How Facebook is earning 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. 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 major source of entertainment for most of the people around the world. It is effectively used by the people to interact with others for both personal and professional purposes.

Mark Zuckerburg

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

How Facebook is 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 revenue from other sources like games and gift shops. Let’s see its revenue generating sources in detail.

1. Advertising

Advertising is the main reason of Facebook’s success. Many businesses create ads on Facebook and it gets paid to deliver the ads. It publishes ads on the screen which is directly related to the users by gathering their likes and activities. i.e. if an 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 good 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 type of adverting called self-serving ads, in which the users can set up their own 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 large revenue with this self-serve ads.

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 to download their desired applications from appropriate store directly and getting paid from 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: Flicker

3. Non advertising method (other sources)

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

a. Facebook Games

Games like Farmvillie, Mafia Wars, City ville, Empire & allies are some of the popular games which 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 contributor to its revenue which let the users to 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 an easy 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 is aiming to improve its monetization ways by redesigning its news feed. Recently it announced its first quarter earning s of 2013. Its income was approximately $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 amount of active users has incredibly increased when compared to last year and as of now it has 665 million active daily users worldwide.