How does Facebook Make Money from Ads

The social media giant Facebook makes billions of dollars in profit just by accessing and managing users’ data. In this article, we will understand how does Facebook make money from ads and make millions.

Internet based giant companies Facebook and Google make money from advertising mainly.

Facebook owns WhatsApp and Instagram so the company has the rights to access the data of WhatsApp and Instagram users as well.

Facebook bought Instagram for $1 billion and then the social media giant started integrating Instagram with Facebook.

According to the recent article on Social Media Today, Facebook has 2.37 billion monthly active users. And the subsidiaries WhatsApp has 1.5 billion active users and Instagram has 1 billion active users.

By managing data of billions of users, the company makes billions of dollars in profit.

How does Facebook Make Money from Ads

In a single day, we perform so many activities on Facebook, Instagram and WhatsApp.

Facebook is offering all the service for FREE because we, the users, are the product.

As we all know Facebook earn money from advertisements.

Facebook takes care about all the things we do on Facebook and Internet.

Here are some examples…

  • Photos and videos we like and share.
  • How much time we spend on watching a particular type of content?
  • Locations.
  • Reactions on posts.
  • Pages we follow and engage the most.

There are also other things such as from travelling to x to y country or city. Reading xyz book, eating x food, celebrating a particular day with x,y and z person.

The another big thing is Facebook Pixel!

How does Facebook Access Our Data

What is Facebook Pixel?

Once any website owner adds Facebook Pixel ID on his website, Facebook can track all the information of a website. And, that’s how a website owner gets to know about his consumer behaviour.

Basically, the pixel id helps for re-targeting. This means once you have opened a particular site from Facebook ads and didn’t buy anything then advertisers can use re-targeting method to show you the same ad again and again.

For instance, 1000 people visited a particular web page and we are only getting 5% conversion rate.

Which means we able to convert 5% of people to buy our product among 1000 people.

Also read: How will Facebook Beat Google?

So, we get to know that there might be some issue with a web page or a product. That’s how we can grow our business using data analysis.

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Facebook Access Data on These THREE Parameters:

Based on all such things, Facebook organize our data with three main parameters.

  1. Demographics
  2. Behaviour
  3. Interest

Facebook gives such data to advertisers and they promote their business on Facebook or Instagram using marketing campaigns.

Using Facebook ads, if you want to show an ad of your product to only iPhone users in a specific city it is possible to target.

You can also target users based on the people who use iPhone X!!!

This is the simple example of narrow targeting.

Let’s take another example.

If you are running an e-commerce store then there is an option to select ‘engaged shoppers‘ in Facebook ads. This means the ad will be shown to only those who regularly buy something online.

Custom Audience:

You may have seen the same advertisements multiple times on your Facebook and Instagram feed. Do you know the reason?

It is because of custom audience.

Facebook provides a mind-blowing facility for advertisers to display ads with the users who have interacted either with business content or page.

This way the ad will be displayed to the users only who have interacted with that particular Facebook and Instagram page.

You may feel this company is spending too much money on advertising because it keeps showing you ads again and again. But, the company has used remarketing (custom audience) feature of Facebook ads.

Helping Businesses:

This is how Facebook is helping other businesses to target their prospected consumers. And that’s how they make billions of dollars in revenue.

Data is the currency in digital world.

Having the data of billions of users and organizing all the information is not an easy task.

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By Anuj Vohra

Hi , I am Anuj Vohra. Founder of & Saral Investment.

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