Apr 25, 2013

How does Facebook Make Money?

They say its free. They also say that Mark Zuckerberg - the guy who started Facebook - is one of the richest people around; a billionaire apparently. So, how the hell does this guy give free accounts to its users and yet sit happily atop a goldmine? The figures going around about Facebook's annual revenue are heart-stopping to say the least. While in 2008, the revenue was around US $280 million, the figures touched a US $2000 million mark in 2010. The numbers that are doing the rounds for 2011 are more than US $4000 million. All this from a free website! So where is the money coming from?

Sometime back, there was a hoax on Facebook claiming that it's going to be a paid membership site. The claims were denied by the site stating that it is free and always will be. Free account notwithstanding, Facebook is making money. And lots of it!


I'll solve the mystery for you in one simple word - advertisement. The same thing that runs most websites across the world. That is the big secret behind Facebook's burgeoning revenue. If you open your Facebook profile, you will see that the right hand side of the page is full of ads. You can give the thumbs up to the ad or the thumbs down. The thumbs down will remove the ad and it will not come back.

Facebook being a decidedly smart social networking institution knows which ad to put where. Like the Google AdSense, it too provides ad to the pages based on the interests and the overall profile of the user. So, if you mention in your profile that you are a fan of Nike or any other sportswear brand, the related ads will appear on the right hand side of the page for companies and websites selling them. Facebook ads are not intrusive and hence, people do not get annoyed with them, unlike those super-irritating pop-up ads.

And their advertising system makes sense, since it ensures that the right ad is displayed to the right customer, since the ads are selected for an individual page based on the interests and likes of the user. This avoids unnecessary waste of Ad space on the page where the chances of the Ad being 'hit' are theoretically pretty low. Also, the ad system gives the user a 'thumbs down' option, which ensures that the particular ad does not appear again. That too is a pretty interesting thought, given that the ad hasn't a chance of being clicked and letting it sit in front of the users will continue to rile them.


Ever sent a virtual gift on someone's birthday? You must have at some point, if you knew how to use Facebook. Well you do pay for some of them and a big slice of it goes into coffers of the company. While simply writing 'happy birthday' suffices for some, the 'send a gift tab' on your friend's wall encourages others to send a virtual gift - paid for online. All the money almost always goes to the company, but if the gift is provided by an outsider, then a portion of it goes there. But much of it is still retained by the website. At the cost of $1 for each gift, Facebook Virtual Gift Shop is a very lucrative business which earns the company almost $200 million every year. However, not all the earned money goes to the website alone, it also donates money to various charities around the world. For instance, during the Haiti crisis, the company offered users an opportunity to buy gifts which would directly benefit the victims of the Haiti tragedy.

Application Performance

The beautiful thing about companies like these which work on different platform are the plethora of business ideas that they bring to the table. Let us take the example of Farmville, which is doing reasonably well on Facebook. Now the application is provided free for use and the parent company (Zynga) is getting a lot of traffic because of the game's popularity. So isn't Facebook entitled to take a slice of that pie? After all, they are providing a platform for gaming companies like Zynga to their burgeoning user base.


Facebook Credits is the official currency in the world of Facebook. This virtual currency enables users to purchase items in various gaming and non-gaming applications. With $1, a user can buy 10 Facebook Credits. Of all the revenue earned through Credits, the website keeps 30% and the developers get 70%. Users can purchase these through their cards but the most popular purchasing option is PayPal. The Credits can also be bought as gift cards in Target, Walmart and other stores across the US. Although the amount of revenue generated by ads is highest, Facebook credits is supposed to cross that in the coming years.

The website does not charge any fee from its users and hence, is able to give out the information about users to applications and advertising sites more freely than the sites with paid memberships.


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