Leap 4
Joe Leavitt
COM 410
How Does Facebook Produce Revenue (Blog)
With over one billion active users a month, Facebook has become the most popular social networking site in the world. CEO Mark Zuckerburg has a net worth of almost 40 billion dollars, which begs the question, how does Facebook produce such an incredible amount of revenue? Facebook was created in 2007 and has been growing at a rapid pace ever since. I first started using the site in 2008, and still actively use it today. I have over a thousand friends and have made many connections from this site. Over the years I have noticed that Facebook will specifically place advertisements that can relate to the user. That brings me to my first point; Facebook uses advertisements to make a majority of their money. Facebook is a free site, and according to Greg McFarlane, “If you’re not paying for the product, the product is you.” Facebook encourages users to share as much personal information as possible, in order to make the experience more enjoyable. One major tactic they use to make money is hyper-targeting advertisement. This type of advertising deals with sending highly targeted messages to specific groups of people. Barry Cooke stated that “hyper targeted advertising is where most social media sites make the majority of their money, exchanging our information to third party companies so that said companies can peddle their specific wares to exactly the market that buys them.” These type of advertisements on Facebook don’t directly make money off of us, but when we leave their site and go to the store, we know exactly what we want to buy. This is why advertisers spend so much money to have their advertisements placed on Facebook. Only eight years since the opening of Facebook the company is valued at 100 billion dollars because of the major amount of advertisements. A 2013 Nielson report showed that “75% of advertisers use paid social media advertising.” That is another statistic that shows where this large amount of revenue comes from.
Another major factor in this type of revenue production for Facebook is mobile ad revenue. With over 874 million mobile users on Facebook, it is not surprising that they would target this niche in their business. According to Tara Clarke from Money Morning, “Facebook reported that its most recent earnings of mobile ad revenue alone in the fourth quarter of 2014 came in at a mammoth 2.4 billion dollars.” On top of that mind boggling statistic, it is estimated that the 2.4 billion in mobile ad revenue represented about 69% of all revenue for that quarter.” (Clarke) Regardless of the numbers, it makes sense that Facebook would also target mobile users as well. As we have learned in Professor Hobbs class, the world we live in is becoming mainly a digital age. I would say almost everyone has a smart phone of some sort, and a large majority of people with these devices uses Facebook as well. Another thing I have personally noticed is that the majority of the time I use Facebook I am using it on my smart phone. With how advanced these cellular devices are becoming, it almost seems irrelevant to open up your laptop to use social media sites when you can just download the application and easily use it from your device. Facebook has clearly noticed this drastic climb in smart phone usage and has aggressively targeted those who use them.
Another aspect of Facebook creating revenue is promoting businesses, which is something I can speak to personally. My father has run a very successful truck dealership for the last twenty years. A few years after Facebook came out my father saw a great opportunity to promote his business. With over 8,000 likes on Facebook, Leavitt Auto & Trucks page has become very popular not only in the area, but around the country as well. My father pays a small amount of money to Facebook each month to sponsor his business so that people will see it. I know that many company pages on Facebook do this in order to increase their exposure in the Facebook world. I often check my fathers page and there is always a lot of activity from people all over the country. A lot of the vehicles he posts gather a large amount of likes because of how he uses Facebook to sponsor his page. Depending on how much money you spend, the amount of peoples you reach will change. If you choose a larger budget then your page will reach more people. With this feature, Facebook also allows you to choose who you want to target with your posts. Considering that my father sells truck, it is only sensible that he would target middle-aged men. This aspect of Facebook has allowed many businesses to grow while still greatly increasing their revenue as well.
Although a whopping 80% of Facebook’s revenue is created from ads, there is another large contributor as well. The other 20% of their revenue comes from virtual games linked with their site. “It is estimated that in the first quarter of 2012, nearly 186 million dollars was generated from virtual games on Facebook.” (Quora) There are a variety of different virtual games that can be played on Facebook, and one of the leading games is called Farmville. Farmville is a virtual farming game where you can tend to and run your own farm. When playing this game on Facebook many ads pop up with offers for the game. You can spend real money to buy credits or “farm bucks”. Almost every virtual game on Facebook has real money offers like this, and although they don’t force you to pay a dime, many people do in order to enhance their enjoyment of the virtual game.
Overall, Facebook is an incredibly successful and profitable company because of their large involvement of advertising. As I stated before, almost 80% of their revenue comes from advertising. This company will continue to grow because of this and their numbers are and will continue to be staggering. Facebook adds thousand of users to their site everyday who will eventually contribute to the revenue of the company. I believe Greg McFarlane hit the nail on the head when he stated that “using an advertiser-supported model, rather than charging users individually, is unquestionably the easiest way for Facebook to garner as many users as possible. The more users on the site, the greater the number of advertisers willing to engage them, and the more those advertisers are willing to spend.” Facebook has created a bulletproof model and it certainly shows in their revenue numbers.
