How Does Facebook Make Its Money?

Facebook is the most popular social network in the world, with 1.94 billion monthly active users as of the first quarter of 2017. And the best part of it is that this way of keeping in touch with friends and families comes for free for the users. But then how does Facebook make its money? We all know that this is from advertising but exactly how advertising helps generate the huge amount of revenue of the fastest growing tech company in the world?

I will take this opportunity to look closer at the sources of revenue of Facebook.

Advertising

Advertising accounts for a huge portion of the revenue stream of Facebook. Many businesses create ads on Facebook, and the company gets paid to deliver the ads. Facebook ads, published on the screen are directly related to the users: for example, if a user mentions in a comment that they like Nike shoes the ad related to Nike shoes will appear later to that user.

Some big companies use Facebook extensively and see their revenues increase as a result of that. The companies that have invested some big money in advertising on Facebook are quite a lot. We will mention just a few here: Ford, HSBC, McDonalds, Visa, Nike, Starbucks, Disney, Dell, Samsung, Nestle and many others.

The result of this type of advertising? Nike is known to break campaigns on Facebook before they appear on TV. McDonald’s has more than 30 million likes on Facebook. Starbucks saw 38% increase from users that saw it in their news feed. Clearly they pay big money for this type of advertising and get good returns on their investment.

Self-serving ads

It is not only the big companies that can advertise on Facebook. Small businesses also can use the self-serving ads in which the users can set up their advertisement by the ‘check here to create your ads’ functionality. Facebook is generating considerable revenue with this self-served ad function.

Mobile advertising

Another revenue stream comes from mobile advertising. Facebook launched its own app center which let the users download their desired applications from the appropriate store directly and gets paid by the developers.

Other sources of revenue:

Games

Farmville, Mafia Wars, City Ville, Empire & allies are some of the popular games that have millions of users who pay real money to play. These games are developed by Zynga and Facebook takes 30% revenue from it.

Facebook Gift Shop

Users can send virtual gifts to their friends and other users. This shop is also open to third party developers and users can purchase small items like dolls, cards and the Facebook delivers it to the preferred person.

Their revenue from advertising in 2016 has increased with 53%  YOY (Year-on-Year percent change).

The interested business students can look at the detailed balance sheet of Facebook here.