Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.96 billion Monthly Active Users as of 2022. Meta generated $116,6 billion in revenues in 2022, of which $113.64 billion was from advertising (97.5% of the total revenues) and over $2.16 billion from Reality Labs (the augmented and virtual reality products arm). 

Meta Business Model VTDF Breakdown

We describe the Meta business model via the VTDF framework developed by FourWeekMBA. 

The history of Facebook: the former rocket ship turned into a heavy cruise ship

Back in the 2010s, a few years after Facebook had been founded, it represented one of the most impressive growth companies that ever existed, also for the Internet standard.

Indeed, Facebook and a few other companies opened the way, to what we call – in hindsight – Web 2.0.

In an early 2004 interview, Mark Zuckerberg, 20 at the time, side by side with WesMatch’s founder, Dan Stillman, explained what Facebook was about. Facebook would eventually wreck down WebMatch and all the other early players in the social network space (Myspace, Friendster, and CampusHook to mention a few).

As Zuckerberg explained it at the time, Facebook was “an online directory that connects people through universities and colleges through their social networks.” 

While today we give for granted a Facebook with billions of users, at the time with a hundred thousand users on the platform, it was very hard to tell how big it could become. 

Facebook’s early growth trajectory (Source: Financial Prospectus). 

When Facebook first launched, it was a rocket ship. The company used a staged rollout, where it would open its app to a larger and large set of users, not gradually, but exponentially. 

In short, with its first release, in February 2004, it only proved the concept through Harvard. As growth picked up right on, and the product turned out to be very sticky among students at Harvard, Facebook opened to other top colleges, by the same year.

And this happened right after Facebook had built a very important feature, the Facebook Wall, which would become a place for users to post relevant staff and connect to each other. 

This is how Facebook reached a million monthly active users. 

After that, by early 2005, Facebook was already present in 800 college networks. By September and October of the same year, Facebook expanded to high schools and international networks. This, at the moment in which, it had introduced a new feature, photos, enabling users to upload their photos on the platform (a big deal at the time!).

By 2005, Facebook had reached 6 million monthly active users (a 6x growth). 

By September 2006, Facebook introduced another key feature, which was as powerful as the “Stories feature” that Snapchat would introduce seven years later, in 2013. That was Facebook’s News Feed!

By 2006, Facebook had grown into a 12 million monthly active user base. 

By 2007, Facebook launched the Facebook Platform, a third-party application platform, enabling developers to build apps/features on top of Facebook. While this would be slowly shut down over the years (Facebook deprecated various APIs over time) it was a great experimental platform for quick users growth. 

In the same year, also Facebook Pages was launched. The company reached 58 monthly active users. 

In 2008-2009 Facebook’s expansion continued, with Facebook reaching over 360 million monthly active users. 

In the same year, 2009, Facebook introduced the like button. 

By 2012, as Facebook got ready for the IPO, it also reached a billion monthly active users!

And as it grew, it also played with its privacy policies, to make its advertising machine extremely profitable (a blessing and a curse that would follow the company for years).  

Leveraging a powerful social graph, it leveraged network effects, and it quickly grew, from a social network for universities, to mass social media company. 

The Facebook Social Graph of the early days! (Source: Facebook Prospectus).

Facebook was an incredible innovation for its time. With a very simple interface users could upload photos, update their status, and send messages to their friends and have complete control over what they wanted to share: 

(Source: Facebook Prospectus).

Back then, when Facebook was getting ready for its IPO, Zuckerberg highlighted the company’s playbook, founded on what Zuck called “The Hacker Way” (which also turned into the name of the street –  1 Hacker Way, Menlo Park – where the main headquarter is situated). 

This playbook would also become the standard, for those building Internet companies who had to leverage fast users’ adoption, and network effects.

It would inspire disciplines like growth hacking, and growth marketing, now become a standard in the Internet industry. 

The manifesto said:  

As part of building a strong company, we work hard at making Facebook the best place for great people to have a big impact on the world and learn from other great people. We have cultivated a unique culture and management approach that we call the Hacker Way 

The word “hacker” has an unfairly negative connotation from being portrayed in the media as people who break into computers. In reality, hacking just means building something quickly or testing the boundaries of what can be done. Like most things, it can be used for good or bad, but the vast majority of hackers I’ve met tend to be idealistic people who want to have a positive impact on the world.

Therefore, Zuckerberg reframed the meaning of hacker, not as something bad, but rather a mindset to be used to build valuable things in the world. 

And he continued: 

The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it — often in the face of people who say it’s impossible or are content with the status quo.

This would set the stage for the core mindset that Facebook had led for years of “moving fast, and breaking things.” This would be the main manifesto for years until Facebook had become such a popular company, that going too fast was no longer an option.

