How Facebook Makes Money

Mark Zuckerberg, founder and CEO of Facebook

Mark Zuckerberg, founder and CEO of Facebook (Photo credit: Wikipedia)

Ever Wonderd How Facebook Makes Money?

Social networks have exploded in popularity over the last couple of years. The largest and fastest growing by far is Facebook. Almost everyone has a Facebook account, and there are never any fees to use the service. Ever wonder how Facebook makes money if it is free to join and use?

Facebook has a user base of almost a billion members, and this number is growing every day. To use the service, these users all need to provide personal information like their email address and where they live. This personal information and Facebook’s wide audience allow them to make money.

The three basic ways how Facebook makes money are:

Advertising

Advertising is the biggest source of revenue for Facebook. Just last year, Facebook collected advertising revenue that was in the hundred of millions of dollars.
Those tiny advertisements that you see on the right hand section of the wall are being paid for by advertisers. Companies are eager to advertise on there because they can pick what demographic they want to target.
For example, If an advertiser is trying to target 30-35 year old females, Facebook has the capacity to target that exact demographic using people’s personal information that they supplied when they signed up for the service.
Facebook allows it’s users to sign up for free because they act as an audience for their paying advertisers. Just think how excited advertisers must get when they hear that they can get their product out to millions of targeted customers. These advertisements, while hardly noticeable, keep Facebook free. They are very similar to TV or radio commercials and operate on the same principals, but they use a digital medium.

Gifts

Facebook allows its users to send people Facebook credit gift cards. They get a small cut from these transactions. Whenever users send each other gifts Facebook makes a tiny bit of money. This is definitely a smaller revenue stream than advertising, but having millions of people send gifts can really start to add up.

Games/Application

Have you ever played Farmville or Mob Wars? If you are like most people, you have used an application or played a game on Facebook at some point in time. Tens of millions of people regularly play these games and Facebook makes money off of each and every one.
These games are created by vendors who rent space out from Facebook. The game creators need to pay Facebook to be allowed to use them to promote and run their games. Facebook can make a lot of money renting out space to these game creators.
This business arrangement is mutually beneficial for both the creator of the game and Facebook. The creator get millions of people playing their games and paying for in game upgrades, while Facebook collects money for letting the game creators use their platform.

Guest Post Written by Joel Adams, a social media expert who loves writing about the future of social media in emerging markets like Africa. Visit: http://answersafrica.com/ to follow some of his contributions.


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