How do Social Media Networks Make Money?

The last decade has made way for the rise of online juggernauts Facebook, Twitter, Instagram (which is owned by Facebook) and Pinterest. Each platform have grown audiences into the millions, and in Facebook’s case well into the billions. With so many eyeballs on these sites it raises the question of how do social networks make money?

With a huge audience the more traditional approach to making money would be with display ads such as this one:

Innovation in Advertising

I am sure that most long time Facebook users would remember the sidebar ads of the past. Usually placed so far from the users area of focus that most would never pay much attention to them.

However, in recent years the innovation of Sponsored Posts has become far more prominent. This allows the advertiser to integrate their ads seamlessly into your regular news feed. Many users would not even notice that what they are seeing has been bought and paid for.

Sponsored posts, tweets, adverts or pins have become part of the standard landscape on these platforms.

Regardless of whether the user knows what a sponsored post is, the key to this seamless form of advertising is how it actually improves the user experience and engagement levels. The advanced data that social networks have on their users allows for a whole new level of targeting that has not been possible in the past.

Think about your Facebook profile for a moment. You have all the standard info like your date of birth, where you live, who you know, who your family is, your email, phone number. All of these things are gold to even the traditional marketer.

Where the magic happens is the additional information that is recorded in these databases. Your interests, the pages you like, the pages you comment on. All of which provides more and more clarity to the social network exactly what you are looking for online, and what will appeal to you the most.

From the advertiser’s point of view it allows them to be very efficient wth their marketing dollar and only pay for exposure to a very precise target audience. This is a win for them, but also the user. If what you want is put in front of you then it is a more efficient use or the users time also.

The advertising goes beyond people selling products. You will find everything from news sites, blogs, joke websites to public service announcements all coming up in these sponsored posts. All great information that is served up for the user to click through on if they like the content. I know that i have discovered many useful resources this way that I would never have found otherwise.

Search Engines Disguised as Social Networks

All four of these platforms have become serious competition for Google with an increasing number of initial searches taking place on these sites. Pinterest is an interesting example of this. A large portion of the user base are women. Studies have shown that 93% of Pinterest users use the site to plan their future purchases, and 96% use Pinterest to gather product information.

This is a phenomenal shift in behaviour away from Google and also Amazon, the juggernaut of the e-commerce world. The opportunity this represents for advertisers to be first in front of this traffic is immense. Pinterest is well placed to be an exceptionally profitable social network based on this alone.

Facebook is on its way to becoming a self contained internet within the internet. Recent moves for hosted content for publishers via Instant Articles,  plus the integration of Shopify for on site shopping shows Facebook’s intentions for the future. These remove the need for many users to ever leave the Facebook platform. This is a bold undertaking and if successful could reshape what the internet is all together. Perhaps there will be no internet, and just Facebook 20 years from now.

A Long History of Losses

The way each of these sites are positioned in 2017 shows an evolution to extremely profitable social networks. This clarity is only a recent phenomenon though. When Facebook launched their IPO three years ago there was a lot of uncertainty as to how they would grow the company’s revenue.

There were a number of experiments with different monetisation strategies and the share price fell by 60% in those first few months after the IPO. Fast forward a few years and the company’s revenues are growing at a phenomenal rate and they are becoming the go to platform for traditional advertisers.

They have also opened up affordable avenues to access a big audience for your every day Facebook user. Bloggers, small business owners, they can all reach thousands with a click of a button. This is still in its early days and as awareness grows, so will the cost of this exposure. Facebook’s revenues will continue to explode along with it.

Those shareholders who keep the faith in the company have done very well as a result.

The road to profitability was a long one for Facebook. The company launched —- years ago and had survived on a mountain of Venture Capital funding through the company’s years of massive user growth, without any significant monetisation. Those VCs and early investors have gone on to make billions of dollars out of the deal.

While all of these stories resulted in mouth watering returns it would be a massive undertaking to build your own social network. So if you are asking how social networks make money for any other reason than curiosity then you will need to have a ground breaking, world changing idea to even consider moving forward.

A better question to ask is how can you make money from social networks. Utilising the existing platform to your advantage is where the opportunity is for everyone to launch, or gain exposure for their products or services.

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