and Whatsapp for $19 billion.

Facebook Acquisitions
Source: Crunchbase

Facebook’s profit and revenue

In 2020, Facebook reported $85.97 billion in revenue.

Note: Because Facebook Inc. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Facebook’s publicly released financial reports, including annual reports, through Facebook’s investor section on their website.

What is the Facebook business and revenue model?

Facebook makes money through a few revenue models that they combine within their company, they are:

  • Advertising based business model
  • Transaction based business model
  • Mergers & acquisitions (M&A) business model

Facebook’s funding and valuation

According to Facebook’s Crunchbase profile, Facebook raised $16.1 billion over 18 rounds with a valuation of roughly $720 billion as of August 2020.