Facebook is an attention-based business model. As such, its algorithms condense the attention of over 2.4 billion users as of June 2019. Facebook advertising revenues accounted for $31.9 billion or 98.66% of its total revenues. Facebook Inc. has a product portfolio made of Instagram, Messenger, WhatsApp, and Oculus. The company rebranded as Meta.
- Facebook, metaverse and rebranding as Meta
- Snapshot of Facebook key stats and facts
- How does Facebook make money?
- Facebook’s mission
- The five pillars of Facebook’s business model
- Facebook’s products line
- It’s all about ARPU: How much are you worth to Facebook?
- Facebook move into the Metaverse!
- The Apple’s privacy change
- The Metaverse Supply Chain
- What can you do in the Metaverse?
- Summary and Conclusions
- Related Visual Facts
- Related Case Studies
Facebook, metaverse and rebranding as Meta
At the end of October 2021, Mark Zuckerberg announced the Facebook Inc. rebrand as Meta. A company focused and dedicated to building the Metaverse. Beyond buzzwords and corporate communication. What does that imply? Let me show you, but let’s start by looking at Facebook before Meta.
Snapshot of Facebook key stats and facts
- As reported officially by Facebook, the company’s main headquarter is situated on 1 Hacker Way, Menlo Park, California 94025.
- As we highlighted the “Hacker Way” is Mark Zuckerbergs’ key driving business strategy mindset.
- Facebook, now Meta had 58,604 employees as of December 31, 2020.
- The company also reported 2.41 billion monthly active users (remember that Facebook Inc, also comprises other products like Instagram, while they affect the Facebook bottom line, Facebook doesn’t report how much of it is coming from each product and doesn’t tell us the users count of those platforms).
- In the first six months of 2019 Facebook made $31.9 billion compared to the $25.1 billion of the first six months of 2018.
- Yet the income from operations in the first six months of 2019 was $7.9 billion compared to $11.3 billions of 2018. The decrease was primarily due to legal accruals, due to the FTC settlement which accounted for $5.76 billion of additional costs for the company.
- In the first months of 2019 Facebook business model was driven by 98.66% by advertising ($31.53 billion in revenues) compared to 98.55% in 2018 (over $28.4 billion).
- As of June 2019, Facebook spent 20% of its revenues in R&D ($3.31 billion). While it spent 14% of its revenues in Sales and Marketing activities ($2.41 billion).
How does Facebook make money?
Facebook makes money with an advertising business model. Almost all the revenue comes from targeted advertising. Indeed, of the almost $86 billion in revenues, as of 2020, over $84 billion were advertising revenues.
Facebook revenue breakdown in 2020 was:
- Advertising (over 98% of revenues): it primarily consists of displaying ad products on Facebook, Instagram, Messenger, and third-party. As Facebook highlighted, in 2020, the number of ads delivered increased by 34%, as compared with approximately 33% in 2019.
- Payments and other fees (less than 2% of total revenues): it consists of the net fee received from developers using Payments infrastructure or revenue from the delivery of virtual reality platform devices and most importantly revenue from the delivery of consumer hardware devices.
As of the time of this writing, the social network created by Mark Zuckerberg in 2004 in his Harvard dorm room is worth almost a trillion-dollar. If Facebook were a country that would be the most populous on earth!
Facebook’s business model is quite simple and based on advertising. Yet the company has been able to unlock so much business value from its operations that have become one of the most profitable tech giants, competing with Google, Netflix, Amazon, and Apple.
*Here the term “Facebook” is used as interchangeable with “Facebook products” which is the set of apps Facebook Inc. owns (Facebook, Messenger, WhatsApp, and Instagram).
The company’s mission is to “to give people the power to build community and bring the world closer together.”
How is this mission accomplished today? By building products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices.
The overall company is based on five pillars; as reported in its annual report for 2017:
Facebook enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers. There are a number of different ways to engage with people on Facebook, the most important of which is News Feed which displays an algorithmically ranked series of stories and advertisements individualized for each person.
As highlighted here the News Feed is the crucial component of Facebook. That is where the company can engage its users. That is also the place where the company manages to monetize its users.
Instagram is a community for sharing visual stories through photos, videos, and direct messages. Instagram is also a place for people to stay connected with the interests and communities that they care about.
Messenger is a messaging application that makes it easy for people to connect with other people, groups andacross a variety of platforms and devices.
WhatsApp is a fast, simple, and reliable messaging application that is used by people around the world to connect securely and privately.
Oculus virtual reality technology and platform power products that allow people to enter a completely immersive and interactive environment to train, learn, play games, consume , and connect with others.
As we’re going to see the News Feed is the real cash cow.
Facebook’s products line
Facebook [Meta] producs line comprises:
The main product, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers. Some of the Facebook’s key features comprise: Facebook News Feed, Stories, Groups, Shops, Marketplace, News, and Watch.
The fastest growing, mobile-based social media. Which Facebook acquired in 2012, for $1 billion and which today is worth many times over that. Instagram is primarily a mobile native app, to share photos, videos, and private messaging, and connect with and shop from their favorite businesses and creators. Some key features of Instagram comprise: the Instagram Feed, Stories (become a standard in social media, this format was copied from Snapchat), Reels (a feature that is becoming a standard format in social media, primarily copied from TikTok), IGTV, Live, Shops, and messaging.
The messaging application for people to connect with friends, family, groups, and businesses across platforms and devices through chat, video, and Rooms.
WhatsApp, the messaging application, which was acquired by Facebook for $19 billion back in 2014. Which Facebook integrated within its family of apps. While WhatsApp doesn’t monetize with ads directly, it is integrated in the other products.
