How Instagram And Facebook Make Money
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How Instagram And Facebook Make Money


Every day, more than two billion people use Facebook, Instagram, WhatsApp or Messenger. That’s more than a quarter
of the world’s population. And despite a rising number of
privacy scandals and public backlash, Facebook is still growing. Total revenue for 2018
was $55.8 billion, up 37% from 2017. But with all of those users paying
nothing to use these apps, how does Facebook make money? Is the company selling your
personal information to companies, politicians and even foreign governments? It’s actually much simpler than that. How do you sustain a business model
in which users don’t pay for your service? Senator, we run ads. Throughout its entire history, Facebook
has relied on advertising for revenue here and there. The company has experimented with other
types of revenue, such as hardware with its Oculus VR headsets
and its new Portal speakers. But really all of that is chump
change compared to the revenue that it generates from advertising. About 99% of Facebook revenue
came from advertising in 2018. There are about 7 million advertisers on
Facebook and the ads that you see aren’t like a traditional TV commercial
or newspaper ad that looks the same to everyone. Facebook and its entire family of apps use
a type of ad that’s much more sophisticated and much more valuable. When they first started out these were
simple display ads on the company’s website. But since then, they have evolved
into very targeted ads where an advertiser can pick the kind of
audience that they want to reach. I believe that started happening after
Sheryl Sandberg joined the company and from her experience with advertisers
on Google were looking for. And she could provide that to them. And probably more than that using
the Facebook data that everyone volunteers. Facebook ads are targeted, which
means each ad that you see was specifically for you. Companies only want to pay to show ads
to people that are likely to buy its products. Facebook provides advertisers with a near
guarantee that they won’t waste their time or money, an assurance that a
prom dress ad will be seen by a high school student and not a retiree, or
that an ad from a new burger joint will be seen by a
meat eater and not a vegan. As a result of this targeting, corporations
can save money in the long run and drive more sales for advertisers who
simply want to reach as many people as possible. There’s no better way to
spend money than Facebook. The other reason that advertisers use
Facebook is because of the targeting that the company offers. The company has a ton of data on
its users and that’s very valuable to advertisers, especially those who maybe on a
budget and want to make sure that they’re reaching users who
could realistically turn into customers. This has led television and
print advertising to decline. This year, it is estimated
that digital advertising will surpass traditional advertising for the first time,
capturing more than half of all ad dollars spent. But how does Facebook know exactly who
you are and what you’re interested in? Many paranoid users have alleged the
tech giant is listening in on your conversations through the
mic on your phone. This isn’t true, although Facebook has
filed patents that suggest it could eventually pick up audio signals from your
TV to give you better ads. It’s also filed a patent that can
interpret the expression on a user’s face as they read their news feed. The company claims it will not use
these patents, but clearly it continues to focus on ways to gather
even more data on its users. At the moment, it can gather almost
as much information just by what you do on its family of apps. Of course, you input basic info like
age, location and education on your profile, but you’re also liking pages,
joining groups, RSVP to events and sharing your location. Facebook is able to package all this
information and actually harvest it to try to figure out what kind of person
you are and perhaps what you are most interested in. Or better yet, what you are looking
to find and then sell that information to advertisers who are
trying to find you. Facebook can also get data on you
from other websites that you visit through what’s known as
the Facebook Pixel. Based on this kaleidoscope of
details, Facebook forms an advertising profile for each user, putting them
into certain groups that advertisers can pick and choose from
when buying ads on Facebook. Corporations can target ads based on
your interests, what type of phone you have, your political leaning
ethnicity and even income level. And with enough information, these ads can
blend into your feed so well that you might not even
recognize it as an ad. But all of these details are
still just Facebook’s best guess. Not an exact science. The company has found itself in hot
water on more than one occasion for heavy handedness in its
ad targeting tools. Pregnant women who have had miscarriages
have criticized the company for continuing the show them
baby product ads. A ProPublica investigation found that
Facebook had several anti-Semitic advertising categories,
including Jew-hater. The Trump administration recently charged
Facebook with discrimination in its advertising practices for housing,
which until recently allowed employers and landlords to limit audiences
based on race, ethnicity or gender. The company has pledged to reform
its system to prevent this type of discrimination. Just as ads can influence consumers
to buy products, they can also influence voting behavior. In the Cambridge Analytics scandal, 87
million Facebook users had their data stolen to help
influence the 2016 U.S. presidential election. We didn’t take a broad enough view
of our responsibility, and that was a big mistake. So what can you do if you don’t want Facebook to show you personalized, targeted ads? If you’re trying to avoid ads
on Facebook, that’s pretty much impossible. But there are a few things that you
can do to make it harder for Facebook to target you. Users can adjust the categories
that Facebook has determined you’re interested in by going
into your settings. But it’s nearly impossible
to opt out altogether. Even if you delete Facebook, which
has become increasingly popular, the company still has your data if
you use Instagram, WhatsApp or Messenger. Instagram just past 500 million daily
active users on stories, a feature that is found on every app in
the Facebook family that allows user generated photos and videos to take
over your entire phone screen. Recently, Facebook has started to
change its advertising strategy by placing an emphasis on
its stories product. Facebook is starting to sell ads to
advertisers and brands in this same format. It is hoping to ramp that
up in a way that will eventually generate more revenue than the advertising
that they get from news feeds. In its latest earnings call, the
company announced that two million advertisers are using stories
to reach customers. So despite data breaches and
lawsuits, Facebook continues to lure advertisers. And while user growth has
slowed, it is still growing. But there are things that could
affect the outlook for Facebook’s advertising business. Many people have become concerned about
too much use of social media. Salesforce CEO Marc Benioff recently compared
using Facebook to having a nicotine addiction. Apple introduced Screen Time to help users
crack down on how much time they’re spending on social
media and their phones. We are very
concerned about regulation. The EU has put into place
some pretty onerous regulations for companies that are doing business on the internet,
and I don’t think it’s beyond imagining that that could occur in
other places, especially the United States. Another factor that Facebook has
talked about hurting its advertising revenue is of its own making. This is a new feature called Clear
History that the company said is going to roll out to users in 2019. Clear history essentially gives users the
ability to scrub the data that Facebook has on them. The less data that Facebook has hurts
the ability of the company to target ads to you with precision. Mark Zuckerberg recently announced a new
vision for the company where he outlined building a privacy-focused
messaging and social networking platform, raising questions for investors
on how targeted advertising products will work if
users aren’t posting publicly. Three weeks after that announcement, a
mass shooter used Facebook Live to broadcast his attack on two
mosques in New Zealand. Facebook had to remove 1.5 million copies of the
video off its platform. In spite of all of these events
that seem like it would affect Facebook business, it keeps growing. I don’t think it looks like anybody
who actually uses his platform cares in the least about what they’re disclosing
to Facebook because they keep doing it. That’s the crazy thing. They just keep doing it.

