How Does Facebook (Meta) Make Money? Business Model Explained!

Meta Platforms, Inc. (formerly known as Facebook, Inc.) is an American social media and technology conglomerate headquartered in Menlo Park, California. 

It is the parent company of Facebook, Instagram, WhatsApp, and other subsidiaries, products, and services, including Facebook Messenger, Facebook Watch, and Facebook Portal. The company has also acquired Oculus VR, Giphy, and Mapillary and holds a 9.9% stake in Jio Platforms. The company’s main source of revenue is the sale of ads to its marketers.

It was founded by Mark Zuckerberg along with his Harvard roommates and students Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes, originally as TheFacebook.com (today’s Facebook). Meta is one of the most valuable companies in the world. It is counted among the Big Five technology companies along with Microsoft, Amazon, Apple, and Alphabet (Google).

On April 8, 2011, Facebook acquired Instagram for $2 billion, and in February 2014, it bought the mobile messaging service WhatsApp for $19 billion. 10 On May 1, 2018, Facebook announced plans to launch a new dating service.

According to Mark Zuckerberg, “There are 200 million people on Facebook who have been identified as single, so clearly, something is going on here.” After the Cambridge Analytica data-mining scandal, the service will have privacy features, and your friends will not be able to see your dating profile.

In October 2021, news broke that Facebook’s parent company (by then called Facebook Inc.) planned to change its name to “reflect its focus on building the metaverse”; it was renamed Meta later that month on Oct. 28. In Greek, the word “meta” means “beyond,” which implies a futuristic theme.

What Services Does Facebook (Meta) Offer?

Access to Facebook is free, and the company makes most of its money from ads on the site. New users can create profiles, upload photos, join an existing group, and create new groups.

The site consists of many components, including the Timeline, an area on each user’s profile page where they can post their content and friends can post messages; the Status, which allows users to notify their friends of their current location or situation; and the News Feed, which notifies users of changes to their friends’ profiles and status. Users can chat with each other and send each other private messages.

The Like button allows users to signal their approval of content on Facebook, a feature also found on many other websites.

Other services that belong to Meta Platforms are Instagram, a social network for sharing photos and videos, Messenger, an instant messaging application, and WhatsApp, a text messaging and VoIP service.

How Does Meta Make Money?

Since Q4 FY 2021, Meta has separated its financial results into the following two segments: Family of Apps (FoA), which includes Facebook, Instagram, Messenger, WhatsApp, and other services; and Reality Labs (RL), which includes the company’s augmented- and virtual reality products and services. 

For both of these segments, Meta reports revenue and operating income. Previously, the company only provided a breakdown of the revenue for Advertising and Other revenue. This information is still included within the FoA segment.

Family of Apps (FoA)

The Family of Apps (FoA) segment includes all of Meta’s revenue from selling advertising to marketers, making up nearly all of the company’s total revenue. 

On Meta’s main social networking site, Facebook, as well as on Instagram, Messenger, and other third-party affiliated websites and mobile applications, advertisements are displayed. Ads are paid for by marketers by the number of impressions or actions, such as clicks, that users take.

More than 97% of the company’s revenue was generated by the FoA segment in Q4 FY 2021, posting $32.8 billion in revenue. 

Compared to the year-ago quarter, the segment’s revenue increased 19.9%. In the third quarter, the segment accounted for all of the company’s operating income of $15.9 billion. The segment’s operating income increased 6.8% year over year.

Reality Labs

In the Reality Labs segment, Meta develops augmented- and virtual-reality hardware, software, and content.3 Augmented and virtual reality are key to the company’s plan to build out its virtual world, the metaverse.6 This segment includes the company’s Oculus virtual-reality headset.

Reality Labs reported revenue of $877 million in Q4 FY 2021, accounting for about 3% of company revenue. 

The segment’s revenue grew 22.3% from a year ago. During the fourth quarter, the segment reported an operating loss of $3.3 billion, thereby reducing the company’s overall operating income. Operating loss for the segment was significantly higher than the operating loss of $2.1 billion it reported a year ago.

Meta’s Recent Developments

Meta, in a slide presentation for Q4 FY 2021, indicated that its daily active users (DAUs) decreased slightly from the previous quarter, according to its results for Feb. 2, 2022.

 The company’s DAUs fell for the first time in its history.

In its Q4 earnings press release, Meta also provided revenue guidance. Revenue for Q1 FY 2022 is expected to be between $27 billion and $29 billion, according to the company. Despite being up 3% to 11% year-over-year, that represents a decline from $33.7 billion in Q4 revenue. 

A number of headwinds will impact the company’s Q1 results, including changes made to Apple’s iOS early in the year, which require apps to obtain permission from iPhone users before they can track those users for the purpose of displaying personalized advertisements.

Since then, many users have opted not to be tracked, causing advertisers to reduce spending on advertising on social media platforms like Facebook.

Criticism of Facebook

Facebook has been the subject of much controversy and is often criticized for issues such as user privacy (e.g., the Cambridge Analytica data scandal), political manipulation (e.g., the 2016 U.S. election), mass surveillance, psychological effects such as addiction and low self-esteem, and content such as fake news, conspiracy theories, copyright infringement, and hate speech. 

Commentators have accused Facebook of deliberately facilitating the spread of such content and exaggerating the number of users to attract advertisers.

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