How Facebook Is Earning So Much Money

David Frost // Market Outlook


July 25  

There are essentially three big dogs these days on the interwebs.  Amazon for shopping, Google for searching and Facebook for socializing, killing time and getting lost in nonsense.

From the old days of the internet, like way back in 2003 there was basically one way to get noticed or sell your stuff.  That would be Google.  Today, they remain the go to for most searches we do.

So If you haven’t figured it out by now, when your doing a search, the advertisements you see are directly related to the search you just made, or one you previously made.

For the advertiser out there, this normally works relatively well because if your searching for something today, there is a good chance you have a current interest in that something, right now.  As we know, timing is everything.

There is a new sheriff in town.  Facebook

Let’s say you have a business that sells stuff that helps new moms be the best mom they can.  Google will return ads relevant to anything you might have searched for.

Facebook will show you ads constantly because they know you’re a new mom.  In fact, they know immediately, because chances are you’ve posted pictures and have received many likes and well wishes from friends.

There’s a difference.  Google will only react if you act first.  Facebook knows who you are, what you like and such a mountain of other stuff it would scare you.

Not only do they have all the personal information that you know is on Facebook, but they have partnered with other companies to build an in depth profile on you from a physiological, emotional and financial perspective.

Now what do they do with your profile?

They sell it of course.  They sell it in the form of check boxes advertisers can use to target their markets or desired audiences.

Your first impression may be this is invasive and wrong.  It’s not.  Because they have an acute understanding of what your interest are, they can match you directly to a product or service that will suite your needs – at some point.

That’s the key.  The difference is smart advertisers can detect (with google’s assistance) who is an able buyer.  If you typed in the term “kids bikes” to google, you might just be looking for general information.  However the person who types “buy kids bike” or “kids bike deals” is more likely a hot prospect.  Google charges handsomely for that “click.”

Facebook on the other hand, knows who has kids, how old they are, what gender they are, where you live, etc…

An advertiser using the Facebook platform can target you, because of criteria they put in about you.  They can even target parents who have “liked” the Huffy Bike page on facebook.

While you would have to cast a larger net to catch people who are in a buying mood, I think it makes a whole lot of sense to only advertise to your target market.

Well, Facebook finally capitulated.  They’ve always had this data.  They’ve had advertisers for quite a while.  They have only recently decided to pull back the curtain and let those businesses with ad budgets to burn , directly reach the very people who are the reason they can exist, their target customer.

It wasn’t always this way.  Facebook came from very idealistic and noble beginnings.  I am sure Zuck still feels the same way he did when it began.  The visionaries like him are rarely driven by money, but their goal of changing the world.  Steve Jobs and Bill Gates are perfect examples.  It’s about the quest.

Enter Wall Street.  They win every time.  Facebook feels the pressure to grow the revenue just the same as any other publicly listed company.

Many people don’t like the sponsored ads in the news feed, but it’s a huge revenue source.

Giving companies access to the data vault.  Jackpot.

No company can resist the temptation of being a Wall Street darling.  Facebook is the latest Wall Street darling.

What botched IPO that went down 50% in the first year?

Disclaimer:  I’m not saying the stock is going to continue going higher, I’m just saying what a great business this is from a revenue and scale standpoint.  The more advertisers, the more money.  No inventory, minimal amount of additional staff to grow that part of the business and incremental investments in technology.  The stock will get a lot cheaper when the market correction takes hold, so if you don’t own it now, wait for the bargain basement sale.

Today’s market analysis shows specific evidence of what is going on under the covers of the markets.

About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost