From the general perception, it follows that most users do not understand how facebook is able to produce a free site and make money. In this post, it is presented details on how facebook is able to keep users free of charge and still be a profitable business.
Advertising
Any user can visit this page where you may set up advertising campaigns on Facebook. These advertisements are displayed in the sidebar of most pages of the site. These campaigns can include user profiles, events, groups, Facebook Pages, and third-party applications.
Small businesses like doctors, lawyers, restaurants, and others are also responsible for a large amount of Facebook’s revenue generated by the self-serve advertising platform.
Engagement Ads
Facebook also generates a substantial percentage of their revenue through their “Engagement Ads” product. Engagement Ads are Facebook’s solutions for large brand advertisers. Facebook places all engagement ads on the site’s homepage. Once a user logs in, they can interact with advertisements which are placed on the right-hand side of the homepage.
Facebook is expected to generate around $250 million in brand advertising this year.
Microsoft Search
The agreement that Facebook has with Microsoft over search. When Microsoft invested $250 million in Facebook at a $15 billion valuation, part of the investment included an agreement to integrate Microsoft’s search results into Facebook. The terms of the agreement have never been public however it is believed that Microsoft may be paying Facebook beyond the terms of the initial agreement.
Virtual Gifts
Facebook currently generates a large amount of revenue from the Facebook Gift shop. For those less familiar with the gift shop, it’s a product which enables users to send virtual gifts to one another. At an average cost of $1 per gift, Facebook gifts have become an extremely lucrative business, generating upwards of $100 million last year. Facebook has been slowly opening up the gift shop to third-party developers in order to increase the variety of products sold through the shop.
Facebook Credits
Initially used as a way for Facebook users to purchase virtual goods through the Facebook gift shop, Facebook is slowly opening up Credits to third-party developers. The purpose is for developers of applications, like FarmVille and other large social games, to integrate Facebook’s Credits product directly into their applications.
While it will only begin rolling out later this year, it is expected that Facebook will generate $150 million in revenue from their Credits platform this year, and it will rise exponentially in the future.
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