Facebook and Google are the two tech giants that in the space of a decade have disrupted the old media industry and created an empire. Google in the late nineties up to these days has built a business model based on advertising, which leverages two networks (AdSense and AdWords).
Both companies have a secret weapon. For Google that is the SERP, while for Facebook that is the News Feed. Both target one thing: users’ attention. The more attention they get, the more they monetize.
Yet, the whole digital advertising industry is getting now reshaped, with the expansion of digital ad networks by Apple and Amazon, and new entrants like TikTok.
Back in 2006 a significant transformation silently revolutionized Facebook: the news feed.
Before that, Facebook was primarily a directory of profiles. If you wanted to see what any other person in your network was doing, you had to look for that actively.
When Facebook introduced the news feed, a new homepage allowed any user to be continuously updated on what her/his network was up to.
The news feed is a critical part of Facebook‘s success.
In fact, without the news feed, there is no way Facebook could have managed to make its users stick.
Also, the news feed is where Facebook monetizes its user base.
Google’s most valuable asset: The Search Engine Results Page
Google is a platform, and a tech media company running an attention-based businessmodel. As of 2021, Alphabet’s Google generated over $257 billion in revenue. Over $209 billion (over 81% of the total revenues) came from Google Advertising products (Google Search, YouTube Ads, and Network Members sites). They were followed by over $28 billion in other revenues (comprising Google Play, Pixel phones, and YouTube Premium), and by Google Cloud, which generated over $19 billion in 2021.
Today we give for granted that Google is an advertising company.
However, in the 2000s that wasn’t a trivial choice.
One of the reasons why Google had been so successful was its ability to create a search engine that offered relevant results through a powerful algorithm called PageRank.
That is also why Page and Brin (Google’s co-founders) didn’t want their search to be associated with a company that mixed paid advertising with organic results. Google’s UX got simpler and simpler over the years:
Google’s search page is the most important asset the company owns.
That is the place where billions of people each day ask anything from “how to tie a tie” to “why am I alone.”
It is so popular that back in 2006 the verb “to google” was added to the Oxford Dictionary.
Google in the Oxford Dictionary
The ability of the company to keep users going back to its results pages is also the secret to its past, present, and future success.
News Feed vs. SERP: The fight for attention
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
Before we get into financials, it is crucial to stress why the primary sources of businessvalue for Google and Facebook are the SERP and news feed respectively.
When we think about traditional companies, it’s easy to understand what’s their most important asset.
Take a real estate company that owns a resort. You know that resort is a vital asset for the company. Instead, when it comes to tech companies, it gets a bit trickier.
For instance, if you think about Google or Facebook, what’s their most valued asset? In short, what’s the property that generates most of its long-term businessvalue?
Probably the 2,000,000 square feet Googleplex in Mountain View or the 307,000 square feet Facebook data center in Prineville?
However, I believe the two most important assets respectively for Google and Facebook are the search results page (SERP) and the news feed.
That is the place where each day the battle for the attention of billions of people is fought.
Those are also – I argue – the leading company’s assets. Google without its SERP and Facebook without its news feed would be worthless.
The engagement of users is crucial for both Google and Facebook.
It is true that the SERP‘s logic is slightly different from Facebook‘s news feed. Google needs to be able to provide relevant results quickly and allow its users to leave the results page.
Indeed, by clicking on a sponsored advertising – part of Google’s AdWordsnetwork – or by surfing a website – part of Google’s AdSense program – that is how the tech giant from Mountain View monetizes.
Instead, Facebook‘s news feed logic is to keep the users for as long as possible trapped in the feed. What a behavioral psychologist would call a “slot-machine mechanism.”
The news feed has an infinite scroll.
There’s no limit!
You could spend days scrolling that, and you’d be always finding content available for you to consume.
In a sense, I’m not surprised that Facebook wins against Google.
It is true though that Google in the last years has developed a set of features that also serve the purpose of keeping users for as long as possible on the SERP.
Think about the featured snippet (a little box that gives users answers to specific questions) or the more recent people’s also ask feature. Those allow you to find most of the content you need in the SERP.
Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, this comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium). 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.
While Facebook as of 2021 is primarily driven by advertising (more than 97% of its revenues).
Google as of 2021 makes most of its revenues from advertising as well.
On the one hand, Google has been able to diversify its business model.
However, that model is still primarily driven by data gathering, curation, and re-packaging through its algorithms.
Google and Facebook both collect a massive amount of data about their users to monetize them via advertising.
While Google monetizes via its search pages or with in-app advertising via the Play Store. Facebook primarily monetizes via its newsfeed within its products (Facebook, Messenger, and Instagram).
Facebook has higher margins than Google, thanks to its cost structure, and the strong brands of its products.
Indeed, Facebook and Instagram are very sticky on people’s minds, which makes them connect to those apps without relying on Google. That might seem trivial, yet it is critical.
Many brands derive their visibility via Google search pages.
While also Facebook does, it is only for a small chunk of it. The remaining is direct traffic going through it thanks to its stickiness (so far).
Even though the number of users in the US and Canada has stalled, other products like Instagram are still growing.
As for Google, the tech giant is also investing in other areas, hoping a small bet might become the next big hit!
Summary and Conclusion
The hidden revenue generation model is among the most profitable patterns for business models built on advertising. In fact, businesses like Google and Facebook have managed to gain more than $290 billion in 2021 from advertising on their platform, even though many users might not be aware of the mechanisms that drive those platforms.
Google and Facebook most important assets are the SERP and News Feed respectively.
While both companies are attention merchants. They are fundamentally different. Google is vertically integrated, owning most of the supply chain of data.
Facebook mostly relies on strong brands, which it had acquired over the years (Instagram, WhatsApp, Oculus, Messenger). Yet, those brands are distributed across other companies’ pipelines (App Store and Android Store).
This makes Facebook, now Meta, more susceptible to attacks from other tech giants like Apple and Googe.
That is why Facebook is investing billions into VR and the Metaverse.
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%.
In an asymmetric businessmodel, 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.
In an asymmetric businessmodel, 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, 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 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, productmanagement, investor relations, and so on).
A hidden revenuebusiness 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 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 makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall businessmodel. 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 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 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.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
