How Instagram And Facebook Make Money

Summary

Facebook, with its family of apps, reaches over two billion users daily, generating $55.8 billion in 2018 revenue, primarily from targeted ads. Despite privacy concerns and scandals, its user base continues to grow. The company uses vast user data to personalize ads, influencing consumer behavior and even political outcomes. However, with increased regulation and user awareness, Facebook is adapting its strategies, including a new 'Clear History' feature to address privacy issues.

Takeaways

• 🌐 Facebook and its apps reach over two billion users daily, which is more than a quarter of the world's population.
• 📈 Despite privacy concerns, Facebook's revenue grew 37% from 2017 to 2018, reaching $55.8 billion, with advertising being the main revenue source.
• 💼 Advertising accounts for approximately 99% of Facebook's revenue, highlighting its reliance on this income stream.
• 🎯 Facebook offers highly targeted ads, allowing advertisers to reach specific audiences, which is more efficient than traditional advertising methods.
• 📊 The company's advertising strategy has contributed to the decline of television and print advertising as digital advertising is set to surpass traditional methods.
• 🔍 Facebook gathers extensive user data to create detailed advertising profiles, which helps advertisers reach potential customers more effectively.
• 📱 Facebook can track user behavior across its family of apps and even on other websites through the Facebook Pixel.
• 🚫 There have been controversies and legal issues related to Facebook's ad targeting practices, including discrimination and misuse of data.
• 🛑 Users have limited options to avoid personalized ads, and even deleting Facebook may not remove the data the company has collected.
• 📉 Factors like increased regulation, social media concerns, and new features like 'Clear History' could potentially impact Facebook's advertising business in the future.

Q & A

How many people use Facebook, Instagram, WhatsApp, or Messenger daily?

More than two billion people use Facebook, Instagram, WhatsApp, or Messenger daily.

What percentage of the world's population uses Facebook's apps?

The usage represents more than a quarter of the world's population.

How much was Facebook's total revenue in 2018?

Facebook's total revenue for 2018 was $55.8 billion.

What percentage of Facebook's revenue comes from advertising?

Approximately 99% of Facebook's revenue came from advertising in 2018.

How many advertisers are there on Facebook?

There are about 7 million advertisers on Facebook.

What type of ads does Facebook use to target its users?

Facebook uses sophisticated and targeted ads that allow advertisers to select the kind of audience they want to reach.

How does Facebook ensure advertisers that their ads will be seen by the right audience?

Facebook provides a near guarantee to advertisers that their ads will be seen by people likely to buy their products, ensuring that they won't waste time or money.

What is the role of Sheryl Sandberg in Facebook's advertising strategy?

Sheryl Sandberg's experience with advertisers on Google influenced Facebook's targeted advertising approach, utilizing Facebook data that users voluntarily provide.

How does Facebook gather information to target ads?

Facebook gathers information from user activities on its apps, including likes, groups joined, events RSVPs, and location shares.

What is the Facebook Pixel and how does it contribute to ad targeting?

The Facebook Pixel is a piece of code that can be placed on other websites to track user activity and gather data for ad targeting.

What kind of information can advertisers target with Facebook ads?

Advertisers can target ads based on user interests, phone type, political leaning, ethnicity, and even income level.

What has been Facebook's response to criticism regarding its ad targeting practices?

Facebook has pledged to reform its system to prevent discrimination in ad targeting and has been working on features like 'Clear History' to give users more control over their data.

How does Facebook's new vision for a privacy-focused platform impact targeted advertising?

Facebook's new vision for a privacy-focused platform raises questions about how targeted advertising will work if users are encouraged to post privately.

What is the impact of Facebook's 'Clear History' feature on its advertising business?

The 'Clear History' feature allows users to delete the data Facebook has on them, which could reduce the precision of ad targeting and potentially affect the company's advertising revenue.

