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  • Every day, more than two billion people use Facebook, Instagram, WhatsApp or Messenger.

  • That's more than a quarter of the world's population.

  • And despite a rising number of privacy scandals and public backlash,

  • Facebook is still growing.

  • Total revenue for 2018 was $55.8 billion,

  • up 37% from 2017.

  • But with all of those users paying nothing to use these apps, how does

  • Facebook make money?

  • Is the company selling your personal information to companies, politicians

  • and even foreign governments?

  • It's actually much simpler than that.

  • How do you sustain a business model in which users don't pay for your service?

  • Senator, we run ads.

  • Throughout its entire history, Facebook has relied on advertising for

  • revenue here and there.

  • The company has experimented with other types of revenue, such as hardware

  • with its Oculus VR headsets and its new Portal speakers.

  • But really all of that is chump change compared to the revenue that it

  • generates from advertising.

  • About 99% of Facebook revenue came from advertising in 2018.

  • There are about 7 million advertisers on Facebook and the ads that you see

  • aren't like a traditional TV commercial or newspaper ad that looks the same to everyone.

  • Facebook and its entire family of apps use a type of ad that's much more

  • sophisticated and much more valuable.

  • When they first started out these were simple display ads on the company's

  • website. But since then, they have evolved into very targeted ads where an

  • advertiser can pick the kind of audience that they want to reach.

  • I believe that started happening after Sheryl Sandberg joined the company

  • and from her experience with advertisers on Google were looking for.

  • And she could provide that to them.

  • And probably more than that using the Facebook data that everyone

  • volunteers. Facebook ads are targeted, which means each ad that you see

  • was specifically for you.

  • Companies only want to pay to show ads to people that are likely to buy

  • its products.

  • Facebook provides advertisers with a near guarantee that they won't waste

  • their time or money, an assurance that a prom dress ad will be seen by a

  • high school student and not a retiree, or that an ad from a new burger

  • joint will be seen by a meat eater and not a vegan.

  • As a result of this targeting, corporations can save money in the long run

  • and drive more sales for advertisers who simply want to reach as many people as possible.

  • There's no better way to spend money than Facebook.

  • The other reason that advertisers use Facebook is because of the targeting

  • that the company offers.

  • The company has a ton of data on its users and that's very valuable to

  • advertisers, especially those who maybe on a budget and want to make sure

  • that they're reaching users who could realistically turn into customers.

  • This has led television and print advertising to decline.

  • This year, it is estimated that digital advertising will surpass

  • traditional advertising for the first time, capturing more than half of

  • all ad dollars spent.

  • But how does Facebook know exactly who you are and what you're interested

  • in? Many paranoid users have alleged the tech giant is listening in on

  • your conversations through the mic on your phone.

  • This isn't true, although Facebook has filed patents that suggest it could

  • eventually pick up audio signals from your TV to give you better ads.

  • It's also filed a patent that can interpret the expression on a user's

  • face as they read their news feed.

  • The company claims it will not use these patents, but clearly it continues

  • to focus on ways to gather even more data on its users.

  • At the moment, it can gather almost as much information just by what you

  • do on its family of apps.

  • Of course, you input basic info like age, location and education on your

  • profile, but you're also liking pages, joining groups, RSVP to events and

  • sharing your location.

  • Facebook is able to package all this information and actually harvest it to

  • try to figure out what kind of person you are and perhaps what you are most interested in.

  • Or better yet, what you are looking to find and then sell that information

  • to advertisers who are trying to find you.

  • Facebook can also get data on you from other websites that you visit

  • through what's known as the Facebook Pixel.

  • Based on this kaleidoscope of details, Facebook forms an advertising

  • profile for each user, putting them into certain groups that advertisers

  • can pick and choose from when buying ads on Facebook.

  • Corporations can target ads based on your interests, what type of phone

  • you have, your political leaning ethnicity and even income level.

  • And with enough information, these ads can blend into your feed so well

  • that you might not even recognize it as an ad.

  • But all of these details are still just Facebook's best guess.

  • Not an exact science.

  • The company has found itself in hot water on more than one occasion for

  • heavy handedness in its ad targeting tools.

  • Pregnant women who have had miscarriages have criticized the company for

  • continuing the show them baby product ads.

  • A ProPublica investigation found that Facebook had several anti-Semitic

  • advertising categories, including Jew-hater.

  • The Trump administration recently charged Facebook with discrimination in

  • its advertising practices for housing, which until recently allowed

  • employers and landlords to limit audiences based on race, ethnicity or

  • gender. The company has pledged to reform its system to prevent this type of discrimination.

  • Just as ads can influence consumers to buy products, they can also

  • influence voting behavior.

  • In the Cambridge Analytics scandal, 87 million Facebook users had their

  • data stolen to help influence the 2016 U.S. presidential election.

  • We didn't take a broad enough view of our responsibility, and that was a big mistake.

  • So what can you do if you don't want Facebook to show you personalized, targeted ads?

  • If you're trying to avoid ads on Facebook, that's pretty much impossible.

  • But there are a few things that you can do to make it harder for Facebook to target you.

  • Users can adjust the categories that Facebook has determined you're

  • interested in by going into your settings.

  • But it's nearly impossible to opt out altogether.

  • Even if you delete Facebook, which has become increasingly popular, the

  • company still has your data if you use Instagram, WhatsApp or Messenger.

  • Instagram just past 500 million daily active users on stories, a feature

  • that is found on every app in the Facebook family that allows user

  • generated photos and videos to take over your entire phone screen.

  • Recently, Facebook has started to change its advertising strategy by

  • placing an emphasis on its stories product.

  • Facebook is starting to sell ads to advertisers and brands in this same

  • format. It is hoping to ramp that up in a way that will eventually

  • generate more revenue than the advertising that they get from news feeds.

  • In its latest earnings call, the company announced that two million

  • advertisers are using stories to reach customers.

  • So despite data breaches and lawsuits, Facebook continues to lure

  • advertisers. And while user growth has slowed, it is still growing.

  • But there are things that could affect the outlook for Facebook's

  • advertising business.

  • Many people have become concerned about too much use of social media.

  • Salesforce CEO Marc Benioff recently compared using Facebook to having a nicotine addiction.

  • Apple introduced Screen Time to help users crack down on how much time

  • they're spending on social media and their phones.

  • We are very concerned about regulation.

  • The EU has put into place some pretty onerous regulations for companies

  • that are doing business on the internet, and I don't think it's beyond

  • imagining that that could occur in other places, especially the United States.

  • Another factor that Facebook has talked about hurting its advertising

  • revenue is of its own making.

  • This is a new feature called Clear History that the company said is going

  • to roll out to users in 2019.

  • Clear history essentially gives users the ability to scrub the data that

  • Facebook has on them.

  • The less data that Facebook has hurts the ability of the company to target

  • ads to you with precision.

  • Mark Zuckerberg recently announced a new vision for the company where he

  • outlined building a privacy-focused messaging and social networking

  • platform, raising questions for investors on how targeted advertising

  • products will work if users aren't posting publicly.

  • Three weeks after that announcement, a mass shooter used Facebook Live to

  • broadcast his attack on two mosques in New Zealand.

  • Facebook had to remove 1.5

  • million copies of the video off its platform.

  • In spite of all of these events that seem like it would affect Facebook

  • business, it keeps growing.

  • I don't think it looks like anybody who actually uses his platform cares in

  • the least about what they're disclosing to Facebook because they keep doing it.

  • That's the crazy thing.

  • They just keep doing it.

Every day, more than two billion people use Facebook, Instagram, WhatsApp or Messenger.

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