Facebook Business Model

Description

We all know that facebook is a social networking service that provides many things for us to gather friends and relationships. It is operated since February 2004, and now Facebook has more than 600 million users from all around the world. In Facebook, we may create our personal profile, adds another person as friend, playing games, joining activities, and many more. One facility that people often to use in Facebook, is its photo uploader, where anyone can upload their own photos and share it with their friends and families. Besides personal profile, Facebook also often used for promoting our business or spreading news and invitations for party or event. That’s all the general description about “What is Facebook?”, before we move on to Facebook Business Model, let’s take a look about Facebook history first.

History

Facebook was founded by Mark Zuckerberg with his college roommates and fellow computer science students Eduardo Saverin, Dustin Moskovitz and Chris Hughes. The name of Facebook itself is came from the colloquial name for the book given to students at the start of the academic year by university administrations in the United States to help students get to know each other better. On February 4th, 2004, Zuckerberg launched “The Facebook”, originally located at http://www.thefacebook.com/. Mark said that he was inspired by an editorial in The Harvard Crimson about the Facemash incident in making Facebook. Furthermore, On October 24, 2007, Microsoft announced that it had purchased a 1.6% share of Facebook for $240 million, giving Facebook a total implied value of around $15 billion. Microsoft’s purchase included rights to place international ads on Facebook. In October 2008, Facebook announced that it would set up its international headquarters in Dublin, Ireland. In September 2009, Facebook said that it had turned cash flow positive for the first time. In November 2010, based on SecondMarket Inc., an exchange for shares of privately held companies, Facebook’s value was $41 billion (slightly surpassing eBay’s) and it became the third largest US web company after Google and Amazon. Facebook has been identified as a possible candidate for an IPO by 2013.

Business Model

In general, there are two basic types of adverts on the site:

  1. Conventional ads, which companies can buy directly from Facebook
  2. Banners, which are provided by Microsoft

Information and Content Flows

1.1 & 1.2 The transmission of data from Facebook to user is, of course, done with help of internet service providers who supply the users with their Internet connections.

1.3 Facebook can also supply advertisers with some information.

1.4 Advertisers create the advertisements (graphics, text) which are placed on Facebook sites.

1.5 Microsoft is “supplying” Facebook with the advertisement banners.

1.6 Application developers create services and applications which are used on Facebook platform.

1.7 Facebook needs to give appropriate tools and the API to the developers (with documentation).

1.8 Facebook sends results of the survey poll to those who paid for them.

1.9 Advertisers using Microsoft banners need to create the content for them.

Revenue Streams

2.1 Conventional Ads from Facebook

These can be bought directly on the Facebook webpage. Literally anyone who has a Facebook account can do this by following a few simple steps mentioned under “Advertising” on Facebook’s portal:

  • Specify the address of the link you want the people to be directed to after clicking the ad
  • Provide short text of the advertisement and the image
  • Specify the target of your group (selecting from the following criteria: Location, Sex, Age, Keywords, Education, Workplace, Relationship Status, and Relationship Interests)
  • Specify the price per click you are prepared to pay daily

Not only can the advertisement be created by anyone, it can link to any website. There is no verification that you are the owner of the webpage you are linking to. This lack of verification was used in the 2008 U.S. presidential election by the liberal group MoveOn.org . They created advertisements which were critical of John McCain and Sarah Palin. They linked to the websites of the mainstream publications (usually Washington Post, the Associated Press and The Wall Street Journal) which informed about negative aspects of the policies of McCain and Palin.

Facebook has developed a mechanism called Beacon which tracks user behaviour. By gathering such information, more personalized and relevant advertisements can be presented to the users. In some countries, this is close to breaching privacy legislation.

2.2 & 2.3 Banners

Those needing sophisticated ads on Facebook pages can buy them from Microsoft, which is the exclusive provider of banner ads on Facebook, in return for investing 240 million dollars in Facebook.

In August 2008, Facebook launched Engagement ads. They are quite exclusive and only selected companies with well-known brands can take part. The ads look like widgets that can be added by a user on her home page (and therefore will be visible to friends). People can exchange opinions about specific products and add comments. This specific type of advertisement is more of a “brand builder” and it is said to create close (and more personalised) relationships between customers and specific brands.

2.4 Facebook Users -> Advertisers

Advertising indirectly generates revenues for brand owners through the increase in sales revenues that are thought to result from these ads. Money from ads is the main source of revenue for the company. There is, however, a huge mismatch between operating costs and advertising revenues. The estimated revenue for 2008 was USD 300 million according to Wikipedia, almost certainly far less than the operating costs of the portal itself.

2.5 Facebook Users -> Application Developers

Application developers can earn money directly or indirectly from Facebook users who use their gadgets.

2.6 Facebook Polls

Organization / party / anyone who is interested in getting some data about people’s opinion can run a quick one-question survey. Paid per response.

2.7 Virtual Gifts

Facebook users can pay directly money to Facebook when buying the virtual gifts (around USD 30 million annually).

General Growth

More than 300 million active users, 50% of our active users log on to Facebook in any given day, the fastest growing demographic is those 35 years old and older.

User Engagement

The average user has 130 friends on the site, more than 8 billion minutes are spent on Facebook each day worldwide, more than 45 million status updates each day, more than 10 million users become fans of Pages each day.

Applications

More than 2 billion photos uploaded to the site each month, more than 14 million videos uploaded each month, more than 2 billion pieces of content shared each week, more than 3 million events created each month, more than 45 million active user groups exist on the site.

International Growth

More than 70 translations available on the site, about 70% of Facebook users are outside the United States.

Platform

More than one million developers and entrepreneurs from more than 180 countries, every month, more than 70% of Facebook users engage with Platform applications, more than 350,000 active applications currently on Facebook Platform, more than 250 applications have more than one million monthly active users, more than 15,000 websites, devices and applications have implemented Facebook Connect since its general availability in December 2008

Mobile

There are more than 65 million active users currently accessing Facebook through their mobile devices, people that use Facebook on their mobile devices are almost 50% more active on Facebook than non-mobile users, there are more than 180 mobile operators in 60 countries working to deploy and promote Facebook mobile products.

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