There are many people looking to answer the question “how do websites like Facebook make money?” and we have the answers for you here. Facebook, Twitter, Instagram and Pinterest are all social media giants and they provide their services to users for free.
Facebook is a giant of a website. It has around 2.8 billion users and it receives over 22 billion visitors every month. Instagram (which is now owned by Facebook) receives more than 6 billion visitors a month, Twitter also receives more than 6 billion visitors each month and Pinterest receives over a billion monthly visits.
That is a huge amount of monthly traffic. But how do these social media websites make money? The number of visitors to these platforms is a very important element of their money-making strategy. But the way that they turn these visitors into cash is through their advertising services.
How do Websites like Facebook Make Money – Advertising
You may have already worked this out. With so many users on Facebook and the other social media platforms there is no shortage of businesses looking to reach out to them to sell their products and services.
When you have this many users it is like a license to print money. Facebook and the other social platforms have created a very valuable asset in their user base. They know that this is very attractive to companies and sell different advertising packages so that users of their ad services can reach the right people for their offers.
Anyone can advertise on platforms like Facebook from industry giants to one person businesses. The major players tend to use social media advertising in the same way as they would TV advertising. It is all about branding and they want as many people as possible to see their short 30 second video ad.
For smaller businesses they actually want to make a return on their advertising dollars through lead generation and sales of their offers. A lot of businesses use the social media platforms for lead generation. This means that they provide an incentive to capture the email addresses of users and then follow up with email marketing campaigns.
Average Revenue Per User
All of the major social media platforms calculate the average revenue that they can make per user. In 2019 the worldwide ARPU (average revenue per user) for Facebook was $8.52. When you consider that Facebook had more than 2.5 billion users at the time that is a huge amount of money.
It gets even better. For certain countries like Canada and the United States, the ARPU was over $41. Facebook and the other social media networks offer the ability to target specific countries like the United States and it is even possible to target down to city and town level.
A lot of businesses outside of the United States specifically target citizens of the US because they know that they are more likely to make a purchase at the price they want. This works for other “top tier” countries too such as Canada, Australia and the United Kingdom.
Acquiring Other Platforms
Facebook in particular have been really aggressive in acquiring other social media platforms. Back in 2012 they acquired Instagram for around $1 billion and in 2014 they acquired WhatsApp, the popular messing platform for around $4 billion plus shares in Facebook.
Why did they do this? Because they knew that both of these platforms had huge advertising potential. Face3book’s advertising revenue has grown significantly over the years. In 2017 their worldwide advertising revenue was around $40 billion and in 2020 it was more than double at around $81 billion.
Social Media Platforms offer Free Services to attract users
There was a lot of debate in the early days about whether social media platforms should charge users a nominal amount for using the platforms. If they had of done this, they would only have a fraction of the users that they have today.
The user base of a social network is by far its most valuable asset, so it made sense to keep offering user services for free. Even if a platform only charged 1 cent per year it would drastically curt the number of users. This has nothing to do with the low cost but the fact that there is a cost.
We hope that we have fully answered the question “how do websites like Facebook make money?” If you guessed the answer then congratulations. But did you have any idea how much money a website like Facebook makes from advertising every year?
It is very likely that there will be more acquisitions in the social media space in the next few years. For a company like Facebook, it is unlikely that they will expand their user base much more organically as they are already at 2.8 billion and there are only 7 billion people in the world.