Annotated Bibliography
Mcfarlane, G. (2014, March 21). How Facebook, Twitter, Social Media Make Money From You (TWTR,LNKD,FB,GOOG). Retrieved December 10, 2015, from http://www.investopedia.com/stock-analysis/032114/how-facebook-twitter-social-media-make-money-you-twtr-lnkd-fb-goog.aspx
Ffdfdf
In this article, author Greg McFarlane talks about how social networking sites are able to produce revenue, regardless of the fact that these sites are free to join. Facebook is essentially renting out our eyeballs to these advertisers, and it is we who they are selling to. He talks about how all of our Facebook accounts contributed $5.32 without us even knowing. When multiplying that by the amount of users there are on Facebook, it is now easy to understand how Facebook is able to produce such large revenue. This piece of work highlights my topic because it essentially answers the question I am exploring.
How To Create A Social Network That Makes Money. (2014, September 30). Retrieved December 10, 2015, from http://www.forbes.com/sites/freddiedawson/2014/09/30/how-to-create-a-social-network-that-makes-money/
In this article, contributor Freddie Dawson explains how difficult starting up a social network site that thrives can be. Dawson highlights the work of Peter Ward, who is the co founder and chief executive of the company WAYN (Where are you now). He talks about Wards struggle in the beginning and how it was difficult for him to get a following from the opening gate. He had to try a number of different tatics in order to get people on board with what he was trying to accomplish. This relates to my topic because it focuses on how difficult starting up a social networking site can be, never mind profiting from it.
Clarke, T. (2014, July 14). How Do Social Media Companies Make Money? Retrieved December 10, 2015, from http://moneymorning.com/2014/07/14/how-do-social-media-companies-make-money-2/?gateType=hostage&crType=pop_OEI_STI_WSII_TW_PPT
In this article, Tara Clarke spoke with E-Commerce director Brett Holmes about how these social media sites are able to produce so much revenue. "Social media companies are legitimate advertising websites, no different than, say, Google or Yahoo. The same way Google made its money is the same way Twitter and Facebook will make their money," Holmes explained. This article is targeted exactly at what I am aiming to explain in this assignment. I believe that this topic is something a lot of college kids are interested in because the majority of us use these social media sites.
Cooke, B. (2012, November 18). How Do Social Media Sites Generate Revenue? | VIRALBLOG.COM. (2012, August 11). Retrieved December 10, 2015, from http://www.viralblog.com/social-media/how-do-social-media-sites-generate-revenue/
In this blog, Barry Cooke gives us a great insider on how social media sites are able to produce revenue. The common theme I have seen with Facebook is their advertising. They use each users personal information, likes and dislikes, in order to place advertisements that may be appealing to them. This article takes aim at my topic and gave me great insight. The target audience of this blog is certainly anyone who uses social media sites.
Statistic Brain. (n.d.). Retrieved December 10, 2015, from http://www.statisticbrain.com/facebook-statistics/
I used this article strictly to help back up my argument. It offered many statistics about Facebook that can help support my project.
Annotated PDF Files
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148705387x0x805520/2D74EDCA-E02A-420B-A262-BC096264BB93/FB_Q414EarningsSlides20150128.pdf
This PDF file goes into depth about the 4th quarter logistics in 2014 for the company of Facebook. Many of the charts and graphs talk about net income, income from operations, operating margin, and most relevant to my topic, Average revenue per user. If we look at the average revenue per user chart, we see that worldwide in the last quarter of 2014, each user averaged revenue of $2.81. This file allowed me to look into the numbers that Facebook generates each quarter of every year.
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148734737x0x859262/A5B93BE0-6167-44D5-A6BE-EA219A2471AA/Q315_Earnings_Conference_Call_Transcript.pdf
This PDF file is a conference call between Mark Zuckerberg and many of his employees. Within the file, Mark talks about how the company is growing and the numbers to along with it. He talked about the growing revenue and how advertising increased by 45% over a one-year period. This PDF was essential for my blog because it opened up my eyes to the crazy numbers that Facebook produces.
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148780821x0x859098/DC6C9112-AFF6-4E76-9168-7DBA0D5FFDAB/FB_Q3_15_Earnings_Slides_FINAL.pdf
This PDF file breaks down the numbers from the 3rd quarter of 2015. It was the same type of PDF as the first one I shared but it allowed me to compare some of the numbers as the layout and charts were all the same. It is clear to me that after looking at these files Facebook is growing at an incredible rate. These PDF files allowed me to take an inside look at the company and I was able to gain a lot of knowledge because of it.