Facebook Reality Labs
Facebook Reality Labs is the augmented and virtual reality laboratory wchich produces hardware and consumer devices. This is comprised of Oculus, a leader in VR headset, which Facebook acquired in 2014 for $2.3 billion. Oculus Quest, the main product line of what has been rebranded as Facebook Reality Labs is the VR device, which will also play a key role in the development of the Metaverse.
We’ll see why the Metaverse plays such a key role for Facebook’s future. And it’s all about distribution.
It’s all about ARPU: How much are you worth to Facebook?
ARPU stands for average revenue per user. In short, how much money a company can get on average from each user. In the Facebook case, we can take into account the monthly active users.
For a company like Facebook, for which over 98% of its revenues come from advertising the amount of time people spend on the so-called news feed is crucial to increase the profitability metrics of the company.
That isn’t only because Facebook is an advertising company, but also the way its business model was built. If you think about Google, what makes the company able to monetize its users is not necessarily how much time they spend on the search results pages. Instead, that is based on how fast users can find what they need. Once they click through that is how Google makes money.
Of course, things are changing fast both on Google and on Facebook. Yet as of now the more time you spend on Facebook and the more you’re active on it, the more you allow it to make money. What else? Not all users are born equal. In fact, according to the geography and the ad market of each country, the monetization strategy changes.
For instance, that is how much each user based on geography was worth to Facebook in the third quarter of 2018:
- US and Canada: $27.61
- Europe: $8.82
- Worldwide: $6.09
Therefore, a user from the US or Canada as of 2018 is worth more than a user from Europe or the Asia-Pacific region. The long-term objective for Facebook is to keep increasing its monetization for each user, especially in the developing parts of the world where there is still space to grow the user base, which instead has stalled in the US and Canada:
Facebook move into the Metaverse!
However, as of now, the company growth is tied to its ability to engage its daily active users.
Some users (for instance, North America and Europe) are worth more on Facebook because those areas are monetized differently. Also, there is one key metric that tells us if the value of Facebook will keep growing in the long-run: ARPU.
Facebook, together with Google, is the most profitable attention merchant. The company has emulated successfully the Google advertising machine.
With a couple of slight differences.
First, Facebook’s ads are pushed to the users via targeting, where in Google’s case these ads are pushed based on contextual search. Second, where Google’s distribution passes through ownership of hardware (Google manufactures the Pixel), browser (Google owns Chrome), mobile operating system (Google runs Android), and search. Thus, Google (Alphabet) is way more vertically integrated:
Facebook’s distribution is primarily based on strong brand names. With the acquisitions of Instagram, WhatsApp and Oculus, Facebook has kept a strong distribution, yet primarily based on the strenght of these brands.
Thus, from here we can really really explain the swift move that Facebook made into the Metaverse.
We can argue that Mark Zuckerberg’s Meta is in a Blitzscaling mode. Where it’s both trying to defend its business model, and attack the market, by creating a whole new industry, potentially bigger than mobile.
To understand this, we need to look at the Apple’s privacy update on mobile devices.
The Apple’s privacy change
“A Day in the Life of Your Data” helps users better understand how third-party companies track their information across apps and websites, while describing the tools Apple provides to make tracking more transparent and give users more control. The explainer sheds light on how widespread some of these practices have become. On average, apps include six “trackers” from other companies, which have the sole purpose of collecting and tracking people and their personal information.Data collected by these trackers is pieced together, shared, aggregated, and monetized, fueling an industry valued at $227 billion per year.
The Metaverse Supply Chain
In the 2021, Founder’s letter Mark Zuckeberg highlighted:
We are at the beginning of the next chapter for the internet, and it’s the next chapter for our company too.
In recent decades, technology has given people the power to connect and express ourselves more naturally. When I started Facebook, we mostly typed text on websites. When we got phones with cameras, the internet became more visual and mobile. As connections got faster, video became a richer way to share experiences. We’ve gone from desktop to web to mobile; from text to photos to video. But this isn’t the end of the line.
The next platform will be even more immersive — an embodied internet where you’re in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build.
And he continued:
In the metaverse, you’ll be able to do almost anything you can imagine — get together with friends and family, work, learn, play, shop, create — as well as completely new experiences that don’t really fit how we think about computers or phones today. We made afilm that explores how you might use the metaverse one day.
Facebook, now Meta emphasized its role in this development as:
Our role in this journey is to accelerate the development of the fundamental technologies, social platforms and creative tools to bring the metaverse to life, and to weave these technologies through our social media apps. We believe the metaverse can enable better social experiences than anything that exists today, and we will dedicate our energy to helping achieve its potential.
These statements which sound inspirational are actually explaining the long-term survival threat posed to Facebook, the rebrand as Meta, and its long-term success, achievable if Facebook managed to build the Metaverse!
What can you do in the Metaverse?
Yet, In Facebook’s Meta vision, the Metaverse will have a few key killer features like gaming, fitness and more:
Messengers calls in VR
Work and Productivity
Summary and Conclusions
- Facebook was founded in 2004 by Mark Zuckerberg in his dorm room at Harvard. Since then the company has never stopped growing. If it were a country, Facebook would probably be the most crowded on earth. However, the ability of the company to increase its value over time is based on how much money on average can make for each user.
- Over 98% of Facebook’s revenues come from advertising. Therefore, unless things will change; the news feed is still the primary driver for monetizing Facebook’s value of the company for billions of dollars. . A simple change in its algorithm can influence the mood of billions of people. Also, it can affect the
- Facebook swiftly moved into the Metaverse, as Apple’s privacy changes also threatened the company’s long-term survival. That is why Facebook, now Meta is committed in building the so-called Metaverse.