With 2.5 million active advertisers, Facebook has become one of the biggest online marketplaces – over 75% of businesses pay to promote their posts. So, how does Facebook’s advertising service work? And how has it evolved over time?
In 2004, Mark Zuckerberg launched Thefacebook as a university social network.
A majority of its revenue came from ‘flyers’ – advertisements placed down the side of the home page – purchased by students and local businesses. These typically fetched $10 to $40 a day and were targeted at specific college campuses.
Later, Thefacebook transformed ‘flyers’ into ‘flyers pro’ – an auction-based CPC model. Advertisers were able to set a maximum price for what they were willing to spend; and, more importantly, could target things such as gender, age, location, political views, relationship status, education status and workplace. By late 2004, Thefacebook had approximately $300,000USD revenue 400,000 users.
Thefacebook changed its name to ‘Facebook’ shortly after and landed its first big advertising deal – from Party Poker – based on their newly-established CPA model.
Over the next few years, Facebook’s user numbers grew to 150 million; and, subsequently, the platform began to realise its online advertising potential. The company started providing more specific ad targeting options for their advertisers (such as language and geographical based targeting); and, additionally, allowed them to set up, and manage, their own ads for the first time.
A culmination of these additions, and an increase in users, saw Facebook’s revenue more than double in one year – to $700 million.
By 2011, businesses could ‘sponsor’ stories and have them appear in front of those who had liked their page. The introduction of mobile ads followed in 2012.
Now, not only was Facebook seeing dollar signs in the eyes of all its users but also in their actions and behaviours. Consequently, Facebook introduced something called ‘The Social Graph’. When a user befriends another user, likes a page, comments on a photo, listens to music, or plays a game, a connection is written to The Social Graph. This generates powerful data for advertisers to utilise when targeting.
In 2013, Facebook introduced ‘lookalike’ audiences which let advertisers reach potential customers who share similar characteristics with their current ones. Advertisers are able to upload emails, or phone numbers, which are associated with user profiles and have Facebook target similar users.
Finally, re-targeting ads appear in the news feed, aimed at users based on their browsing history outside of Facebook.
Today, Facebook uses a range of complex algorithms to calculate who sees advertisements; and, subsequently, how much is paid. However, this is still somewhat secret as a result of its complexity.
Facebook is, and continues to be, one of the biggest marketplaces online and serves as an effective form of advertising to some of its 1 billion users.