Outlines

00:00

📈 Facebook's Advertising Dominance

Facebook's massive user base, exceeding two billion people across its platforms, generates significant revenue, primarily through advertising. Despite privacy concerns and public backlash, the company's revenue grew by 37% in 2018 to $55.8 billion, with 99% coming from ads. The ads are highly targeted, leveraging user data to ensure relevance and effectiveness. Facebook's advertising model has led to a decline in traditional media advertising as digital ads are predicted to surpass them for the first time. The company's ability to target ads is so precise that it can assure advertisers their ads will be seen by the right audience, such as high school students seeing prom dress ads and not retirees. However, Facebook has faced criticism for its ad targeting practices, including showing insensitive ads to certain groups and facilitating discrimination in housing ads.

05:01

🛡️ The Challenges and Future of Facebook's Ad Business

Facebook faces challenges in its advertising business due to privacy concerns, data breaches, and lawsuits. Users are becoming more aware of the data they share and the impact of social media on their lives. Despite this, Facebook continues to grow, with Instagram Stories alone boasting over 500 million daily active users. Facebook is shifting its advertising strategy to focus on Stories, a format that is expected to generate substantial revenue. The company has also pledged to reform its advertising system to prevent discrimination and is rolling out a 'Clear History' feature to allow users more control over their data. However, these changes may affect Facebook's ability to target ads precisely. The future of Facebook's advertising business is uncertain, with new challenges arising from regulatory concerns and a potential shift towards privacy-focused platforms.

Keywords

💡Facebook

Facebook is a social media platform that allows users to connect with friends, share content, and join groups. It plays a central role in the video's discussion about advertising revenue. The script mentions that Facebook has a vast user base, which it monetizes through targeted advertising without charging users for the service.

💡Advertising Revenue

Advertising Revenue refers to the income generated from displaying advertisements to users. In the context of the video, Facebook's business model heavily relies on this revenue stream, with about 99% of its total revenue coming from advertising in 2018.

💡User Data

User Data encompasses all the information that users willingly provide or that is collected from their online activities. The video explains how Facebook uses this data to create targeted ads, enhancing the effectiveness of advertising for companies and making the ads more relevant to users.

💡Targeted Ads

Targeted Ads are promotional messages that are specifically designed to appeal to certain user segments based on their interests, behaviors, or demographics. The video emphasizes how Facebook's ability to deliver targeted ads is a key factor in its advertising success, as it allows advertisers to reach potential customers more precisely.

💡Privacy Scandals

Privacy Scandals refer to instances where companies misuse or mishandle user data, leading to public backlash. The video mentions privacy scandals as a challenge for Facebook, yet it continues to grow despite these issues, indicating the complexity of public sentiment towards data privacy.

💡Facebook Pixel

Facebook Pixel is a piece of code that can be placed on a website to track user activity and gather data. The script explains that Facebook can collect data on users from other websites they visit through the Facebook Pixel, which is then used to refine the targeting of ads.

💡Digital Advertising

Digital Advertising involves promoting products or services through digital channels, such as social media platforms. The video discusses the rise of digital advertising and how it is expected to surpass traditional advertising methods for the first time, with Facebook being a significant player in this space.

💡Discrimination

Discrimination in the context of the video refers to unfair treatment of users based on certain characteristics, such as race or gender, within Facebook's advertising system. It highlights the ethical challenges faced by Facebook in managing its ad targeting tools to avoid such discrimination.

💡Cambridge Analytica

Cambridge Analytica is mentioned in the video as the company involved in a major data scandal where it was revealed that they had harvested data from millions of Facebook profiles without consent. This incident underscores the video's theme of privacy and the misuse of user data.

💡Stories

Stories is a feature on Facebook and its sister apps where users can post photos and videos that disappear after 24 hours. The video discusses how Facebook is shifting its advertising focus to Stories, aiming to monetize this format to generate more revenue.

💡Clear History

Clear History is a feature announced by Facebook that would allow users to view and delete their browsing history that Facebook uses for ad targeting. The video suggests that this feature could impact Facebook's ability to create highly targeted ads, thus affecting its advertising revenue.

Highlights

Over two billion people use Facebook, Instagram, WhatsApp, or Messenger daily.

Facebook's user base represents more than a quarter of the world's population.

Despite privacy scandals, Facebook's growth continues.

Facebook's total revenue for 2018 was $55.8 billion, a 37% increase from 2017.

