Different Sources Of Income For Facebook

Facebook is one of the most popular social networking sites started back in 2004 by Mark Zuckerberg. This social networking website was initially started for the students of Harvard University, but soon it was introduced to the whole planet. And as of May 2012, there are over 900 million active users.

Now this amount of traffic can be used to make some incredible income, and that is what this company is doing. In February, Facebook went public by filling an IPO (Initial Public Offering). With investors investing in the company, Facebook is driven more than ever to generate more and more income. And it has made $3.71 billion in year 2011, which is HUGE for a company generating income from advertising.

So have you ever been hit by a thought that where exactly does Facebook generate income from? Companies like Silicon Vally Company, German Internet Company, Hongkong Billionaire, Russian Investment Plan have been investing millions of dollars since the early days.

Apart from these capital ventures, companies like Microsoft and PayPal were also involved with Facebook. Lets get into some details now to understand Facebook revenue sources. And here are some of them.

Different Sources Of Income For Facebook

Advertisement And Social Gaming

Games like FarmVille, Mafia Wars, CittyVille, Yo Ville and many more have been viral on Facebook. And developers like Zynga, Crowdstar, playfish were bringing in more and more games every month. So, what was driving these companies to develop games for Facebook? Was it just traffic (play time), or anything else?

You can see ads being posted while you are accessing Facebook apps, and this advertisement fee is paid by companies to Facebook which is shared with the app developer. So the equation is simple, more the number of app users, greater is the exposure of the ads and better is the payment from advertisers.

You would be thrilled to know that in 2011, about 12% of the Facebook revenue came from Zynga which is approximately, $445 million. And Facebook expects the figure of revenue from social gaming to hit $6 billion by 2013.

Income From Virtual Goods

There are number of virtual things which are sold on the Facebook games and other apps. You must have said to yourself, “who buys this stuff, huh, such a waste”. For your information, these virtual goods on Facebook generate appreciable amount of revenue, and the company expects to make around $15 billion in 2014.

This is sometimes known as Facebook Credit also, which basically is nothing by Facebook money using which you can buy virtual goods on these Facebook apps. The company made $140 million from Facebook Credits in year 2010, and it grew to about 11% of the Facebook’s total revenue in 2011 which is about $450 million. Jaw-dropping, right?

Performance Advertisement

For those who are into social advertising, affiliate marketing, and other online stuff, you know how valuable is information like keywords, location, age group of the visitors in order to capture target audience.

Well, Facebook sells this detailed information to many companies like Techlightnment, Tradimax and many others. And its upto these companies how they use this data to advertise their products and services.

Contribution By Microsoft

Microsoft has been a loyal Facebook supporter since its early days. It paid Facebook around $24 million in 2006 for banner ads. And the relationship has just grown stronger ever since. Now, they have a deal with Facebook to use its Bing search engine to look for ads. This proves to form a good percentage of Facebook’s overall revenue.

Banner Advertising

This is the traditional online advertising where you direct your visitors to a sellers page, and the seller in turn pays you for bringing a client to them. Facebook has been working on its intelligent algorithm to display appropriate ads in order to drive more and more of its users to click on the ads. Banner advertising has undoubtedly been the biggest revenue source for Facebook and would continue to be so.

Since Facebook has filed IPO, it is trying to discover more number of ways to generate income apart from the above mentioned sources. No doubt, they have been planning things to increase the above mentioned revenues too. Figures do suggest that by 2014, Facebook would become the biggest company in the world in terms of revenue, but only time would tell whether it has really become a brand or just an online bubble (a strong one though).

Filed under: NEWS
July 10, 2012 by: Prasanth Chandra

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