Facebook earned $28 billion in revenue through advertisements for the second quarter of this year and its global ad revenue during the pandemic year totaled to $84.2 billion.
This would mean that the social media giant earned at least $32 on an average from every user all over the world in 2020.
Facebook witnessed a 22% surge in revenue due to increase in demand during the pandemic year since many businesses and individuals shifted online. In 2020 Facebook recorded a profit margin of a whopping 38%.
HOW FACEBOOK MAKES MONEY
Facebook’s business model permits people from all over the world to use their services free of cost to connect. So users of Facebook aren’t necessarily the ones paying Facebook for their services, but the companies who want to post advertisements on Facebook and its family applications or websites are the real paying customers.
There are approximately more than 10 million primary customers and the majority of them are small and tiny businesses. This advertisement platform permits targeted ads and offers a detailed account on the performance of such ads through tracking and also educates advertisers on how ad campaigns function and operate. So based on the results advertisers can test out which is the best campaign that would work out for them.
Advertisement is the primary source of income for Facebook. It sells ads on its Instagram and Facebook websites and applications. This accounts for nearly 98% of its income and the leftover 2% comes from the non advertisement segment that is their Oculus and other portable devices along with the payment fees that they collect from developers.
Facebook accounts for nearly 60% of the total advertisement income and Instagram stands at 30%, the remaining is shared between Messenger and WhatsApp having really small contributions.
DATA SHARING BY GOOGLE AND OTHER TECH GIANTS
Google is said to be the market leader of online advertisement and is also the biggest competition for Facebook when it comes to collecting data and targeted advertisement. But it isn’t just Google and Facebook that share and collect information of their users, even other tech giants such as Amazon and Apple take part in the same.
Over 80% income of Google’s parent company Alphabet comes from advertisements, and during the pandemic year it reported revenue from online advertising that accounted for $147 billion.
Google however has been more open about the data they collect. The tech giant tracks and collects information regarding emails, cookie data, contacts, location, photos, information on what sort of videos you watch through YouTube, the kind of advertisements the user clicks on etc.
Unlike Facebook, Google has assured people that they collect all user data not to sell but to make “advertisement more relevant” and does not give any agency or government backdoor access to such private information of its users.
GOOGLE BAN ON SHARING DATA
By 2023 Google has plans to ditch third party cookies. These are cookies that end tracking users even when they aren’t using such websites. By doing away with such cookies what exactly is going to happen is that Google won’t sell web advertisements that are targeted to a user based on their browsing habits and its browsing engine Chrome won’t allow such cookies to collect information anymore.
Doing away with this old system doesn’t necessarily mean that google will stop collecting user information all together. They will still continue with targeted advertisements but only on their platforms. All the data collected will be within Google’s ecosystem.
The giant will replace this old system with a new one called “Privacy Sandbox” through this Google will ensure that its user’s data will not be available to other advertisement companies, therefore its not only protecting consumers and end up building a reputation of being champion of user privacy but also bringing itself to dominant position in the market and ensuring unfair competition.
Up until very recently following Apple, Google even announced that they would give its customers more free reign and control on deciding which application can collect what kind of information. Application developers will have to include what sort of information their apps would collect and how it will be utilized and stored by them.
“Google Play will introduce a policy that requires developers to provide accurate information. If we find that a developer has misrepresented the data they’ve provided and is in violation of the policy, we will require the developer to fix it. Apps that don’t become compliant will be subject to policy enforcement,” said Suzanne Frey, VP, Product, Android Security and Privacy.
HOW WILL FACEBOOK BE HIT
Apple and Google’s decision towards better privacy will ensure Facebook won’t know what users are up to when they don’t use Facebook family of applications. This would directly impact Facebook’s core revenue as its targeted advertisement algorithm accuracy will definitely be hampered due to unavailability of additional information on user behavior patterns.
To mitigate their losses as much as they can Facebook has started to link all Facebook family network applications to gather as much as information they can on its users. It has been developing and launching its own devices to gather intel on usage behavior of users that would help them target advertisements better.
Facebook also plans to introduce wearable devices such as watches and VR headsets through which they can collect user information. The Mark Zuckerberg company also has proposed to earn revenue by setting up online stores, specifically on Instagram and Facebook so that individuals and brands can directly sell products to users.