100 Comments

  • CNBC

    Have you ever had a moment where you thought Facebook was listening to your conversations because of an ad that popped up?

  • Ilannguaq K. Møller

    6:58 “Dispite data breaches and lawsuits, facebook allures advertizers”?
    That’s exactly why advertizers keep choosing Facebook.
    Some analysis

  • jonny5777

    Great video as always. I actually understand Facebook a lot more now but I still think that Zuckerberg is a creepy robot from the future

  • Searchingforcrosser

    Facebook keeps having users (at least in 3rd world countries) because people are poor and telecom companies do not offer free calls to their mobile or internet plans. In Australia, being able to call is the difference of life and death and as such is a right. In essence, Depriving it is a crime. Messenger and VOIP provides free calls virtually since you are using the internet anyway for other functions than that.

    Different regional organizations (EU, ASEAN, NATO, ETC.) should declare this as basic right for their member countries. This will demand enforcement for free of charge calls.

  • Commando Master

    FB has too much market domination. It's gonna be hard for another similar social media website to take over FB.

  • German

    So tell how did Facebook showed me an ad for a product that i was using a minute before opening Facebook, the exact product and brand. I did not browse for the product in anyway, all i ever did while using the product was open the instructions booklet and i had my phone on my hands checking my notifications. How did Facebook did that, exactly!

  • German

    So tell how did Facebook showed me an ad for a product that i was using a minute before opening Facebook, the exact product and brand. I did not browse for the product in anyway, all i ever did while using the product was open the instructions booklet and i had my phone on my hands checking my notifications. How did Facebook did that, exactly!

  • Antonio Di Iorio

    I don’t understand why that should be dangerous. I’m conscientiously giving them datas so that they can suggest me better product to have, still my choice to buy them or not. Honestly I’m happy I don’t have to see tampons ads instead of the new geek t-shirt. Also in politics, an ideal world would see parties rise if they have significant relevance as seen by data… It is not Facebook responsibility if they choose to manipulate people’s willing instead of embrace it.

  • hbarudi

    Just got a samsung note 8, we can only disable but unable to fully uninstall facebook. Why samsung you do this let us fully uninstall the app there is no reason for it to be a system app? Even if samsung got money for this, now they are tracking us even with the app disabled.
    For facebook itself, why there is no pay to remove some or all the ads option? Now them owning whatsapp that my family is dependent on is a major problem as I tried many different alternatives and my family simply uninstalled them all. Also whatsap needs a pay to remove the advertisements option too. Pay to stop tracking data option as well.
    I also do not believe in this situation regarding the influence of the 2016 election of Trump due to the fact that we expected him to win that election.

