It’s the largest and most influential social network in the world, with billions of users under its belt. Even that population of people who aren’t used to technology, already know Facebook and have a user account on this platform. For that same reason, it’s necessary to know how this company’s business model works.

Facebook business model

Founded in 2004 and with more than 10 years of existence, Facebook is the social network that helped popularize the social networks phenomenon in the world. This platform was responsible for creating connections between people from anywhere in the world. And it should be noted that thanks to it, we can do a lot of things from making friends to doing business.

For many years, this social network had to fight against adversity. For example, problems with the privacy of users and changes in their terms and conditions. Facebook has been a source of much criticism over the years for its widespread worldwide exposure and the effects this has on the minds of people.

Currently, this company faces the biggest scandal it has ever had: Cambridge Analytica. The now defunct London private data mining company that was pointed out for selling the data of more than 87 million Facebook users to political organizations. In order to influence political elections such as the campaign of US President Donald Trump in 2016.

Despite the controversy, the current CEO of Facebook Mark Zuckerberg, defended the business model of his company after the allegations. Which, said in a a stark but summarized way, consists of making income through personalized advertising. Created based on the data collected by the platform that’s sold to companies and third-party companies.

ads on facebook
A screenshot showing the types of ads that can be found on Facebook. All advertising can be shown based on data obtained from its users. Source: The Next Scoop

You’re the product

As chilling and hard to take as this sounds, this is the reality of Facebook’s business model. But there’s a good reason why many analysts and experts in the field make this daring statement. First of all, we must remember that this social network is free and does not charge fees for its use to anyone.

Quoting Zuckerberg himself, Facebook wants to stay free in order to “give people the power to build a community and unite the world.” It’s for this same reason that this company advocates to offering a service that exempts its customers from any type of payment. So that it can be used and spread easily worldwide.

Facebook Number Monthly Active User Worldwide Statista
A graph that shows the monthly number of active users on Facebook during the first quarter of 2018. Source: Statista

Taking this into account, its source of income (which is 98.5% of its total) is advertising. But not just any advertising, Facebook specializes in collecting personal data that was been given voluntarily by its billions of users. Whose access is sold to third-party advertisers so they can offer more effective advertising.

According to an article in Forbes magazine, Facebook has created “arguably the best business model in the world, achieving the trifecta of high scale and high growth and high profit margins unmatched by any high tech company.” And this is evidenced just by looking at a graph of the margin of its operating income:

Facebook Revenue
The scale, margin and profit growth of Facebook compared with other technological giants. Facebook is at the top with 50/50/50. Source: Forbes

The article concludes that Facebook’s business model has three things that make it successful: it doesn’t have costs of goods sold, marketing costs or selling costs. Which, for better or worse, make this company an incredible money-making machine. One that makes a lot of money. Through specialized advertising sold based on the data of its users.

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Facebook’s business model is summarized in one word: data!