Joe Leavitt
COM 410
How Does Facebook Produce Revenue (Blog)
With over one billion active users a month, Facebook has become the most popular social networking site in the world. CEO Mark Zuckerburg has a net worth of almost 40 billion dollars, which begs the question, how does Facebook produce such an incredible amount of revenue? Facebook was created in 2007 and has been growing at a rapid pace ever since. I first started using the site in 2008, and still actively use it today. I have over a thousand friends and have made many connections from this site. Over the years I have noticed that Facebook will specifically place advertisements that can relate to the user. That brings me to my first point; Facebook uses advertisements to make a majority of their money. Facebook is a free site, and according to Greg McFarlane, “If you’re not paying for the product, the product is you.” Facebook encourages users to share as much personal information as possible, in order to make the experience more enjoyable. One major tactic they use to make money is hyper-targeting advertisement. This type of advertising deals with sending highly targeted messages to specific groups of people. Barry Cooke stated that “hyper targeted advertising is where most social media sites make the majority of their money, exchanging our information to third party companies so that said companies can peddle their specific wares to exactly the market that buys them.” These type of advertisements on Facebook don’t directly make money off of us, but when we leave their site and go to the store, we know exactly what we want to buy. This is why advertisers spend so much money to have their advertisements placed on Facebook. Only eight years since the opening of Facebook the company is valued at 100 billion dollars because of the major amount of advertisements. A 2013 Nielson report showed that “75% of advertisers use paid social media advertising.” That is another statistic that shows where this large amount of revenue comes from.
Another major factor in this type of revenue production for Facebook is mobile ad revenue. With over 874 million mobile users on Facebook, it is not surprising that they would target this niche in their business. According to Tara Clarke from Money Morning, “Facebook reported that its most recent earnings of mobile ad revenue alone in the fourth quarter of 2014 came in at a mammoth 2.4 billion dollars.” On top of that mind boggling statistic, it is estimated that the 2.4 billion in mobile ad revenue represented about 69% of all revenue for that quarter.” (Clarke) Regardless of the numbers, it makes sense that Facebook would also target mobile users as well. As we have learned in Professor Hobbs class, the world we live in is becoming mainly a digital age. I would say almost everyone has a smart phone of some sort, and a large majority of people with these devices uses Facebook as well. Another thing I have personally noticed is that the majority of the time I use Facebook I am using it on my smart phone. With how advanced these cellular devices are becoming, it almost seems irrelevant to open up your laptop to use social media sites when you can just download the application and easily use it from your device. Facebook has clearly noticed this drastic climb in smart phone usage and has aggressively targeted those who use them.
Another aspect of Facebook creating revenue is promoting businesses, which is something I can speak to personally. My father has run a very successful truck dealership for the last twenty years. A few years after Facebook came out my father saw a great opportunity to promote his business. With over 8,000 likes on Facebook, Leavitt Auto & Trucks page has become very popular not only in the area, but around the country as well. My father pays a small amount of money to Facebook each month to sponsor his business so that people will see it. I know that many company pages on Facebook do this in order to increase their exposure in the Facebook world. I often check my fathers page and there is always a lot of activity from people all over the country. A lot of the vehicles he posts gather a large amount of likes because of how he uses Facebook to sponsor his page. Depending on how much money you spend, the amount of peoples you reach will change. If you choose a larger budget then your page will reach more people. With this feature, Facebook also allows you to choose who you want to target with your posts. Considering that my father sells truck, it is only sensible that he would target middle-aged men. This aspect of Facebook has allowed many businesses to grow while still greatly increasing their revenue as well.
Although a whopping 80% of Facebook’s revenue is created from ads, there is another large contributor as well. The other 20% of their revenue comes from virtual games linked with their site. “It is estimated that in the first quarter of 2012, nearly 186 million dollars was generated from virtual games on Facebook.” (Quora) There are a variety of different virtual games that can be played on Facebook, and one of the leading games is called Farmville. Farmville is a virtual farming game where you can tend to and run your own farm. When playing this game on Facebook many ads pop up with offers for the game. You can spend real money to buy credits or “farm bucks”. Almost every virtual game on Facebook has real money offers like this, and although they don’t force you to pay a dime, many people do in order to enhance their enjoyment of the virtual game.
Overall, Facebook is an incredibly successful and profitable company because of their large involvement of advertising. As I stated before, almost 80% of their revenue comes from advertising. This company will continue to grow because of this and their numbers are and will continue to be staggering. Facebook adds thousand of users to their site everyday who will eventually contribute to the revenue of the company. I believe Greg McFarlane hit the nail on the head when he stated that “using an advertiser-supported model, rather than charging users individually, is unquestionably the easiest way for Facebook to garner as many users as possible. The more users on the site, the greater the number of advertisers willing to engage them, and the more those advertisers are willing to spend.” Facebook has created a bulletproof model and it certainly shows in their revenue numbers.
