How Does Facebook Make Money?

The primary way that Facebook makes money is through advertising.

There are a plethora of social media websites today, everything from Facebook to Twitter, Instagram, LinkedIn, Google+, and everything in between. However, all these websites are free to use. So, how do they make money? Believe it or not, it’s the same way that TV shows and channels do: advertising.

Facebook has millions of users, nearly everyone today has a Facebook account and they all check their Facebook feed at least once a day if not every five minutes. All of these users are impressionable, so similar to how every show on TV has commercials, each page on Facebook has ads.

The popularity of Facebook allows it to charge exuberant amounts for ads. Microsoft paid $50 million to Facebook in 2009 alone in order to promote its products on its website, and Microsoft is just one company. Facebook also has partnerships with Ford, McDonalds, HSBC, Budweiser, VISA, Nike, Starbucks, Samsung, and Dell, just to name a few. All of these companies pay Facebook to show their ads in prominent places in order to garner the most views. This is similar to how advertisers pay billions to show their ads during Super Bowl, as compared to other channels at other times. This is mainly because their ads will get the most views during those 90 mins than at any other time.

Even though each view and/or click on an ad might cost a few cents or a dollar respectively, these numbers add up when your target audience is in the billions. In 2013, Facebook’s annual revenue was $7.8 billion. Of this approximately 80 to 85% was due to advertising. The rest was due to virtual games.

You’ll always hear people complain about receiving a Facebook request to start playing some game or another, whether it is Farmville or Candy Crush. Millions of people play games on Facebook, either it on the Facebook website, or an app on the phone that is integrated with Facebook. Today, nearly all games integrated with Facebook, in addition to Google. In these scenarios, the primary source of revenue generation is sale of Facebook credits which can be used in game.

Additionally, Facebook has a number of other products, such as WhatApp, which it has not monetized yet. However, when it does, they are sure to add more billions to its revenue.

Image Courtesy: theguardian.com

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