How Does Facebook Make Money

Facebook is the most famous and successful social networking site in current era. It has user base of around 800 million people from all over the world. Facebook does not charge its users to create profile or fan page, so many people wonder, how does Facebook make money and survive. Well, the reality is that Facebook is not only surviving but making a lot of money, infact owner of Facebook Mark Zuckerberg is one of the richest people in the world. Revenue of Facebook in 2010 was 2 billion dollars but in year 2011, it increased to 4 billion dollars approximately. There are mainly 4 ways by which Facebook generates revenue.

Advertising
Most of the Facebook revenue comes from advertising. In year 2011, 85% of total revenue came from advertising while it was 95% in year 2010. While creating profile on Facebook is free but the ads which you see on the right hand side of your profile are not free. Facebook charges for them on cost-per-click basis or CPM (cost per thousand impression) basis. Facebook has very advanced tool to help advertisers. Advertisers have option to show ads on the basis of age group, gender, location and interest. So if you have a company in USA which manufactures beauty products then you can show ads to all women of USA in age group of 20 to 30 who has interest in similar products. This makes it a very effective tool for advertisers as they can laser target the right audience for their product. If there are multiple advertisers who want to show ads on a particular opportunity then they have to bid against each other, the advertiser with highest bid will get chance to show his ads more often.

Applications
When you have such a large user base then there comes plethora of idea which can turn into income stream and Facebook seems quite smart in that. Facebook has partnership with many third parties and Facebook provides them a platform to reach their audience. One of the biggest partners is zyanga which is a gaming company and has created games like farmville which has become quite famous across Facebook users. All these applications have some item which can be purchased by users to give them an edge over other users in that application. Facebook takes a part from that earning. In year 2011, around 12% of total revenue came from zyanga.

Facebook Gifts
In Facebook, you can send virtual Goods as a gift to your friends. Facebook generally charge $1 per gift. These gift applications are created by many developers outside Facebook. So Facebook keeps 30% of money for themselves and give 70% to developer. Facebook earn $200 million every year by selling these virtual gifts. Sometimes, Facebook do charity work from earning of these virtual gifts. At the time of Haiti crisis, Facebook offered its users to buy gifts so that all money earned through this, can be sent to victims of Haiti tragedy.

Facebook credits
This is a type of currency which can be used in Facebook. You can buy 10 credits in 1 dollar. Later on, you can use these credits to buy items on different gaming and non-gaming applications. User can buy these credits using credit card or even paypal. In USA, you can buy these credits in some stores like walmart, target etc. also. Though, Facebook credits are not major source of revenue but it is expected to increase over coming years.

So in general, Facebook is free for its users who loves to talk to their friend and family through this medium but to answer your curiosity of how does facebook make money, Well advertising, applications, facebook gifts and facebook credits are the keys which help in making billions.

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admin on March 26th 2012

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