Annotated Bibliography
Mcfarlane, G. (2014, March 21). How Facebook, Twitter, Social Media Make Money From You (TWTR,LNKD,FB,GOOG). Retrieved December 10, 2015, from http://www.investopedia.com/stock-analysis/032114/how-facebook-twitter-social-media-make-money-you-twtr-lnkd-fb-goog.aspx
Ffdfdf
In this article, author Greg McFarlane talks about how social networking sites are able to produce revenue, regardless of the fact that these sites are free to join. Facebook is essentially renting out our eyeballs to these advertisers, and it is we who they are selling to. He talks about how all of our Facebook accounts contributed $5.32 without us even knowing. When multiplying that by the amount of users there are on Facebook, it is now easy to understand how Facebook is able to produce such large revenue. This piece of work highlights my topic because it essentially answers the question I am exploring.
How To Create A Social Network That Makes Money. (2014, September 30). Retrieved December 10, 2015, from http://www.forbes.com/sites/freddiedawson/2014/09/30/how-to-create-a-social-network-that-makes-money/
In this article, contributor Freddie Dawson explains how difficult starting up a social network site that thrives can be. Dawson highlights the work of Peter Ward, who is the co founder and chief executive of the company WAYN (Where are you now). He talks about Wards struggle in the beginning and how it was difficult for him to get a following from the opening gate. He had to try a number of different tatics in order to get people on board with what he was trying to accomplish. This relates to my topic because it focuses on how difficult starting up a social networking site can be, never mind profiting from it.
Clarke, T. (2014, July 14). How Do Social Media Companies Make Money? Retrieved December 10, 2015, from http://moneymorning.com/2014/07/14/how-do-social-media-companies-make-money-2/?gateType=hostage&crType=pop_OEI_STI_WSII_TW_PPT
In this article, Tara Clarke spoke with E-Commerce director Brett Holmes about how these social media sites are able to produce so much revenue. "Social media companies are legitimate advertising websites, no different than, say, Google or Yahoo. The same way Google made its money is the same way Twitter and Facebook will make their money," Holmes explained. This article is targeted exactly at what I am aiming to explain in this assignment. I believe that this topic is something a lot of college kids are interested in because the majority of us use these social media sites.
Cooke, B. (2012, November 18). How Do Social Media Sites Generate Revenue? | VIRALBLOG.COM. (2012, August 11). Retrieved December 10, 2015, from http://www.viralblog.com/social-media/how-do-social-media-sites-generate-revenue/
In this blog, Barry Cooke gives us a great insider on how social media sites are able to produce revenue. The common theme I have seen with Facebook is their advertising. They use each users personal information, likes and dislikes, in order to place advertisements that may be appealing to them. This article takes aim at my topic and gave me great insight. The target audience of this blog is certainly anyone who uses social media sites.
Statistic Brain. (n.d.). Retrieved December 10, 2015, from http://www.statisticbrain.com/facebook-statistics/
I used this article strictly to help back up my argument. It offered many statistics about Facebook that can help support my project.
Annotated PDF Files
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148705387x0x805520/2D74EDCA-E02A-420B-A262-BC096264BB93/FB_Q414EarningsSlides20150128.pdf
This PDF file goes into depth about the 4th quarter logistics in 2014 for the company of Facebook. Many of the charts and graphs talk about net income, income from operations, operating margin, and most relevant to my topic, Average revenue per user. If we look at the average revenue per user chart, we see that worldwide in the last quarter of 2014, each user averaged revenue of $2.81. This file allowed me to look into the numbers that Facebook generates each quarter of every year.
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148734737x0x859262/A5B93BE0-6167-44D5-A6BE-EA219A2471AA/Q315_Earnings_Conference_Call_Transcript.pdf
This PDF file is a conference call between Mark Zuckerberg and many of his employees. Within the file, Mark talks about how the company is growing and the numbers to along with it. He talked about the growing revenue and how advertising increased by 45% over a one-year period. This PDF was essential for my blog because it opened up my eyes to the crazy numbers that Facebook produces.
http://files.shareholder.com/downloads/AMDA-NJ5DZ/1148780821x0x859098/DC6C9112-AFF6-4E76-9168-7DBA0D5FFDAB/FB_Q3_15_Earnings_Slides_FINAL.pdf
This PDF file breaks down the numbers from the 3rd quarter of 2015. It was the same type of PDF as the first one I shared but it allowed me to compare some of the numbers as the layout and charts were all the same. It is clear to me that after looking at these files Facebook is growing at an incredible rate. These PDF files allowed me to take an inside look at the company and I was able to gain a lot of knowledge because of it.