The Business Of
Eyeballs | Meta | What Do They Do?
Morning All!
Hope you had a great week! Last time, in the first part of our The Business Of Eyeballs series, we explored the business model of Alphabet. And we saw that whilst the advertising industry has been around since the 1700s...
… the birth of the internet saw digital advertising take over from the 1990s! Last week we focused our attention on the part of the advertising industry. This week, we’re going to focus on the part of the industry. And where else to go but the kings of social media advertising - the owners of Facebook and Instagram, Meta!
Now, Meta doesn’t need too much of an introduction. The company is the 7th most valuable company on Earth. And pretty much all of us reading this will have used Meta’s products (Facebook, Instagram, and WhatsApp)!
However this week, we’re going to dive into some less well-known parts of the business. And ask some less obvious questions. Like - how much do companies pay Instagram per advert? And how do Facebook/Instagram margins compare vs Google Search? Well, we’ll get into all of that + much more this week. But for now, let’s set the scene for the week!
Social Media Advertising Is Big… But Not As Big As Search!
Okay, so last week, we went back in time and looked at the evolution of the advertising industry. Here’s a brief reminder on the key time periods! In 1704, we saw the first newspaper ad. In the 1890s, we saw the introduction of direct mail advertising. By the 1920s, radio adverts had entered the scene. And by the 1940s, TV advertising became the main channel for brands!
However, in the 1990s, the advertising industry saw a remarkable transformation as the internet saw the rise of search and display advertising. And that’s kind of where we got to last week. But as we all know - the evolution of the advertising industry didn’t stop with search and display. Because over the last 2 decades, we’ve seen the birth of social media!
Now, our story for this week begins back in 2004, when a fresh-faced Harvard student named Mark Zuckerberg created the first version of Facebook (called TheFacebook back then). And after receiving strong initial interest from his fellow students at Harvard, Mr Zuckerberg rolled out Facebook to other universities around America. Soon enough, Facebook was global. And over the next few years, all sorts of social networking companies started popping up - see below!
Okay, so we’ve got all these huge social media apps. With millions and millions of users across their platforms. Surely social media advertising is bigger than search advertising, right? Well, as we can see from the graphic below - no, not quite!
The global advertising industry is ~$770bn (revenue). Digital advertising makes up ~two-thirds of this industry (~$520bn). And within digital advertising, social advertising makes up ~one-third (~$170bn). So, whilst social is the second biggest segment in global advertising, it still trails search (~$250bn)! Shows how powerful Google Search’s position is!
Now, as we’ll see in tomorrow’s newsletter, Facebook and Instagram make up the majority of this ~$170bn industry! But for now let’s move on, and touch on a part of Meta that is far less spoken about…
WhatsApp - Why Don’t Meta Make Any Money From It?!
… and that part is WhatsApp! WhatsApp is now a huge part of people’s everyday lives. When you want to send a message to a friend, family member, whoever - what do you do? You click on the WhatsApp icon and ping over a message!
However, this wasn’t the case until pretty recently! A lot of the students reading this will be too young to remember. But back in the 2000s, less that 20 years ago, WhatsApp didn’t exist. And if you wanted to send a message to a friend or family member, you had to send them a SMS - aka a text! And guess what… it would cost you money to send that message! I remember when I had to pay 10p per text!
Now, the reason these text messages cost money to send is because these messages were sent through your phone company’s network infrastructure. Let’s say your phone company was T-Mobile and you sent a text to your friend. The message would be sent from your phone to the nearest T-Mobile cell tower using radio waves. And the message would then reach your friend through T-Mobile’s other cell towers, closer to your friend. Now, these cell towers cost a lot to operate and so T-Mobile pass on some of that cost to their customers when they send a text!
Now, the difference with WhatsApp is that messages sent via WhatsApp don’t go through your phone company’s cell towers. They travel over the internet! For a detailed picture of how WhatsApp vs SMS messages work - I recommend checking out this cracking video. But basically, the entrance of WhatsApp, meant people could message their friends as much as they wanted… for free! And this led to a huge decline in the number of text messages sent in certain countries. In the chart below, we can see that the number of text messages sent in Germany has fallen a whopping ~90% since the peak in 2012!
Now, what’s super interesting about WhatsApp is that, whilst the app has over 2 BILLION USERS. And has over 1 MILLION messages sent on it EVERY SECOND. Meta really hasn’t made much money from WhatsApp since they acquired the company in 2014. Because how much does it cost to download WhatsApp? Nothing. How much does it cost to send a message? Nothing! And do we see ads on WhatsApp? No!
However, this could all be changing soon! Check out this article on how Meta could start monetising their prized messaging service!
Mark Zuckerberg… The Real-Life Tony Stark?
Alrighty, let’s wrap up. And the final thing that Meta does is something called Reality Labs. Now, what on Earth is Reality Labs? Well, Reality Labs is all about Meta’s virtual reality (VR) efforts! Back in 2021, Mark Zuckerberg decided to rename Facebook to Meta, and signalled his intention to bet on VR and the metaverse.
And over the last 5 years, we’ve seen Meta release two main VR products over the years. The Quest VR headsets (previously called Oculus). And more recently, the Ray-Ban x Meta smart glasses. Both products can be seen below!
Now, whilst these products are super cool. And VR/AI is where Zuckerberg is focusing most of his future plans. It’s not a huge part of Meta’s business right now - as we’ll see tomorrow! And it won’t really help us understand how Meta’s advertising business model works. Hence, we’re not going to go into much more depth about the Reality Labs division this week… sorry!
However, for those of us who are keen to learn more about Reality Labs. I recommend checking out this article where Mark Zuckerberg talks about the potential of the metaverse. This video where Zuckerberg compares Meta’s VR headset vs Apple’s. And this article which talks about how Zuckerberg has his own AI assistant (like Tony Stark’s Jarvis) that runs his house!
11th Mar 2024
And that’s a wrap! A lot to look forward to this week. Tomorrow, we’ll look at how exactly Meta makes its money!
Have a fabulous day!
The Business Of Team