How Does Facebook Make Money
With exponential revenue growth, and a recent motion picture based on its creation, the world is asking, "How does Facebook make money?". The private company recently reported that it was covering all of its expenses through site-generated revenue, which is an incredible feat for a business that nominally doesn't sell anything at all. The combination of a user-friendly interface, ample opportunity for market data collection, and the age-old tradition of paid advertising furnishes the answer. The mechanism of this social behemoth is both simpler and more innovative than most people think.
- Traffic generation provides the first key to Facebook's financial success. With over 500 million active users, Facebook commands a vast, easily accessible market for their website content. While most of the content on the site is superficially purely social, it doubles as a mechanism for Facebook to make money.
- Data collection supplies the next part of the cash equation for Zuckerberg's creation. Each time new user opens a Facebook account, he or she provides instantaneous market research. The user fills out an entertaining little information form that includes everything that would be on a market research survey. Answers include demographic information like age, gender, and location, along with individual taste preferences. Facebook collects all these bits of user data and feeds them into their marketing machine.
- Targeted advertising is the primary way Facebook makes money. Each time a user logs in, he or she is confronted by a waterfall of advertising links cascading down the right side of the screen. Every one of them is related to a topic of interest for the individual. This degree of advertising affinity is a key element in a successful marketing campaign. To understand the audience provides a much higher profit potential than generalized or misplaced ads.
- Virtual products make up a relatively small percentage of Facebook's revenue, but the income is worth noting. Facebook games make money partly by selling credits to help players become more effective during game play. In addition, an early component of the site was the availability of "gifts" which could be given to friends electronically. Some were free, but the more entertaining items required a cash purchase. These elements allow the company to repeatedly generate revenue from a tiny bit of code or an image, depending on how many users are willing to fork out the funds for an electronic signal.
The Facebook money-making machine comprises these four factors. The combination of ultra-specific market research, and the common internet device of third-party advertising accounted for 400 million dollars in 2009, and the company continues to grow. The addition of simple gimmicks like digital gifting provides the icing on a very expensive cake.