Facebook Business Model In A Nutshell

In collaboration with #SEOisAEO podcast, hosted by the great Jason Barnard. Gennaro Cuofano explores the key aspects of Facebook Business Model.

Facebook makes money with an advertising business model. Almost all the revenue comes from targeted advertising. Indeed, Facebook revenue breakdown in 2018 was:

• Advertising (over 98% of revenues): it primarily consists of displaying ad products on Facebook, Instagram, Messenger, and third-party
• Payments and other fees (less than 2% of total revenues):  it consists of the net fee received from developers using Payments infrastructure or revenue from the delivery of virtual reality platform devices and others

But there are some others key aspects to take into account to understand Facebook Business Model!

Read: How Mobile Advertising Is Driving Facebook Growth

Key takeaways

• Mobile is driving Facebook growth, and now it represents 92% of its total advertising revenues
• In 2018 Facebook went all into advertising. Its business model isn’t becoming more diversified. Quite the opposite, advertising now represents 98.5% of its revenues
• Facebook user base (comprising Facebook and Messenger) stalled in the US and Canada
• Facebook user base kept growing a bit in Europe, and it kept increasing worldwide, thanks to substantial growth in Asia-Pacific (from 828 million users in 2017 to 947 million users in 2018) and in the rest of the world (from 692 million users in 2017, to 750 million users in 2018)
• Nonetheless, a stalled growth in the US & Canada Facebook ARPU grew substantially. Why did that happen? A first clear reason is that Facebook is monetizing via mobile, and it seems a growing number of marketers joined the platform (we can’t know the number from its financials) and those same marketers are spending more. At the same time, Facebook ads are “performing” better
• Instagram might be driving Facebook growth
• Facebook got 13% more expensive in 2018, yet not as much as it did back in 2017 when it was 29% more expensive
• A growing number of marketers are joining the platform and are spending more on ads
• Marketers might be spending more on ads also due to Facebook cutting off their organic reach. In short, advertising remains the most effective mean to reach an audience on Facebook
• Facebook profitability stands at 39.6% in 2018, which makes it (for now) a cash cow, even more than Google’s Alphabet (which profitability stand at 22.4% in 2018)