Examining the Facebook Business Model

Examining the Facebook Business Model

Earlier this week, Mark Zuckerberg authored an article, published by the Wall Street Journal. In it, he looked back (and ahead) at the Facebook business model, reflecting on the milestone ahead, when on Monday, February 4, Facebook turns 15 years old.

To understand the organization’s vision, you must dial back to it’s beginning. For Zuckerberg, building a global empire wasn’t the goal. Following the path taken by other entrepreneurs and visionaries, he simply saw an unmet need and sought to fill it. “I realized,” he explained, “you could find almost anything on the internet—music, books, information—except the thing that matters most: people.”

Given that billions of people have chosen to use Facebook, and its ever-expanding platform of services, you have to believe that Zuckerberg was spot-on in identifying the need and creating a product to serve it.

He’s also very vocal about the importance of keeping the service free for Facebook users. Zuckerberg recognized that for this social site to truly work, it had to be affordable to everyone. And maintaining free accounts for the individual account holders ultimately meant bringing advertising into the equation.

Which of course leads to the obvious question that all of us (including Facebook’s critics) must answer candidly: given that advertising is an inevitable component of keeping Facebook free to use, do you really want the ads you see to be irrelevant to your needs and interests?

In order for advertising to be relevant to your interests, Facebook first has to have an understanding of what your interests are.

Facebook can base its understanding of a person’s interests on:

  • The pages a person likes
  • The pages a person clicks
  • Other signals indicated by a person’s on-site activities

Targeting advertising messages to a person who is likely to be interested in a service or product is not new and did not originate with online engagement or as part of the Facebook business model.

But one of the most important factors that distinguishes online marketing from targeted direct mail and any number of other strategies used for generations to get the right message in front of the right person is that, as Zuckerberg himself explains, “online advertising allows much more precise targeting and therefore more-relevant ads.”

Obviously, we are only scratching the surface here. There’s a lot more to look at regarding the Facebook business model, the role of advertising and the need to keep personal data private while making processes and platforms comfortably transparent. Over the next few days we’ll examine everything Mark Zuckerberg said about these and other topics, wrapping up with our final post in this series on Monday, Facebook’s birthday.

This blog is the first in a series, based on recent observations and reflections made by Facebook CEO, Mark Zuckerberg.


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