Facebook is One of the Largest Corporations in the World

Making about $40 billion in profit with 2.23 billion monthly active users, Facebook is one of the biggest corporations today. Value of the company has a market capitalization of about 447.09B and a current stock price of around 154.78. Facebook has various ways of operating and making money. Facebook makes money through mobile advertisements, video ads, and target ads. Furthermore, Facebook also utilizes Instagram, WhatsApp, Messenger, and Oculus Rift as additional revenue streams. Lastly, Facebook partners with game makers like Zynga. The revenue streams contribute to Facebook’s earnings and increase their total profit.

When Facebook first started to advertise, it was through desktop products. However, as users started to shift to mobile devices, Facebook started to prioritize mobile-first products. Today, mobile advertisements are one of Facebook’s biggest contributions to revenue. As of 2018, mobile advertisements account for over 90% of the total revenue. There are several ways that the company advertises through its mobile Facebook app. In an article published in 2016 Seetharaman states, “Mobile ads accounted for 80% of Facebook’s ad revenue in the fourth quarter; three years ago, mobile-ad revenue accounted for just over 20%.”

The statistics reveal that mobile ads are playing an important role in Facebook’s revenue production with an increase of 60 percent within the past three years. The alarming numbers show that mobile advertisements have driven social media’s continuous growth over the past years. According to an article by Dow Jones Institutional News, “Over the past few years, Facebook has relied on mobile ads to drive its growth.” One can tell that mobile ads have become the number one contributor to Facebook’s revenue growth. Mobile advertisements are by far the most effective revenue channel for Facebook. Another revenue stream that accounts for Facebook’s profit is video advertisements. In 2017, video monetization accounted for just 12 percent of the company’s total revenue. (This percent is said to increase drastically for 2018). In another article published in 2017, Seetharaman discusses that “Facebook has also been testing ‘ad breaks’ in the middle of Facebook videos…”, introducing the start of video monetization. While viewing a video the user encounters an ad break based on their mobile browsing. A report done by Wochit indicates that media companies are looking to Facebook video to drive revenue. Other companies are turning to Facebook to advertise their videos, which makes Facebook’s revenue increase. In “You Are the Product” Lanchester states, “A video is counted as ‘viewed’ on Facebook if it runs for three seconds, even if the user is scrolling past it in her news feed and even if the sound is off.” Facebook’s properties of growth and monetization can be seen through the money they earn off of a video that in reality was not viewed. How many times has a user scrolled through a video and had it accidentally play for longer than three seconds? According to an article by the Los Angeles Times, Facebook is expected to bring in $6.8 billion in digital video ad revenue in 2018. Facebook is in essence an advertising company whose revenue from video ads is rapidly increasing. Facebook’s alternative way of making money is through targeted advertisements. The company is known to plant cookies in one’s browser.

Through this action, it can serve ads based on what sites one has visited. In “You Are The Product” John Lanchester states, “Facebook’s customers aren’t the people who are on the site: its customers are the advertisers who use its network and who relish its ability to direct ads to receptive audiences.” This statement shows how Facebook targets and sells advertisements to its users. There is no simpler phrase than “You Are The Product” because Facebook uses targeted ads to make money off its users. How many of Facebook’s 2.23 billion monthly active users come across advertisements? All of them. Each advertisement is specifically targeted to one person based on user monetization. Lanchester also states, “Its news feed directs traffic at you based not on your interests, but on how to make the maximum amount of advertising revenue from you.” To rephrase the quote, a consumer’s news feed is compiled of target advertisements based on how much money Facebook thinks they can generate off that certain user. Facebook’s strategic tricks on targeted ads play an important role in the company’s tremendous revenue growth. Instagram, one of the biggest social media platforms, is a prime contributor to Facebook’s revenue, accounting for $35 billion in profit. Facebook bought Instagram for $1 billion when Instagram had no source of revenue. Today, Instagram has reached enormous growth with 1 billion monthly active users. Dragon states, “About 5% of Facebook revenue comes through Instagram, a figure that has steadily increased.” In 2016 Instagram accounted for only 5 percent of Facebook’s revenue which is a relatively small number. However, this percentage is said to increase throughout the years. Reinhardt states, “We estimate Instagram will make up 26% of Facebook’s total revenue by 2020 (up from 11% in 2017).” Instagram’s contribution to Facebook’s revenue has increased by six percent from 2016 to 2017, and it has increased by about 15 percent from 2017 to 2018. One can see the rapid increase that has quadrupled in just two years. Where is Instagram getting the money that adds to Facebook’s profit? Like its parent company, Instagram has advertisements that have increased its growth, which raises Facebook’s profit as well. Seetharaman states, “The company ramped up efforts to sell ads on its Instagram image-sharing network in the second half of last year. Facebook ‘made big strides’ on Instagram in the fourth quarter…” They’ve started monetizing Instagram ads as they have with Facebook. Instagram’s ad revenue in 2018 is estimated at $8.9 billion. The ad performance for Instagram will continue to improve due to its 1 billion users that are exposed to “suggested” ads on their news feed each day. Not only does Instagram revenue continue to grow due to ads, but also because of added features such as Instagram stories, pinch-to-zoom, and other new up-and-coming features.

