How Does Facebook Make Money?

By
Mon, 10 Sep 2018

If you have a Facebook account, you're probably aware that the social media service is free to use. And yet, the company makes billions of dollars every year. So where is that money coming from? In this guide, we'll look at how Facebook generates so much revenue. This video was made with Ezvid Wikimaker.

How Does Facebook Make Money?

Almost all of their revenue comes from advertising. Companies pay to post ads on the site, knowing that they can not only reach a wide audience, but that they can target their message to specific demographics, thanks to Facebook's intricate algorithms. A smaller section of the site's income (around 15%) comes from selling virtual goods. For example, if you spend real money on virtual coins in a game you're playing through Facebook.

Types of Facebook Ads

  1. Domain Ads: An image, a description, and a link to a website
  2. Multi-Product Ads: Look at several options without leaving Facebook
  3. Offer Ads: Exclusive discount codes
  4. Video Ads: Popping up in the middle of video content

How Does Facebook Target Ads?

Facebook keeps track of its users' behavior on the site. These are just a few things that are used to determine what ads will appeal to a particular person.

How Ads Persuade People

Conclusion

Most of Facebook's profits don't come from its users, but from the people who advertise on the site. The social media giant uses the information provided by users to create precisely-targeted, personal ads. If this makes you uncomfortable, you can always delete your account. But for many, being advertised to is a small price to pay for the ability to connect with their friends and family.

In Depth

Facebook is an online social networking site that allows registered users to connect, share, and interact with friends, family, or acquaintances.

It was created in 2004 by Mark Zuckerberg, while he was enrolled at Harvard University. He launched it with his fellow students and roommates, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes.

By 2006, anyone over the age of 13 with a valid email address could join Facebook. The social media platform got so popular that in 2017, Facebook had over 2.7 billion monthly active users worldwide. This was a 16 percent increase from the previous year.

This was a 16 percent increase from the previous year.

Five new profiles are created every second. This implies that someone's potential audience on Facebook is growing exponentially. The "Like" and "Share" buttons are viewed across almost 10 million websites daily. Overall, Facebook has more active users than any other social media site. It continues to reign in popularity over Instagram, WhatsApp, and Twitter.

Facebook was launched as a free platform and it has been like that ever since. Even the sign-up page of the website tells the user that it's free and always will be. Despite the fact that people can join without paying anything, the company brings in enough cash to cover its day to day business costs, taxes, and capital expenditure.

There are different sources from which Facebook makes its profit. The biggest chunk of Facebook's revenue is through self-serve advertising. This allows marketers to choose precisely who they want to target. They create ads to put into the pages of the users who fit the profile. This is particularly popular among big brands. They use this kind of advertising because it has proved appealing for many of their followers and it has generated positive results.

There are different sources from which Facebook makes its profit.

In 2017, 5 million businesses were advertising on Facebook each month. That is a million higher from the previous year's monthly average. Among the advertisers, the biggest industries are e-commerce, entertainment, media, and retail.

Facebook reported that 85% of its earnings come from advertisements, which brought in $7.9 billion in the third quarter of 2017. The company is a dominant player in digital advertising, along with Google, which enables advertisers to serve up ads based on keyword searches. Unlike its rival, Facebook's value proposition is targeted advertising.

There are different ways to advertise on Facebook and the cost varies, depending on ad placement, format, and objective. In 2016, cost per click advertising had an average rate of about $0.30 per click. If an advertiser is measuring by cost per thousand impressions, it costs about $7. If these numbers are added up and multiplied by the number of advertisers, the social media giant is indeed a billion dollar business.

If these numbers are added up and multiplied by the number of advertisers, the social media giant is indeed a billion dollar business.

The remaining 15% of its income comes from revenue share or commission from virtual goods sold on the website. Facebook users need virtual money in order to advance on to higher levels of online games. Facebook takes up to 30% of the total sale achieved for such transactions.

In general, Facebook is a user-driven business model. It is based on the idea that if a user does not pay for a product, the user is the product. This means that a user's time and attention is being sold to advertisers on the website. Using this model, the site will likely continue to grow its revenue in the years to come.