The Advertising Economy: Inside Facebook Money-Making Machine

Facebook is a cash machine worth billions that can generate revenues at higher margins than Google considering it has lower traffic acquisition costs. One of its secrets is its ability to attract billion of people each day and keep them hooked to its products (be it Facebook, Instagram, or WhatsApp).

Facebook advertising which comprised over ninety percent of revenues in 2021 consist primarily:

  1. Display Advertising: banner ads, interstitials, video ads, and rich media ads that aim to reach large numbers of consumers within a particular audience segment. Display advertising counts small brands and large brands, such as Walmart U.S. and Diageo.
  2. Performance-based Advertising. Performance-based advertising involves advertisers that seek specific user behaviors. Those can comprise:
  • clicks on a search
  • ad or a keyword-based content ad
  • a response to an email campaign
  • or an online purchase
A FourWeekMBA Analysis shows that in 2021, the growth of Facebook’s revenues was driven by the US & Canada users’ monetization, due to a 24% price per ad increase 2021.

The impressions economics: served vs. viewed impressions

In 2015 Facebook clarified:

Not all ad impressions are created equal. Increasingly, advertisers, publishers and advertising industry groups are adopting the position that it’s better to measure viewed impressions rather than served impressions.
As Facebook explains:
If an ad is served, it means that a publisher has told its system to deliver an ad. As long as the system registers delivery of the ad, it’s counted as a success. What happens next is less certain. The ad could appear someplace where lots of people see it, like the top of a website homepage. Or it might be served without anyone ever seeing it. For instance, the ad could appear far down at the bottom of a web page (below the fold). Or a person could visit a site and then leave before the ad has fully rendered.
and it continued:
Viewed impressions add an extra layer of analytical rigor, as well as common sense. They more accurately define delivery and help ensure that people have seen the ads they’re supposed to see…
…We measure an ad impression the moment an ad enters the screen of a desktop browser or mobile app. If an ad doesn’t enter the screen, we don’t count it as an ad impression. 
More precisely:

An impression is counted as the number of times an instance of an ad is on screen for the first time. (Example: If an ad is on screen and someone scrolls down, and then scrolls back up to the same ad, that counts as 1 impression. If an ad is on screen for someone 2 different times in a day, that counts as 2 impressions.) Since impressions are counted the same way for ads that contain either images or video, a video is not required to start playing for the impression to be counted. Though this method of counting video impressions differs from industry standards for video ads, it ensures consistency in reporting impressions when ad campaigns contain both videos and images.

A Facebook advertising system in a nutshell

As explained by Facebook:
When advertisers create an ad campaign with Facebook, they specify the types of users they would like to reach based on information that users chose to share about their age, location, gender, relationship status, educational history, workplace, and interests.
Indeed, in terms of market segmentationFacebook is among the most powerful tools for marketers. You can access the demographics of billion of people at a fingertip:
For example, a self-storage company ran a campaign to reach students on college campuses prior to summer break. Additionally, advertisers indicate the maximum price they are willing to pay for their ad and their maximum budget.
Usually, advertising campaigns can be run either on CPM (cost per mille) or a CPC (cost per click) basis:
Advertisers choose to pay for their ads based on either cost per thousand impressions (CPM) on a fixed or bidded basis or cost per click (CPC) on a bidded basis. Our system also supports guaranteed delivery of a fixed number of ad impressions for a fixed price. Facebook’s ad serving technology dynamically determines the best available ad to show each user based on the combination of the user’s unique attributes and the real-time comparison of bids from eligible ads.

The Facebook cash cow is mobile advertising

The digital advertising industry has become a multi-billion industry dominated by a few key tech players. The industry’s advertising dollars are also fragmented across several small players and publishers across the web. Most of it is consolidated within brands like Google, YouTube, Facebook, Instagram, Amazon, Bing, Twitter, TikTok, which is growing very quickly, and Pinterest.

Nonetheless of all the buzz of 2017-18 around Facebook and the various data breaches from third parties, Facebook revenues grew primarily driven by mobile advertising, which in the first months of 2018 represented over 92% of its revenues.

Marketers fooled by engineers: when the attention merchant decides the rules of the game

One interesting aspect of digital advertising is its ability to introduce complex algorithms and engineered systems to be able to track the marketing activity of any business. However, those digital businesses that took over the digital world, like Google and Facebook still live the attention merchant paradox.

Where those platforms are the ones creating the rules of the game. They are also the ones that determine what metrics matter. When Facebook engineers sell marketers impressions and likes, all they are selling is a metric whose value is dubious.

Yet as that metric is tracked and packaged within a complex algorithm it gives marketers and businesses, in general, the impression that is all data-driven and so it has a clear ROI. However, with a better look, you might realize that those engineers have become better than marketers at selling. Thus, a paradox of this generation is that finally marketers got fooled by engineers!

Resources for your business

Handpicked case studies: 

Related Business Models

Mark Zuckerberg Empire

Mark Zuckerberg is the principal shareholder of the company. Not only he retains ownership and control of the company. Facebook, like Google, has issued two kinds of common stocks, Class A and Class B. Where the holders of Class B common stocks are entitled to ten votes per share, and holders of our Class A common stocks are entitled to one vote per share. Mark Zuckerberg has a total voting power of 57.9%. 

Attention-Merchants Business Model

In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

Facebook ARPU

The ARPU, or average revenue per user, is a key metric to track the success of Facebook – now Meta – family of products. For instance, by the end of 2021, Meta’s ARPU worldwide was $11.57. While in US & Canada, it was $60.57, in Europe, it was $19.68, in Asia $4.89, and in the rest of the world, it was $3.43.

Facebook Organizational Structure

Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organizational structure is organized around the leadership of Mark Zuckerberg and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Metaverse Supply Chain


Google Business Model

A hidden revenue business model is a pattern for revenue generation that keeps users out of the equation, so they don’t pay for the service or product offered. For instance, Google’s users don’t pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.

TikTok Business Model

TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it generated more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

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