  • Cool One

    My Facebook profile shows me targeted ads for cheap beer, legal brothels, Thai brides, and ramen noodles 🍜. So I’d say it’s pretty accurate.

  • Travis Newton

    Ads. The GD ads. Just like YouTube. Just like every unbearable service on the internet. It’s the world of ads!!! We need Adblock for life.

  • Sherry Flavour

    Hey, if you can show me advertisements based on my personal interests, great! But if you misuse that data to target me with fake news and force me to live in a bubble, no thanks Mark.

  • Zokizzy Foshizzy

    It's capitalism's ultimate form: a website about yourself with constant ads tailored to make you spend money on stuff you like. It'll only get worse. Ad companies have Facebook by the balls and will never let go. Same with Youtube.

  • 0 0

    facebook is cool…relax…enjoy facebook…Zuckerbergergerg…is good….enjoy Zuckerberg…would you like a diet coke?

  • Arjun Chatterjee

    They sell ads and allow people to utilize vast amount of user data to target people. That is all. The guy maybe a lizard and all, but he has built a great platform. Something crap msm cannot do.

  • PTbench

    Anyone else notice how traditional media companies love to spin new media in a negative way? Oh yeah, they're competitors and new media is now getting 50% of their $.

  • Makenzie Stone

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  • Invesigator 2

    I hate Facebook but I'm not doing to deny that the Jewish owners of Facebook are commercially brilliant. 'Targeted ads' is Jewish Internet invention.

  • Николай Помещенко

    I dont care who spy on me… but i live in closed country, goverment better stay out of my life 😣

  • Janwar Yulius

    I'm glad CNBC has stepped up and helped educate an ignorant public brainwashed by a biased media.
    The following was in reply to a comment about you being the product if a service is free, I decided to repost in here too:

    Rather than you being the product, you are instead on the receiving end of a service that you don't have to pay for, while Facebook is a broker/matchmaker that brings small and big businesses that likely interest you to your attention. It's like a company hiring a headhunter to find the best candidates for a job, is the candidate the product? No, they are not, rather they are on the receiving end of a wonderful service that connected two relevant parties.
    Only in the case of Facebook, you get that added value from relevant ads for free while also getting a platform that is actually quite incredible at helping you share your life to your friends and family, also for free.

    The ads do not even intrude or bother you in the least, you can scroll past them at will if they do not interest you, it's really that simple. And if they do interest you, then guess what… You were provided a free service, and received value. Sounds like a pretty darn good deal to me… And yet sheep-like people are so easily influenced by the media's portrayal of all of this. You know.. the media that is the losing ad money to Facebook and Google? Yeah those guys.. The very same ones who send you ads that intrude on your precious entertainment with commercials you have to watch whether they interest you or not?

    I love the fact that I would get ads that might improve my lifestyle with things I'm interested in or relevant to the city (or even part of the city) I live in rather than hours away or even on the other side of the world.

    I never have to face cooking ads, celeb/gossip service ads, rock n roll ads, or beer ads etc. cause Facebook knows I have no interest in such things. But I am constantly "bombarded" with ads of courses, books, football, business services, or other kinds of relevant services that actually interest me and that have added value to both my personal as well as professional life.

    So in summary, stop being like sheep, and do some thinking and analyze the reality around you a bit.

    Good luck.

  • Samet Dündar

    I think it has to be enormous scandal..Well we have seen that enormous lately.But i think,there is literally no way to stop people from using facebook.As you have said,it keeps growing and never stops dude.I have deleted my account a year ago.And since then i am out of facebook business.

  • Deven Swiergiel

    Why is targeting ads based on race, ethnicity, and gender wrong? I get why targeting ads as a whole are contentious, but why is the line race, ethnicity, and gender? Those categories do have significant differences on spending habits.

  • Ron Villejo

    Despite many of us leaving, deleting, or criticizing Facebook, billions still use it – along with Instagram, WhatsApp and Messenger. What's more, tragic scandals and data breaches notwithstanding, advertisers are still advertising on its wide ranging ecosystem. Go figure!

  • jonathan holmes

    what is the harm other than them being able to advertise things that might actually be relevant to me?

  • Rakshith N

    Isn't it beneficial to users to see products or offers they are interested in instead of seeing some ads that makes no sense to them ??

  • sai Varoon lyricist Singer

    what if every user stops using Facebook or whatever application it is!? Will every human gets through the extinction of their respective lives?

  • Masterof Magic

    About 80% of Facebook's revenue belongs to 2 billions users around the world. Without users, facebook cant make money.

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