How Does Facebook Make Money? Meta’s Revenue Model Explained

The digital version of: “If you build it, they will come” is: “Any sufficiently large user base can be monetized.” This may not have been foremost in Mark Zuckerberg’s mind when he developed the rudiments of Facebook in his Harvard dorm room. If he just happened to stumble into a good thing, though, he stumbled in exactly the right direction.

Online business models based on providing a free service to millions of people and then leveraging this user base to make money in other ways have certainly proved viable. Still, to some of us, this seems a little like voodoo or perhaps ethically questionable.

Others, particularly those considering investing in digital companies, may want to understand the finer points of these revenue streams.

So, how does Meta make money, and how does Facebook, in particular, help to pay the bills?

Table of Contents Table of Contents

1. Key Takeaways
2. Meta's Financials: Revenue Growth Through the Years
3. How Does Facebook Make Money? The Nutshell Version
4. Snapshot of Meta's Business Model
5. Meta's Revenue Model
6. Meta's Future Growth Plans
7. The Dark Side of Facebook: Controversies & Contingencies
8. The Bottom Line
9. FAQs
10. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. Meta's Financials: Revenue Growth Through the Years
3. How Does Facebook Make Money? The Nutshell Version
Show Full Guide
4. Snapshot of Meta's Business Model
5. Meta's Revenue Model
6. Meta's Future Growth Plans
7. The Dark Side of Facebook: Controversies & Contingencies
8. The Bottom Line
9. FAQs
10. References

Meta’s Financials: Revenue Growth Through the Years

Meta Platforms (META) has been the parent company of Facebook since 2021, reflecting increased interest in activities beyond its flagship social media service. With a market capitalization of $1.27 trillion, as of June 20, 2024, it’s frequently mentioned in the same breath as tech giants like Amazon (AMZN), Alphabet (GOOGL), Netflix (NFLX), and Apple (AAPL).

It should also be understood that Meta’s worth reached a low of $247 billion in November 2022: this is a relatively volatile stock that fluctuates in price based as much on future expectations as past performance. This fact is reflected by its current trailing price-per-earnings figure of 27.8 and price-to-book ratio of 5.92.

Analysts who don’t believe the company to be overvalued, however, are optimistic about its prospects. Meta’s steadily growing revenue figures, which tend to track quarterly projections quite closely, argue in favor of calling this stock a “moderate buy,” according to a consensus analysts’ view compiled by MarketBeat as of June 20, 2024.

https://stockanalysis.com/stocks/meta/revenue/  (data to copy)

How Does Facebook Make Money? The Nutshell Version

The same principle that drove the development of mass media (in the form of newspapers) during the Industrial Revolution still applies today. Specifically, if you can convince the public to lend you their eyeballs, you can also show them paid advertisements.

Despite recent efforts to diversify, Meta’s effectiveness as a marketing channel for other businesses continues to underpin its core business, accounting for 97.8% of the company’s 2023 revenue.

Naturally, this dependence on a single source of income makes Facebook and other Meta products somewhat vulnerable to general economic downturns and similar events.

Snapshot of Meta’s Business Model

Fortunately, Meta has a number of different divisions that all support one another. Individual users display different levels of engagement with each, while their various formats and interfaces make specific platforms more suitable for particular kinds of ad campaigns.

Facebook & Facebook Marketplace

So, how does Facebook make most of its money? The lion’s share of Meta’s and Facebook’s income derives from selling digital advertising space to marketing agencies and individual companies.

From the user’s perspective, if you’ve ever wondered how to get paid on Facebook, you can use Facebook Marketplace to sell your hand-made products or other goods.

Integration with the main Facebook app and website allows sellers and buyers to get an idea of who they’re dealing with, while the Meta Pay system makes transactions seamless. This is a definite growth area for Meta, though it is not currently a major revenue driver.

WhatsApp

While Facebook Messenger is used mainly for instant communication between Facebook account holders, the popular mobile telephony app WhatsApp is used extensively by both businesses and individuals. Meta makes money from both services through ads and premium versions.

Instagram

Like Facebook, Instagram is a social media app but with a focus on sharing user-generated photos and videos. It was acquired by Meta back in 2012. Its visual format is highly conducive to advertisements for online shopping platforms.

According to Statista, Instagram’s revenue in the US is set grow from $23 billion in 2023 to $29 billion in 2025.

Meta’s Revenue Model

How does Facebook make money so consistently in the competitive digital marketing space? After all, there’s little to stop advertisers from throwing their advertising budgets at whatever platform seems cheaper or more effective.

In the first place, total spending on social media advertising is estimated to come to $219.8 billion in 2024. Though Meta inevitably faces stiff competition, it remains the go-to destination for much of that money.