Indeed, in 2014, as Facebook had become a company generating over $12 billion in advertising revenues, and with almost 1.4 billion Monthly Active Users, the motto changed to “Move fast with stable infrastructure.”

However, like Zuckerberg, explained, back in 2012 – when Facebook was getting ready for the IPO:

Hackers try to build the best services over the long term by quickly releasing and learning from smaller iterations rather than trying to get everything right all at once. To support this, we have built a testing framework that at any given time can try out thousands of versions of Facebook. We have the words “Done is better than perfect” painted on our walls to remind ourselves to always keep shipping.

He also added: 

Hacking is also an inherently hands-on and active discipline. Instead of debating for days whether a new idea is possible or what the best way to build something is, hackers would rather just prototype something and see what works. There’s a hacker mantra that you’ll hear a lot around Facebook offices: “Code wins arguments.”

What about its culture? 

Hacker culture is also extremely open and meritocratic. Hackers believe that the best idea and implementation should always win — not the person who is best at lobbying for an idea or the person who manages the most people.

How did Facebook incentivize this hacker mindset? 

To encourage this approach, every few months we have a hackathon, where everyone builds prototypes for new ideas they have. At the end, the whole team gets together and looks at everything that has been built. Many of our most successful products came out of hackathons, including Timeline, chat, video, our mobile development framework and some of our most important infrastructure like the HipHop compiler.

This implied an initial program, a Bootcamp, which anyone (also future managers) had to go through: 

To make sure all our engineers share this approach, we require all new engineers — even managers whose primary job will not be to write code — to go through a program called Bootcamp where they learn our codebase, our tools and our approach. There are a lot of folks in the industry who manage engineers and don’t want to code themselves, but the type of hands-on people we’re looking for are willing and able to go through Bootcamp.

In 2012, Facebook had reached over $5 billion in revenues. By 2016, that number would be more than 5x, reaching over $27 billion in revenues. 

And by 2021, Facebook 4xed again its growth to $114.9 Billion in advertising revenues! 

Facebook, metaverse, and rebranding as Meta

At the end of October 2021, Mark Zuckerberg announced the Facebook Inc. rebrand as Meta. A company focused and dedicated to building the Metaverse. Beyond buzzwords and corporate communication. What does that imply?

With the announcement, Facebook changed its name to Meta. It wasn’t just a name change (although it was perceived by many as such) but it also worked as organizational restructuring. 

Indeed, with this move Facebook, now Meta, wanted to show its bold move into VR/AR, which is seen by Zuckerberg as the next mass consumers platform after the smartphone.

In short, with this new organization, they are trying to go after, what today we call the Metaverse, which is something still hard to make sense of since its definition is getting shaped now. 

Thus, Facebook, now Meta, is trying to become a leading player in this new market. But to really understand that we need to look at the overall Facebook business model. 

Before we get to that, it’s important to emphasize that Meta is still an advertising company. And how do you measure the success of an advertising company? There is a metric for that: ARPU!

It’s all about ARPU: How much are you worth to Facebook?

ARPU stands for average revenue per user. In short, how much money a company can get on average from each user. In the Facebook case, we can take into account the monthly active users.

For a company like Facebook, for which over 97% of its revenues come from advertising the amount of time people spend on the so-called news feed is crucial to increase the profitability metrics of the company.

That isn’t only because Facebook is an advertising company, but also the way its business model was built.

If you think about Google, what makes the company able to monetize its users is not necessarily how much time they spend on the search results pages. Instead, that is based on how fast users can find what they need.

Once they click through that is how Google makes money.

Of course, things are changing fast both on Google and on Facebook.

Yet as of now the more time you spend on Facebook and the more you’re active on it, the more you allow it to make money.

What else? Not all users are born equal. In fact, according to the geography and the ad market of each country, the monetization strategy changes. 

For instance, that is how much each user based on geography was worth to Facebook in 2022:

• US and Canada: $58.77.
• Europe: $17.29.
• Asia: $4.61.
• Rest of the World: $3.52.

Therefore, a user from the US or Canada as of 2022 is worth more than a user from Europe or the Asia-Pacific region. To make a comparison, a user from US and Canada, on average, is worth 16.7x more than a user in the rest of the world! 

Of course, also within the US, there are the so-called power users, which are worth way more to the company. For instance, think of an influencer profile, which has many millions of followers, and that when it posts, generates millions of interactions. 

If you take, for instance, the most successful Instagram account in 2021, that of Cristiano Ronaldo, with over 400 million followers, you realize that this account alone might be worth hundreds of millions for the company, each year. 

Compared to the account of average users, with a few followers, which generates very few engagements. Thus, also when looking at ARPU, it’s important not to give it too much weight. 

In fact, an analysis based on power users’ accounts and how those power users (like Cristiano Ronaldo) move their following across various social media platforms (imagine Ronaldo stopped posting on Instagram and only posted on TikTok) can tell us much more about the overall health of the platform user adoption. 