Facebook primarily generates revenue through advertising.

About 99% of Facebook's revenue came from advertising in 2018.

There are approximately 7 million advertisers on Facebook.

Facebook uses sophisticated, targeted ads rather than traditional ads.

Advertisers can select the audience they want to reach with precision.

Facebook provides a near guarantee that advertisers won't waste their time or money.

Digital advertising is projected to surpass traditional advertising for the first time.

Facebook gathers user data to create detailed advertising profiles.

Facebook Pixel allows the company to collect data from other websites visited by users.

Advertisers can target users based on interests, phone type, political leaning, ethnicity, and income level.

Facebook has faced criticism for its ad targeting practices, including showing insensitive ads.

The Cambridge Analytica scandal involved the misuse of data from 87 million Facebook users.

Users can adjust the ad categories Facebook has determined they are interested in.

Facebook's new advertising strategy focuses on its 'Stories' feature.

Despite data breaches and lawsuits, Facebook continues to attract advertisers.

Facebook's new 'Clear History' feature will allow users to remove their data from the platform.

Mark Zuckerberg announced a vision for a privacy-focused platform, raising questions about targeted advertising.

Facebook had to remove 1.5 million copies of a violent video after a mass shooter broadcasted an attack.

Despite controversies, Facebook's user engagement remains high.

Transcripts

Every day, more than two billion people use Facebook, Instagram, WhatsApp or Messenger.

That's more than a quarter of the world's population.

And despite a rising number of privacy scandals and public backlash,

Facebook is still growing.

Total revenue for 2018 was $55.8 billion,

up 37% from 2017.

But with all of those users paying nothing to use these apps, how does

Facebook make money?

Is the company selling your personal information to companies, politicians

and even foreign governments?

It's actually much simpler than that.

How do you sustain a business model in which users don't pay for your service?

Senator, we run ads.

Throughout its entire history, Facebook has relied on advertising for

revenue here and there.

The company has experimented with other types of revenue, such as hardware

with its Oculus VR headsets and its new Portal speakers.

But really all of that is chump change compared to the revenue that it

generates from advertising.

About 99% of Facebook revenue came from advertising in 2018.

There are about 7 million advertisers on Facebook and the ads that you see

aren't like a traditional TV commercial or newspaper ad that looks the same to everyone.

Facebook and its entire family of apps use a type of ad that's much more

sophisticated and much more valuable.

When they first started out these were simple display ads on the company's

website. But since then, they have evolved into very targeted ads where an

advertiser can pick the kind of audience that they want to reach.

I believe that started happening after Sheryl Sandberg joined the company

and from her experience with advertisers on Google were looking for.

And she could provide that to them.

And probably more than that using the Facebook data that everyone

volunteers. Facebook ads are targeted, which means each ad that you see

was specifically for you.

Companies only want to pay to show ads to people that are likely to buy

its products.

Facebook provides advertisers with a near guarantee that they won't waste

their time or money, an assurance that a prom dress ad will be seen by a

high school student and not a retiree, or that an ad from a new burger

joint will be seen by a meat eater and not a vegan.

As a result of this targeting, corporations can save money in the long run

and drive more sales for advertisers who simply want to reach as many people as possible.

There's no better way to spend money than Facebook.

The other reason that advertisers use Facebook is because of the targeting

that the company offers.

The company has a ton of data on its users and that's very valuable to

advertisers, especially those who maybe on a budget and want to make sure

that they're reaching users who could realistically turn into customers.

This has led television and print advertising to decline.

This year, it is estimated that digital advertising will surpass

traditional advertising for the first time, capturing more than half of

all ad dollars spent.

But how does Facebook know exactly who you are and what you're interested

in? Many paranoid users have alleged the tech giant is listening in on

your conversations through the mic on your phone.

This isn't true, although Facebook has filed patents that suggest it could

eventually pick up audio signals from your TV to give you better ads.

It's also filed a patent that can interpret the expression on a user's

face as they read their news feed.

The company claims it will not use these patents, but clearly it continues

to focus on ways to gather even more data on its users.