Ultimately, Instagram has made Facebook a significant amount of money that accounts for its overall revenue. WhatsApp is another Facebook revenue stream that has hit a rapid growth, contributing $700 million to its parent company. Facebook bought WhatsApp for $19 billion in 2014 when the app was making little to no revenue. Although the popular chat app generates little revenue for Facebook, it is still considered a source of revenue. Seetharaman states, “Earlier this month, Facebook’s WhatsApp messaging unit said it would scrap its subscription fee and test ways to help businesses interact with users.” WhatsApp used to make money through a subscription fee that charged an annual amount of $0.99 per member. In 2017 it got rid of the membership fee and WhatsApp became free for its 1.3 billion users. With this change, Facebook had to figure out how they could make money through this chat app. What are the ways WhatsApp could help businesses interact with users? An article from Business Daily, states, “Messaging application WhatsApp said on Thursday that it would begin allowing business accounts for the first time, a step that brings the free service closer to a plan that would make money for its corporate parent, Facebook Inc.” The company will be collaborating with businesses to send marketing messages to users who connect with them. The 1.3 billion active users are sought by business accounts who will have set up automatic greetings, see statistics about messaging, and have set up a profile page with information. Shah states, “They had announced in January last year itself of their plans to experiment with collaborating and charging businesses and organizations that users want to hear from, to let them message users through WhatsApp.” It is a way for the businesses to have more efficient tools and be able to target the audience automatically through communication in WhatsApp.” As of today, WhatsApp is charging businesses to interact with users and be able to message them. Although Facebook had agreed to make WhatsApp an ad-free platform, now that WhatsApp founders have split, Facebook is thinking of adding advertisements. In an article Seetharaman and O’Reilly state, “Facebook plans to test ads within WhatsApp Status, a similar feature…Facebook executives have signaled they would be open to introducing advertising to the messaging app.”

One can see the future WhatsApp advertisements as a potential revenue stream for Facebook. WhatsApp has dabbled with using different aspects of the chat app to increase Facebook revenue. Facebook’s Messenger App has increased the overall revenue for its parent company with an amount of $257 million in profit. The messaging app with 1.3 billion users has been monetized like every other Facebook-owned company. Much like WhatsApp, Messenger has a way for businesses to interact with customers through the chat app. Constine states, “ The Businesses On Messenger program that debuted at F8 and is slowly rolling out, allows users to opt to get customer support after e-commerce purchases over Messenger rather than through email.” Facebook charges businesses for the opportunity of interacting with Messenger users. Zuckerberg wanted to figure out a new way to squeeze dollars out of Messenger. He took a strategic way to increase revenue that has been seen to work for other Facebook platforms: advertisements. Bruno states, “Messenger will generate revenue through advertising, and not by taking a cut of profits from money exchanged via the platform.” The expansion of ad loads on Messenger shows that Facebook-owned businesses can be monetized through the use of advertisements once again. From Facebook’s Business resource website, “Messenger ads are shown in the platform’s home tab. Around the world, 1.3 billion people spend time in Messenger interacting and establishing business relationships with businesses and brands they like. Now, Messenger ads allow them to discover experiences directly in the ‘Home’ tab.” Additionally, the idea in the sentence could be simplified even further: “Facebook Messenger works with businesses to promote their brand to Messenger’s 1.3 billion users with advertisements that have a global reach to consumers.” Messenger has various ways of promoting the ads such as single Images, carousel, video, and dynamic ads. The chat app, Messenger has a source of income that increases Facebook’s revenue profit. Although Virtual Reality is a small revenue stream contributor today, it has potential growth in the future. When Facebook acquired Oculus for $3 billion it had no revenue and the impact of the Virtual Reality source was negligible. Oculus made about 289,000 shipments in 2018, which made sales grow by 40%. (Fogel.) In 2015 UBS market forecast says, “VR hardware sales will boom to $6.7 billion in 2020, while software-application sales reach $3.3 billion…

