How do social networks make money
Facebook, Twitter, LinkedIn… Social media platforms are worth tens of billions of dollars. Yet most of these companies offer free services to their users. It is therefore right that we wonder about the origin of their good financial health.
– How do they earn large sums of money while offering free services to users?
This is a good question to ask yourself because when you create an account on Twitter, Facebook or Instagram, we are never asked for money to have access to these spaces. Conversely, when you start creating a website, you have to pay for a domain name and annual hosting.
In fact, and most social media users don’t know it, most of these companies make their money from advertising. Social media platforms charge companies money so that they can advertise on their site. The exact cost of this depends on many factors defined by the social network and it can pay off big.
Facebook generated $17.44 billion in advertising revenue from January to March 2020. YouTube, on the other hand, brings in $15 billion annually in advertising revenue.
Another source of revenue from social networks is the collection and sale of user data. In this regard, it should be noted that social networks do not sell identifiable information such as our telephone number, our e-mail address or other private information to companies.
However, what many of them are selling are user models prototyped from the aggregation of this data to enable companies to place targeted advertising.
With the money made from advertising and the sale of user data, social media platforms can continue to deliver services to users. As a popular saying goes, when it’s free, you’re the product.
– But then, do all these social networks manage to be profitable with this model?
In fact, if social networks continue to offer free services, it is because they know that there is no guarantee of success if they launch into exclusively paid versions.
However, some platforms have bet on other models. In particular, there are mixed models in which some services are free and others are paid. This is the case, for example, of a social network like LinkedIn. The latter offers additional options to which the user cannot have access if he does not subscribe to a paid subscription.
Unlike Facebook and Twitter, LinkedIn is a very serious professional social network that offers educational resources, for example. So they have relevant arguments to convince their users to take out their payment card.
YouTube also offers a paid version of its video service on which advertisements are absent.
But all this does not systematically guarantee the profitability of social networks. For example, from 2006, the year of its creation, to 2017, Twitter did not generate any profit. It was from 2017 that the microblogging network recorded the first profits in its history.
And to go further in this reflection around the money of social networks, there are platforms which offer to remunerate their users. Ello, Tsu, Zynn or even Polymate are little-known social networks that are developing this model.