At the moment, it can gather almost as much information just by what you

do on its family of apps.

Of course, you input basic info like age, location and education on your

profile, but you're also liking pages, joining groups, RSVP to events and

sharing your location.

Facebook is able to package all this information and actually harvest it to

try to figure out what kind of person you are and perhaps what you are most interested in.

Or better yet, what you are looking to find and then sell that information

to advertisers who are trying to find you.

Facebook can also get data on you from other websites that you visit

through what's known as the Facebook Pixel.

Based on this kaleidoscope of details, Facebook forms an advertising

profile for each user, putting them into certain groups that advertisers

can pick and choose from when buying ads on Facebook.

Corporations can target ads based on your interests, what type of phone

you have, your political leaning ethnicity and even income level.

And with enough information, these ads can blend into your feed so well

that you might not even recognize it as an ad.

But all of these details are still just Facebook's best guess.

Not an exact science.

The company has found itself in hot water on more than one occasion for

heavy handedness in its ad targeting tools.

Pregnant women who have had miscarriages have criticized the company for

continuing the show them baby product ads.

A ProPublica investigation found that Facebook had several anti-Semitic

advertising categories, including Jew-hater.

The Trump administration recently charged Facebook with discrimination in

its advertising practices for housing, which until recently allowed

employers and landlords to limit audiences based on race, ethnicity or

gender. The company has pledged to reform its system to prevent this type of discrimination.

Just as ads can influence consumers to buy products, they can also

influence voting behavior.

In the Cambridge Analytics scandal, 87 million Facebook users had their

data stolen to help influence the 2016 U.S. presidential election.

We didn't take a broad enough view of our responsibility, and that was a big mistake.

So what can you do if you don't want Facebook to show you personalized, targeted ads?

If you're trying to avoid ads on Facebook, that's pretty much impossible.

But there are a few things that you can do to make it harder for Facebook to target you.

Users can adjust the categories that Facebook has determined you're

interested in by going into your settings.

But it's nearly impossible to opt out altogether.

Even if you delete Facebook, which has become increasingly popular, the

company still has your data if you use Instagram, WhatsApp or Messenger.

Instagram just past 500 million daily active users on stories, a feature

that is found on every app in the Facebook family that allows user

generated photos and videos to take over your entire phone screen.

Recently, Facebook has started to change its advertising strategy by

placing an emphasis on its stories product.

Facebook is starting to sell ads to advertisers and brands in this same

format. It is hoping to ramp that up in a way that will eventually

generate more revenue than the advertising that they get from news feeds.

In its latest earnings call, the company announced that two million

advertisers are using stories to reach customers.

So despite data breaches and lawsuits, Facebook continues to lure

advertisers. And while user growth has slowed, it is still growing.

But there are things that could affect the outlook for Facebook's

advertising business.

Many people have become concerned about too much use of social media.

Salesforce CEO Marc Benioff recently compared using Facebook to having a nicotine addiction.

Apple introduced Screen Time to help users crack down on how much time

they're spending on social media and their phones.

We are very concerned about regulation.

The EU has put into place some pretty onerous regulations for companies

that are doing business on the internet, and I don't think it's beyond

imagining that that could occur in other places, especially the United States.

Another factor that Facebook has talked about hurting its advertising

revenue is of its own making.

This is a new feature called Clear History that the company said is going

to roll out to users in 2019.

Clear history essentially gives users the ability to scrub the data that

Facebook has on them.

The less data that Facebook has hurts the ability of the company to target

ads to you with precision.

Mark Zuckerberg recently announced a new vision for the company where he

outlined building a privacy-focused messaging and social networking

platform, raising questions for investors on how targeted advertising

products will work if users aren't posting publicly.

Three weeks after that announcement, a mass shooter used Facebook Live to

broadcast his attack on two mosques in New Zealand.

Facebook had to remove 1.5

million copies of the video off its platform.

In spite of all of these events that seem like it would affect Facebook

business, it keeps growing.

I don't think it looks like anybody who actually uses his platform cares in

the least about what they're disclosing to Facebook because they keep doing it.

That's the crazy thing.

They just keep doing it.