Aside from its established reputation and huge user base, it has several things going for it:

Multiple Channels

A lot of people may have no interest in Facebook but use WhatsApp every day. If Facebook should ever fall out of fashion, ad revenue from Instagram may be able to pick up the slack.

Engaging with customers on several different platforms is a tried-and-trusted marketing technique. Sticking with Meta as a single service provider removes a lot of the attendant complexity for advertisers.

Targeted Advertising

Marketers can even pursue “lookalike audiences” over multiple channels. Facebook gathers a stupendous amount of user data, allowing granular market segmentation.

It’s important to note that these algorithms don’t need to hit a home run every single time: most advertisers will be over the moon if Facebook’s targeting can manage to increase an ad’s click-through rate (CTR) from 2% to 2.5%.

Easy to Use, Yet Full-Featured

Both experienced marketing agencies and small businesses can use this platform to good effect.

Skilled advertisers can make use of features like an enviable suite of tools to track an ad campaign’s success. At the same time, any local business owner can also figure out how to make money on Facebook and use its huge audience for their needs.

Meta’s Future Growth Plans

Every so often, the term Metaverse pops up in the news. Meta is betting big that its Reality Labs division is in the process of writing the next chapter in online interaction. The idea is for Meta to make money by selling not only advertising space but also the necessary hardware and software.

In the latest First Quarter 2024 Results Conference Call on April 24, 2024, Mark Zuckerberg, CEO of Meta Platforms, said that the company is going to make significant investments in is Reality Labs:

“We are also starting to see our AI initiatives increasingly overlap with our Reality Labs work. For example, with RayBan Meta smart glasses, people in the US & Canada can now use our multimodal Meta AI assistant for daily tasks without pulling out their phone.

 

“Longer-term, we expect generative AI to play an increasing role in our mixed reality products, making it easier to develop immersive experiences. Accelerating our AI efforts will help ensure we can provide the best version of our services as we transition to the next computing platform.”

Besides the Metaverse, Meta is utilizing its extensive user data to enhance artificial intelligence. AI-driven personalized content and ad delivery can boost user engagement and ad effectiveness. AI is also aiding content moderation, aiming to create safer online environments.

Incorporating AI into hardware, Meta aims to improve VR and AR experiences, making the Metaverse more immersive and appealing. Future AI applications, like intelligent virtual assistants, could further enhance user interaction and create new revenue streams.

Several other companies are dipping their big toes into the same waters, Apple among them.

Competitors

Though it’s far from alone in the social media market, Facebook’s profits aren’t under any kind of imminent threat from either existing rivals or new startups. There remains only a trickle of new potential users to recruit and most recent innovations are incremental rather than revolutionary.

For the time being, it looks like each company’s share of the pie will remain roughly constant. Though the average social media user operates accounts on no fewer than half a dozen different platforms, their use of each is largely determined by its existing type of users and interactions.

The Dark Side of Facebook: Controversies & Contingencies

Throughout its 20-year history, there has been no shortage of criticism against Meta and its business practices. Thus far, these allegations don’t seem to have affected Facebook’s revenue model all that much. In the short to medium term, however, legislators trying to grapple with an unprecedented situation may represent challenges to the company.

Anti-Competitive Practices

For some, the question is not “How much money does Facebook make?” but rather “How many users is it holding hostage?” Apple, Meta, and Alphabet are under the risk of being charged soon with violating the European Union’s Digital Markets Act by using their dominant market positions to stifle competition.

Social Influence

The jury is still out on whether social media is the future of human interaction or a blight on public discourse. The academic consensus, however, seems to be that it’s not making people smarter or happier.

In the US, efforts to limit younger users’ access to Facebook and similar platforms have largely been taking place at the state level. The European Union, known for a more technocratic approach to regulating digital activities, seems to be ahead of America in this regard. Its General Data Protection Regulations (GDPR), for instance, has no American equivalent outside of California.

In both regions, though, the psychological and political effects of social media are raising increasing concern. Changes in these legal environments, which together account for the bulk of Facebook’s earnings, can be expected sooner or later. These are bound to constrain Meta’s operations and the rollout of future features somewhat.

The Bottom Line

Facebook’s reliance on advertising for the bulk of its earnings isn’t exactly unique among online companies. Much the same applies to many household names in the field of internet search, social media, and content delivery.

Still, efforts to diversify its revenue streams, as symbolized by changing its name to Meta, sound like a shrewd idea. It’s too early to tell whether the Metaverse will take off as Zuckerberg no doubt hopes, though.

It’s also a fair bet that this new social media platform will pirouette through one or several pivots depending on customer response and competitor reactions. Unlike with most startups, though, Facebook’s revenue provides a comfortable buffer in which to undertake such experiments, not to mention a huge user base from which to draw converts.

FAQs