Technology

How Facebook earns money ?

Facebook.com is the most popular social networking website which has more than 1.2 billion monthly active users. This number is increasing everyday, which in turn increases the data being generated exponentially. You can just imagine how much data is generated on Facebook in terms of text, images, videos, locations etc everyday.As per Facebook posts on code.facebook.com, their warehouse stores up to 300PB(peta bytes) of data with an incoming rate of 600 TB per day.Believe me, thats a lot of data.

For our not-so-tech users lets discuss something on bits and bytes.

  • 1 Bit – A value of either 0 or 1.
  • 1 Byte – 8 bits.
  • 1 KB(Kilo Byte) – 1024 Bytes
  • 1 MB(Mega Byte) – 1024 KB
  • 1 GB(Giga Byte) – 1024 MB
  • 1 TB(Tera Byte) – 1024 GB
  • 1 PB(Peta Byte) – 1024 TB
  • 1 EB(Exa Byte) – 1024 PB
  • 1 ZB(Zetta Byte) – 1024 EB

I hope, now all of us are on the same page and can imagine how much data Facebook is handling. If still not able to get the feel, just try writing 1ZB in bits of 0’s ad 1’s 🙂 .

 So now as we know the data is huge, lets understand what Facebook does with this data.

 There is a thing known as Data analytics, which means “the science of examining raw data with the purpose of drawing conclusions about that information” .

                                    

 Facebook is the baap of data analytics and is able to extract a lot of valuable information from raw data. Lets understand this with a simple example :

                            

 Mr. A is a business man who has recently created an account on Facebook and is spending a lot of time on the site.He lives in the U.K. Below are Mr. A’s activities on Facebook in a week :

  1.  Checked in to BBQ World.
  2.  Updated status : “Just love yummy sandwiches with black coffee”
  3.  Updates status : “Reading Book : Impact of demonetization”
  4.  Checked in to Russia and updated status – Attending a business summit.
  5.  Liked a page related to Food.
  6.  Liked a page related to Economics.
  7.  Shared a funny video.
  8.  Updated status : “Fitness is the way of life, loving my new fitness life”.
  9.  Uploaded a picture with his friends in a club and added a caption “Nothing like partying with friends on a Friday evening”

Now this is a raw data from Mr. A, but what information about Mr.A can Facebook extract from this data apart from the basic information like name, contact details etc.

  • He loves food.
  • He loves to travel and has visited Russia for business summit.
  • He loves to spend time with his friends.
  • He loves to party.
  • He reads books related to economics and has keen interest in economic updates.
  • He loves to workout.

 This is very limited, but very valuable information about Mr.A which Facebook possess. And this information will be refined and improved to draw some very interesting facts about Mr. A. So, how Facebook uses this information ? We will discuss shortly, but before that, let me introduce you with another character of our short story :).

                                               

 Mr. B – He is the founder of a restaurant in the U.K.

His restaurant also has a small dance floor near the swimming pool.Ambience is good, food quality is good, but somehow he is not able to generate money out of his business. He thinks lack of marketing and advertising is the reason. So he wants to rapidly reach up to million people in small amount of money.

One day he encounters a post from Facebook on this wall about Facebook Advertisements and he is amazed after reading more about it.He signs up for an advertisement on Facebook by paying some advertisement charges.

 Now, Facebook plays the whole game.Facebook knows that it is a restaurant advertisement ,which also has a dance floor and a swimming pool, and they also know about a lot of Food lovers like Mr.A.

 I hope now you know what Facebook would do to make sure the advertisement works for Mr. B. Yes, your answer is correct.It will target users like Mr.A who are food lovers, which will increase the conversion rate of the advertisement.

 And yes, it is a win-win-win situation. People like Mr.A gets to know more about good restaurants, Mr. B gets more customers hence more money and Facebook generates money from people like Mr.A.

                      

So how Facebook earns money ? !!!Advertisements!!!

 Some things to note :

  • Facebook advertisements is the primary source of their revenue, but there are other ways as well.
  • Facebook advertisement charges vary with the number of users you want to reach, the number of days you want to play your advertisements etc.

So why Facebook is leading in Digital Advertising ? Because, they have this huge user base (others cannot even compare), which generate TB’s of data a day, using which Facebook gets more insight into the user behavior , their character and their choices. This information is really really valuable and is used by Facebook to optimize their ads and make them more productive in terms of conversion rate.

I hope this article was helpful in understanding how Facebook makes billions of dollars by giving almost all of its services for free.

Please share our article with more and more people and post your comments in the below section.

Cheers,

Kaivalya Apte

1 thought on “How Facebook earns money ?”

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