Facebook with almost 1.88 billion daily active users and roughly 2.85 billion monthly active users is the most popular social media platform in the world. To run such a large social media channel, a lot of money and resources are required. So, what is the revenue model of Facebook? The main source of Facebook’s Income is by selling advertising space on its various social media platforms.
Such platforms include various websites and mobile apps that provide opportunities for users to get connected and communicate with family and friends. Facebook’s sites and apps include the social networking channel Facebook, image- and video-sharing platform Instagram, and messaging apps Messenger and WhatsApp. Besides, Facebook also enables users to connect through its Oculus virtual reality products.
Facebook faces competition from many other companies that also sell advertising to marketers, as well as other social platforms that facilitate online communication and sharing content among users. Some of the main competitors of Facebook are Apple, Google, YouTube, and Twitter.
Facebook had a net income of $29.1 billion on a turnover of $86.0. Its net profit margin was 33.9% in FY 2020, which ended on December 31, 2020. Almost 45% of its total income or $38.4 billion came from the U.S. and Canada. Also while the remaining 55% came from other countries across the globe. Interestingly, Facebook generated 92% of its income via mobile which shows its symbiotic relationship with mobile social networking.
Its annual revenue grew by 21.6% in FY 2020, which marked a downfall from the 26.6% rise in revenue achieved during FY 2019. Despite this downfall, Facebook discovered that while the second quarter was not good for advertising revenue growth. There has a subsequently growth improved in the following quarters, a trend the company believes is linked to an acceleration of commerce from offline to online during the coronavirus pandemic. In fact, the annual net income rose by 57.7% in FY 2020.
Facebook’s Business Segments
Facebook’s revenues can be divided into two separate segments: Advertising and other revenue. Although Facebook doesn’t have a separate breakdown for net income.
Facebook primarily derives all its revenue from advertising to advertisers. It sells ads on Facebook’s main social networking site, as well as on Instagram, Messenger, and other third-party websites or mobile applications. Payments are based on the number of impressions submitted or the number of clicks made by users. In FY 2020, Facebook posted $84.2 billion in advertising revenue, which comprised 98% of its total revenue. Ad revenue grew at a staggering rate of 20.8% during the year.
Revenue in this segment usually comes from the delivery of consumer hardware devices and net fees Facebook receives from developers. Who use its payments infrastructure, as well as from multiple other sources. Under other revenue categories, Facebook posted $1.8 billion in income in FY 2020, which represented the remaining 2% of its total revenue for the year. Revenue for this segment rose by a hefty 72.4% in FY 2020.