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. The numbers that did the rounds were all around the US$ 500 million mark, which means that since 2007, they've been more or less doubling their revenue. All this from a free website! So where is the money coming from? This article will answer the question, how does Facebook make money and solve the mystery for you.

How Facebook Makes Money?

Free account notwithstanding, Facebook is making money. And lots of it. How does Facebook make money? If only you knew how does Facebook work financially!

Ads

I'll solve the mystery for you in one simple word – ads. 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 while 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.

How do these ads work? Well Facebook being a decidedly smart social networking institution knows which ad to put where. Like the Google AdSense, Facebook 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 we do with 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 adspace on the page where the chances of the ad being 'hit' are theoretically pretty low. Also, the ad system of Facebook, 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.

Facebook Gifts

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.

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. Performance advertising is a unique answer to how does Facebook make money. Let us take the example of Farmville, which is doing reasonably well on Facebook. Now the application is provided free for use for the users of Facebook and the parent company (Zynga) is getting a lot of traffic because of the game's popularity on Facebook. 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. So Facebook makes a bit of money there too, as a 'rental' for using their users.

I guess that answers your questions about what is Facebook and how does it work and how does Facebook make money. Now this information on how Facebook makes money is largely speculative. Facebook is a privately held company and has the complete liberty to not disclose their financial details – and they don't disclose their revenues and the sources of their revenues either.