How Does Facebook Earns Money?

This post would explain you on “How Facebook is earning money” from the various sources.

It is a well-known fact that the growth of Facebook has been extremely fast as it is a perfect place for the people to experience the social benefits.

A few years back, there was a rumor that it would be a paid membership site. Facebook denied it and specified that it is a free website for the members.

So, it is not making money with membership fees, and you might think “how Facebook is earning money?”

I know you read about “How to make money with Facebook?” in most of the blogs and websites. But most of the people including the Facebook users don’t know how Facebook earns money.

So I take an opportunity to illustrate the income streams of Facebook through this post.

Little About Facebook

Facebook is a popular social networking website, founded by Mark Zuckerburg in the year 2004.

As of now, it has more than one billion active users, and it is a primary source of entertainment for most of the people around the world. It is used by the public to interact with others for both personal and professional purposes.

Availability in more than 70 languages, not requiring any particular skills to use, having good privacy options and the possibility of content and video sharing are some of its unique qualities that stimulate the people to use it effectually. Many online businesses are expending the features of Facebook to generate massive traffic to their website.

How is Facebook Earning Money From Various Sources?

The last year (2012) earnings of Facebook is approximately about $2.6 billion. Of that, 55% revenue comes from web advertisements, 30% from mobile advertising and 15% of income from other sources like games and gift shops. Let’s see its revenue generating sources in detail.

1. Advertising

Advertising is the main reason for Facebook’s success. Many businesses create ads on Facebook, and it gets paid to deliver the ads.

It publishes ads on the screen that is directly related to the users by gathering their likes and activities. i.e., if a user mentions that he/she is a fan of Coca-Cola, then the ads related to that will be showing up to that user.

Even though the click-through rate of Facebook is not as high as Google, it is generating real traffic with the ads in it and letting the businesses to have a successful advertising campaign. This type of ads is called Engagement ads, and it is placed on the homepage of Facebook.

There is another adverting called self-serving ads, in which the users can set up their advertisements (check here to create your ads). Different types of Facebook ads associated with this type of advertising are Standard ads, Like ads, Page post ads, Sponsored Stories and so on.

As these types of ads are easy to create, small business people are making use of it, and Facebook is generating considerable revenue with this self-serve ad.

The Ford, HSBC, Samsung, Groupon and American Express are the most significant brands who invested a huge amount of money in Facebook advertisements. 

2. Mobile Advertising

About 1/3 rd of Facebook’s revenue comes from mobile advertising. Recently, it launched its own App Center similar to Apple which let the users download their desired applications from the appropriate store directly and getting paid by the developers.

Also, it cooperates with mobile advertising agents to help the advertisers like AdMob and iAd to bid for the space to advertise.

Moreover, the Facebook starts its monetization strategies with Instagram.                                                                                Image credit: Flickr

3. Non-Advertising Methods (other sources)

Games, gift shop, Facebook credits and some featured applications are some of the non-advertising ways in which the Facebook is creating a huge income.

a. Facebook Games

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

b. Facebook Gift Shop

Facebook Gift Shop is one of the contributors to its revenue that let the users send virtual gifts to their friends and other users. It also opens this shop to third-party developers to get the variety of products to sell. Small items like dolls, birthday & other occasion cards can be purchased, and the Facebook will deliver it to the preferred person.

c. Facebook Credits

Facebook is generating good revenue from its credit program as it is a secure payment for the users to buy virtual goods, to play games and to use various applications.

Check the 2012 earnings of Facebook

Recent earning report of Facebook

Conclusion

Facebook has amazing features, and it is aiming to improve its monetization ways by redesigning its news feed. Recently it announced its first-quarter earnings of 2013.

Its income was approximate $1.25 billion and 30% of this revenue generated through mobile advertising with 751 million mobile active users.

The income from advertising for Facebook was about $1.25 billion and earned $213 million from payments & other fees.

The number of active users has incredibly increased when compared to last year, and as of now, it has 665 million active daily users worldwide. Facebook makes money with some new sources as well!

I hope now you understand How Facebook is earning money in billion dollars every year. What do you think about the revenue success of Facebook?  Share your point of views in the comment section.