Oculus’ hardware sales will grow to $750 million in 2018 from an estimated $30 million this year, says UBS. It expects software revenue of about $50 million by 2018. (Krause) The estimations about Oculus made by the market forecast show the revenue possibilities for Facebook in 2018. One might ask, Why are there only estimations and speculations about Oculus revenue? Although the financial performance for Oculus VR isn’t as high as other revenue streams it can develop into something bigger in the future. Financial Times article states, “Some analysts had speculated that Oculus could generate $7bn of revenue by 2020, a tenth of company sales.” The growth that Oculus can develop will be an important part of Facebook’s profit, the estimation of $7 billion by 2020 is an amount of money that will likely up Facebook’s growth. The CNBC article states, “Facebook’s virtual-reality division is getting ready to ship its high-powered, untethered headset, the company announced Wednesday. The new standalone headset is called Quest and costs $399.” The headsets are worth a significant amount of money and even selling an insufficient amount will produce revenue for Facebook. Zuckerberg’s full vision for Oculus will take time to develop, as of now Oculus will continue to contribute a small amount of money to Facebook. Virtual Reality, also known as Oculus can be seen as a potential investment that will one day contribute a greater percentage to Facebook’s revenue. Zynga, the mobile gaming platform also brings money to Facebook. In 2011 Zynga Contributed 15% of Facebook’s Revenue and Zynga still accounted for $313.9 million in 2012 of Facebook’s profit. Aside from the fact that Zynga’s games charge for in-game resources, they also generate money by just being promoted on Facebook games. Zynga’s social network game ‘FarmVille’ is one of the most popular in-app games on Facebook. In an article, Srikanth states, “All of these widely popular games are made by Zynga and Facebook gets 30% of its revenue from it.” One can consider Zynga as Facebook’s game arm to bring in a source of revenue. Facebook has various ways of exploiting Zynga and uses every aspect of the game company to its benefit. An official statement released by Facebook states, “In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which we display ads from other advertisers.” (Srikanth.) Facebook makes money through Zynga through payment fees, sales of virtual goods, and Zynga game advertisements.

The use of Zynga games on Facebook’s platform is a strategic way in which Facebook creates profit. Zynga pays Facebook to constantly ‘invite’ people to games, get advertised on consumers’ new feeds, and be able to charge real money while in the game. The Times states, “The cash spent by Zynga’s players on micropayments within FarmVille is one reason why Zynga is generating revenues of more than $150 million.” The particular game of ‘Farmville’ makes a great amount of money especially for Facebook since it’s one of the most popular played games on the social platform. Although Zynga isn’t one of the biggest contributors to Facebook’s revenue it is still popular among users and generates profit for Facebook. Facebook has various ways of creating revenue for its company. The company that was widely adopted has a monthly active user base of 2.23 billion. The exceeding growth of the company is due to mobile advertisements, video ads, and target ads. Additionally, the revenue streams Facebook depends on are Instagram, WhatsApp, Messenger, and Oculus VR. Furthermore, Facebook also partners with game makers such as Zynga. The revenue streams account for Facebook’s overall revenue and play a significant role in making Facebook one of the fifth most valuable companies in the world. Containing a market capitalization of 447.09B, it is no surprise that Facebook is in for a tremendous expansion. 

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