Kurt Eichenwald has an excellent look at Facebook’s business model:
Andreessen and others around in those early days of Facebook agree that no one was quite sure how the business would ultimately earn profits. But that was beside the point. What Zuckerberg was building wasn’t so much a moneymaker as it was an asset of unprecedented value: a massive compilation of data about people’s names, locations, behaviors, likes, and dislikes—the kind of information that marketers could not have even imagined being available just a few years before.
“A lot of people looked at Facebook and saw a Web site,” Andreessen remembers. “None of the people close to Mark and the company thought of Facebook as a Web site. They think of it as a data set, a feedback loop.”
There’s been some discussion whether Facebook Home is a precursor to Facebook building their own phone, but that’s the wrong thing to focus on. Perhaps that is the case, but Facebook’s ambitions are much larger than to merely sell a mobile phone.
Facebook’s business model isn’t just to be a place where advertisers can show display ads to people. Instead, they want to be the place where companies connect with customers and potential customers. Not a new broadcast medium, like print, radio or TV, but the alpha and the omega of reaching customers—where companies find new customers, where they interact with existing ones, and where they drive sales to both groups. The place that has, for all intents and purposes, all of the information a company could possibly want about potential and existing customers: their demographic data, likes and interests, activity, travel data, and purchasing behavior.
For that to work, not only does Facebook need as many people as possible on the service, but they need them to actively use it, to “share” their lives with friends. Facebook’s interests depend on people believing that being “open” is a positive thing for them, their friends and society. And they also need to basically become the Internet—the social layer that all websites, applications and services connect to and rely on. As you use Facebook, browse the web, and use applications and services that feed into Facebook, you are building an ever-more-detailed profile of who you are, what you like and don’t like, where you go, what you do, what you eat, what you listen to, what you watch, what you buy. And that data will be (is) used to provide targeted adverts to “connect” with a brand or to nudge you to purchase something.
That’s not a moral judgment (although I do find Facebook’s underlying philosophy, that sharing our lives is a positive thing, highly damaging). I don’t think advertising is inherently wrong, nor targeting advertisements based on personal information people have chose to share. Rather, I think we should all be aware of what Facebook’s business model is, how it works, and what its philosophy is.