Weekly Business Saga

Facebook: Decoding its Business book

Authored by Dhruv Paniya, Student at School of Law, NMIMS Indore

History of Facebook

Facebook was founded in the year 2004 by Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes. All of them studied at Harvard University at that time. The domain facebook.com was purchased in the year 2005 for $200,000. Initially, only Harvard students were given access to register on the portal, but gradually the network spread across all other US universities. After some time the website was being used in universities all over the world. By September 2006, it was used worldwide and anyone having a registered email ID could register and use Facebook. Facebook was the most downloaded app of the 2010s. As of 2021, Facebook has 2.8 billion active users.

Business cum Revenue Model

Facebook has an advertising-based revenue model. Almost all of its revenue comes from targeted advertising and a small portion from other sources. It sells its online space for advertising to other platforms. Ads are displayed on facebook’s main website and also on other apps such as Instagram, Messenger, and other third-party apps or websites. Most of the Facebook ads are pay-per-click which means that every time a user clicks on the ad, Facebook gets paid. Other sources include the sale of hardware devices such as virtual reality devices which are sold by Oculus, a company that was acquired by Facebook in 2014, and from various other sources.

Acquisitions and deals

Facebook has acquired over 90 companies in the past 15 years. Some major acquisitions by the tech giant are as follows; In the year 2012, it acquired Israeli facial recognition company face.com. This technology automatically suggested users who to tag in the photos and allowed one-click tag. In the same year, it acquired Instagram for $1 billion. This acquisition proved to be very fruitful and as of 2020 Instagram has over 1 billion monthly users. In the year 2013 Facebook acquired Atlas solutions, campaign management, and measurement tool company for under $100 million. In 2018 Facebook shut down Atlas solutions. In 2014, it ventured into a new segment of Virtual reality and acquired Oculus VR for $2 Billion. As of 2021, Facebook earns from the sale of Virtual reality products by Oculus. In its biggest acquisition ever, Facebook acquired Whatsapp for $22 billion which was paid partly in cash and stocks. This deal helped Facebook grow even more because as of 2021 Whatsapp reports over 2 billion users.

Technologies

Facebook is the largest social media site, which serves 2.8 billion monthly users as of 2021. Handling such a huge user base requires a strong technical infrastructure. Facebook servers run on LAMP i.e., Linux, Apache, MySQL, and PHP. Facebook is built in PHP combined with HipHop for PHP which transforms PHP into C++. This transformer was built by Facebook engineers. Facebook user HBase for storing data across different machines. Facebook also uses CDN (Content Delivery Network) to deliver static data. In 2014, Facebook released a new programming language HACK for its servers.

 Individuals who register on Facebook get a personalized account that shows their posts and content. Facebook pages for brands and celebrities were launched in 2009. In 2009, it launched Username which allowed the users to have a unique nickname for their profile. Also, a newsfeed appears on every user’s homepage which shows profile changes, upcoming events, etc. The famous like button was incorporated in Facebook in the year 2009. Facebook Chat was part of the app till 2011, after which it became a standalone app.

Revenues and Profits

Facebook reported annual revenue of $86 Billion in the financial year 2020 and net profits of $29.15 billion. Also, Facebook reported revenue of $26.1 billion in the first quarter of 2021. Net Income for the same quarter hit $9.5billion. Facebook India’s revenue for the financial year 2019-2020 was ₹1277 crore and the net profits for the same year amounted to ₹ 135.7 crores.

Controversy related to abuse of market position.

In 2020 Facebook was accused by the US government and 48 US states of using its position in the market for creating a monopoly and eliminating competitors who possess a threat to its existence. Accusations were also made based on Facebook’s acquisition of Instagram and Whatsapp; which states that it acquired these apps to eliminate the competitors and due to this a very few options were left for the users. In the last 15 years, Facebook acquired over 90 companies which itself somewhat indicates that it is using its market position to create a monopoly.

In a major blow to Facebook, Germany’s Federal Cartel office imposed a prohibition on Facebook from collecting user data outside of Facebook i.e. from Whatsapp, Instagram, or other 3rd party websites.

Conclusion

From being used by a few Harvard students to having over 2.8 billion active users; in the last decade, Facebook has emerged as the biggest social media platform. Even though it has gone through major developments and controversies over the years, it came out on the other side as a market leader. As of today, one cannot imagine his/her life without Facebook or its subsidiaries which itself shows the extent to which Facebook has grown. Facebook has changed the way today’s youth looks at friendships or relationships. It made the world smaller by making it easy to connect to people away from us. It changed the way we look at advertisements. Facebook is not just a social media platform, it’s a whole revolution in itself and has changed the world a lot. 

Disclaimer*- The article is a piece of general information and the views expressed are solely that of Author, BFTLR may or may not subscribe to the views of the Author.

 

 

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