This, of course, is a qualitative analysis.  

From an internal standpoint, the long-term objective for Facebook is to keep increasing its monetization for each user, especially in the developing parts of the world where there is still space to grow the user base, which instead has stalled in the US and Canada. 

While at the same time, it needs to make sure to keep growing its user base and keep attracting power users, which can generate millions of interactions with each post. And this is a matter of product development, engineering, distribution, and brand appeal to newer generations!

If we look at the current landscape of Facebook’s monthly active users (this only comprises Facebook users), we can see how growth in US & Canada has mostly slowed down.

Snapshot of Facebook key stats and facts

• As reported officially by Facebook, the company’s main headquarter is situated at 1 Hacker Way, Menlo Park, California 94025.
• As we highlighted, the “Hacker Way” is Mark Zuckerbergs’ key driving business strategy mindset.
• Facebook, now Meta, had f 75,964 employees as of November 2022.
• The company also reported 2.96 billion monthly active users (remember that Facebook Inc, also comprises other products like Instagram, while they affect the Facebook bottom line, Facebook doesn’t report how much of it is coming from each product and doesn’t tell us the users count of those platforms). 
• In 2022 Facebook, now Meta, generated $116,6 billion in revenues.
• In 2022 Meta’s business model was driven by advertising revenues, which represented 97.5% of the total revenues.

What drove Facebook’s business model in 2021?

As we saw, Facebook, now Meta, makes money with an advertising business model. Almost all the revenue comes from targeted advertising.

Facebook’s revenue breakdown in 2022:

• Advertising (over 97% of revenues): the company generated over $113 billion in advertising, primarily consisting of displaying ad products on Facebook, Instagram, Messenger, and third-party. As Facebook highlighted, in 2022, the number of ads delivered increased by 18%, as compared with approximately %10 in 2021. And the price per ad decreased by 16% in 2022, compared to a 24% increase in 2022. This happened due to the fact that Meta has been pushing formats (like Reels) that while grab more attention they are also hard to monetize (for now) due to the format and geography. 
• Payments and other fees (less than 1% of total revenues): those revenues primarily consisted of the net fee received from developers using Payments infrastructure or revenue from the delivery of virtual reality platform devices and, most importantly, revenue from the delivery of consumer hardware devices.
• Reality Labs generated over $2.1 billion in revenues (almost 2% of the total revenues) from the delivery of consumer hardware products, such as Meta Quest (former Oculus), Facebook Portal, wearables, and related software and content. 

Facebook’s same mission statement, changed vision (hint: it’s all about the metaverse)

The company’s mission was “to give people the power to build community and bring the world closer together.”

As Facebook, became Meta, its mission statement stayed the same, however, its vision changed. 

In fact, Meta’s mission is still to give people the power to build community and bring the world closer together.

The vision is “of helping to bring the metaverse to life.”

As the company highlighted in its 2021 financials: 

We build technology that helps people connect, find communities, and grow businesses. Our useful and engaging products enable people to connect andshare with friends and family through mobile devices, personal computers, virtual reality (VR) headsets, wearables, and in-home devices. We also help peoplediscover and learn about what is going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities withaudiences ranging from their closest family members and friends to the public at large, and stay connected everywhere by accessing our products. Meta is movingbeyond 2D screens toward immersive experiences like augmented and virtual reality to help build the metaverse, which we believe is the next evolution in socialtechnology

The pillars of Meta’s business model

Meta business model can be broken down into two main segments: 

• Family of Apps (comprising the main products which make the advertising business successful – like Facebook, Instagram, Messenger, WhatsApp).
• And Reality Labs: the suite of products related to the Metaverse (former Oculus, wearables, and marketplaces related to VR/AR).

And five main product pillars:

• Facebook, which main digital assets comprise the News Feed, Stories, Groups, Watch, Marketplace, Reels, Dating.
• Instagram, which main digital assets comprise Instagram Feed, Stories, Reels, Video, Live, Shops, and messaging.
• Messenger, which main features comprise chat, audio and video calls, and Rooms.
• WhatsApp which main application is mobile chat. 
• And Meta Quest is the company’s flagship hardware for virtual reality on top of which Meta is trying to build its new supply chain of data.

And a “research factory”, which is Reality Labs, trying to build from scratch the whole Metaverse supply chain!

Facebook Reality Labs is an augmented and virtual reality laboratory that produces hardware and consumer devices. This is comprised of Oculus, a leader in VR headsets,  which Facebook acquired in 2014 for $2.3 billion. Oculus Quest, the main product line of what has been rebranded as Facebook Reality Labs is the VR device, which will also play a key role in the development of the Metaverse. 

We’ll see why the Metaverse plays such a key role in Facebook’s future. And it’s all about distribution. 

Comparing the attention merchants’ business models