Mark Zuckerberg is one of the most famous and influential entrepreneurs of the 21st century, having founded Facebook in 2004. His iconic status as one of the world’s wealthiest individuals is well known, but what is less clear is how Facebook actually makes money. Despite being the largest social media platform in existence, Facebook does not charge customers a fee to sign up and use the services it provides. So, where does the majority of Zuckerberg’s income come from?
At the core of Facebook’s profit model is the concept of ‘targeted advertising’. Just as when you watch television or listen to the radio, companies pay to have their products or services advertised in the most effective way they can. The development of ever-more sophisticated digitally focused methods of advertising have only added to the opportunities available to companies and individuals looking to access Facebook’s 2.6 billion monthly active users (as of 2020). By taking advantage of information acquired from user profiles and behaviours on-site, Facebook is able to create ad campaigns that are tailored to specific demographics.
As the sole owner of Facebook’s stock, Mark Zuckerberg holds a considerable amount of financial power. Therefore, he has been able to significantly increase Facebook’s profits from selling targeted advertising slots, leading to him becoming one of the richest people alive. The internet has hugely disrupted traditional technology industry business models, allowing companies like Facebook to access audiences at scale. As technology platforms continue to grow, so too do Zuckerberg’s profits, often leading to criticism of how the supposed ‘power of networks’ is really operating.
Privacy concerns have become an increasingly important issue surrounding the way Facebook makes money. The manner in which Facebook acquires user data to then create targeted ad campaigns has been met with much resistance. Nonetheless, with Zuckerberg’s company classifying itself as a ‘free service’, the information gleaned from individuals is needed to finance the continued success of the platform. Disappearing profits in 2016 led some to questioned the future of Facebook, yet the development of an advertising-supported model the following year saw Zuckerberg’s wealth, and Facebook’s success, reach unprecedented heights.
The ability for revenue to fluctuate on a yearly basis could be seen as a disadvantage of the ‘targeted advertising’ model, yet it remains Facebook’s primary source of income. In 2018, more than 98% of Facebook’s annual revenue came from advertising alone. Despite its erratic nature, the success of the model has seen Zuckerberg’s personal wealth grow to around $86.8 billion, making him one of the top five wealthiest people alive.
Future Prospects
Facebook’s continued success will largely be dictated by the future performance of its advertising model. Recent years have seen the platform achieve considerable revenue, yet rising competition and the precariousness of the internet-based market could lead to ever-fluctuating profits. The company’s aim to ‘connect the world’ could be hampered by privacy concerns, and could lead to the possible decline of it’s user-base. Similarly, the company’s aim to expand its reach into the health and e-commerce markets could prove to be a smart move for Zuckerberg, yet the success of such strategies will depend on how well Facebook can capitalise on the wealth of data it collects from its users.
Not exempt from criticism and controversy, Facebook has been the focus of numerous reports, lawsuits and investigations over the past few years. Zuckerberg’s engagement with politics and China have also added to the complexity of the company’s mission to become an integrated part of so many people’s lives. Furthermore, with the rise of the digital world and its accompanying regulation, Facebook must ensure that it remains future proof in its data policies.
Nevertheless, Zuckerberg’s influence on the internet is unquestioned, and his personal wealth is one of the most powerful testaments to the company’s success. With the majority of its profits coming from targeted advertising, Facebook remains a highly profitable company, and Mark Zuckerberg’s wealth is likely to only grow.
Monetising Platforms Other Than Facebook
In addition to Facebook, Mark Zuckerberg owns a number of other social media platforms which generate income. These platforms, including Instagram, Messenger, WhatsApp and Oculus, are estimated to produce a combined revenue of around $29 billion in 2020. Of these, Instagram is particularly profitable, with company profits increasing rapidly since its launch in 2010. Zuckerberg also launched a new app in 2020, called ‘Lasso’, which will focus on a live-video streaming format.
The success of the apps owned by Zuckerberg largely rely on the same users that stay active on Facebook. Zuckerberg’s ownership of the ‘big four’ allows him to cross-promote, connecting users of different apps, and encourages users to interact on multiple platforms. This ability to ‘coat-tail’ users from app to app provides strategic insight and increases engagement and revenue.
Marketing fees and data-collection costs are also applied when advertising on, or operating any of these apps. However, the profit margins achieved by Mark Zuckerberg remain considerable: Instagram is estimated to have gained over 17% of total company revenue in 2020, while other apps, including WhatsApp, generate around 8% of annual profits. This is the power of ‘network effects’; the ability to leverage users of one service over multiple other services.
Emerging Technologies
The “digitally focused” nature of Facebook’s services allows the company to gain access to emerging technologies, and predominantly, artificial intelligence. The company has used AI to great benefit as it optimises its advertising algorithm, allowing them to capitalise on the wealth of user data and generate greater profits in a targeted and efficient manner. Furthermore, AI has enabled Facebook to automate a number of processes making it a mainstay of the company’s operations and an important component of how Zuckerberg makes money.
Since 2016, Facebook has acquired several AI start-ups, consolidating the company’s capabilities in the field. As artificial intelligence becomes increasingly important for companies operating in the digital world, Mark Zuckerberg has been proven to be adept at keeping Facebook ahead of the curve. Through such measures, the company has been able to monetise in completely new ways, and gain access to never before seen markets.
Venturing even further into the realms of the ‘fourth industrial revolution’ Zuckerberg is also an investor in numerous space projects, including the development of remote sensing capabilities and the use of satellite technologies. Such ideas could see Facebook expand its user base even further, and open new avenues to generate revenue. Equally, AI-driven robots present Zuckerberg with yet another potential area of expansion and hefty profits.
Closing Remarks
Since 2004, Facebook has grown to become one of the most influential companies in the world. Its eventual monetisation first through advertising and then through the acquisition of data from its users, has made it a highly profitable enterprise. Zuckerberg’s wealth is one of the key indicators of Facebook’s success, and is a direct result of the effectiveness in which the company operates.
By taking advantage of cutting-edge technology and emerging markets, the company has seen significant growth in the past few years. The use of artificial intelligence and satellite technology to expand the platform and gain access to new markets have further aided Facebook’s success. It seems unlikely that Zuckerberg will be furthering his wealth anytime soon, yet at the current time, his income from Facebook is still rising.
