On Friday, May 18th, 2012 Facebook entered the stock market with an estimates value of $96 billion. With a peak market capitalization of a little over $104 billion, Facebook’s IPO (Initial Public Offering) became one of the biggest in Internet history.
With its first few days in the market not looking so good and Facebook stock price closing under their original issue price, investors are scrambling to figure out what this social networking giant is really worth.
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Since Facebook, the biggest social networking site is free to join, many people are also wondering how does Facebook get to be worth that much money. But I guess the real question is how is Facebook even making money?…
How Facebook Makes Money
These numbers certainly answer the question of how Facebook makes money. But these numbers are huge and it just makes you wonder, how is Facebook making money and where did all that revenue came from. Well, it’s simple really. Facebook makes money in 3 ways:
Ads are the biggest and most important revenue generator for Facebook. Just how much does Facebook make in advertising is not clear, but whats clear is that the bulk of its revenue comes from ads.
Surly, you have seen ads on your Facebook page by now! Those are ads that generate the most revenue for Facebook. With over 900 million users, Facebook is a magnet for advertisers. What makes advertising on Facebook even more attracting for advertisers is having all the right information about consumers, YOU!
That’s right, non of this would be possible without “YOU”, the Facebook user. The reason Facebook advertising is so profitable is because of the fact that Facebook knows everything about you. It’s all about the demographics. Facebook uses your data to display ads you would be interested in. That’s what advertisers like about Facebook advertising, which is why more than $450 million of that $500 million Facebook generated in 2009 came from its advertising program.
How does Facebook make money with applications you ask?… Well, there are hundreds of thousands of applications sold on Facebook. Parent companies of these applications make millions of dollars. Of course, Facebook gets some of that millions of dollars as a “rental fee” (allowing companies to sell their apps on Facebook).
3- Virtual Goods (Gift Shop)
Have you seen the “send a gift” option on your Facebook page?… This is another way Facebook earns money. As a member, you can send what are called “virtual gifts” to your friends at an average cost of about $1 per gift. With almost 900 million users, you can imagine how those dollars can add up quickly! It’s estimated that the ‘gift shop” generates upwards of $100 million a year.
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How Much Money Does Facebook Make?
It’s amazing how fast Facebook has grown, both in terms of attracting more members and also generating revenue. The fact is that no one knows for sure how much money Facebook makes. Just like most other privet companies, Facebook tends to shy away from revealing exact numbers when it comes to their revenue. But most analysts think that Facebook has been doubling its revenues every single year. According to estimates, in 2007 Facebook banked a “mere” $150 million.
In 2008 Facebook generated around $300 million in revenue. But in 2009, Facebook’s revenue was an estimated $500 million. The number being thrown around for Facebook’s earning in 2010 is a jaw dropping $2 billion!
Facebook has come a long way from Mark Zuckerberg and his friends creating it in a college campus in 2004 to making around $2 billion in 2010. As of 2011, Mark Zuckerberg’s wealth is an estimated $17.5 billion. And believe it or not, Facebook hasn’t even began to explore its real money making potential.
As Facebook attracts more and more members, its revenue generating options will increase and with that comes more money. Perhaps the real question we all should be asking ourselves is how we can take our business to the next level so that it can make money just as how Facebook makes money.