VOL 46: How Social Media Companies Make Money? Google, Facebook, Twitter etc.
Facebook, Twitter etc. are free social media platforms, so how are their owners so wealthy? Here is how social networking firms generate revenue.
Hey Friend 🤓,
Trust you all had a great week 🤗?
Let’s take a break from the Apple series this week.
Today at a Glance:
Quote of the Week
Introduction
How Do Social Media Companies Make Money?
Social Media Advertising is Here to Stay
Past Greats 👴
Business & Startups
Random Facts
Tweet of the Week
Quote of The Week
“Authentic Faith is the Darkness beyond Reason”
— — —
Unknown
Introduction
Have you ever thought about how social media companies make money? or How do social media companies generate revenue while providing so many free services?
More than 3 billion people are said to use Facebook, Instagram, Twitter, and WhatsApp every day, and these companies are still growing despite a growing number of privacy scandals and public backlash.
I'm not opposed to social media. Social media has done an incredible job of leveraging the internet and connecting the world in ways never seen before in human history. However, this has also provided corporate advertisers with unrestricted access to new data metrics and marketplaces.
In this article, we'll look at four ways that social media companies make money and maximize revenue.
Let’s Take A Look.
How Do Social Media Companies Make Money?
When we talk about social media, we're talking about a few companies that all compete in the "attention economy." It’s called the “attention economy” because all social media companies are competing, to capture user attention.
Meta is the world's largest social media company. Meta is the owner of the social media platforms Facebook, Instagram, Messenger, and WhatsApp. While Twitter, Reddit, TikTok, LinkedIn, Snapchat, and YouTube all compete for market share.
More than 80% of Alphabet’s revenue comes from Google ads, which generated $147 billion in revenue last year.
1. DISPLAY ADVERTISING
Display advertising is the primary source of revenue for social networks, it’s the very purpose of the site’s existence”. The sites are designed to be addictive for a reason. "Display advertisements" are typically photo or video advertisements that appear within the social media platform. The more you look, the more advertising you will see.
Furthermore, the more popular the website, the more money it can generate through advertising. Facebook, for example, has billions of active users. Access to such a large user base is a valuable commodity. As a result, advertisers may be willing to pay more for a Facebook ad than they would for a comparable ad on a smaller social networking site.
Meta (META), formerly Facebook, had 2.91 billion monthly active users as of Q3 2021, a 7.18% increase over the same period the previous year. Twitter had 330 million monthly active users in Q1 2019, while LinkedIn had approximately 310 million monthly active users as of Q2 2021.
Even though users do not pay for the app, Facebook's total revenue for 2021 was $117 billion.
The ability to target very specific audiences with very specific ads is what makes social media advertising so effective. For example, if you sell bicycles, you can limit your ad to social media users who interacted on a Facebook page for "bicycle lovers" or specifically target social media users who "liked" bicycle-related pages. This type of data is saved by social media companies from each user and provided to advertisers in order to make advertisements more targeted and effective (profitable).
Targeted advertising can be a very efficient and effective way for individual businesses to spend their advertising dollars. And the more effective the advertising, the more money the company will spend on it. Furthermore, the more money a company spends on advertising, the more money the advertising platform (social media companies) makes.
2. Sponsored Content
Sponsored content is similar to 'display advertising,' but with a slightly different goal in mind.
The goal of an advertisement is to persuade you to buy something. Some advertisements are less 'pushy' than others, and some are downright discrete or even disguised. However, the overall goal of an advertisement remains constant.
Sponsored content differs slightly in that its purpose may not be as obvious. For example, when "sponsoring" or "boosting" a news article (or an “opinion post"), the intent behind the "sponsored content" may be less about purchasing something and more about persuading.
When it comes to ‘misinformation,' 'disinformation,' and fake news on social media, sponsored content can be a useful tool. For example, you can pay to sponsor or 'boost' a specific article, which will then be shown to millions of people on social media in an attempt to persuade them to think one way or the other.
It is well known that most people only read headlines (according to studies, more than 80% only read headlines). So, by sponsoring a specific news article (true or false), if that article has a catchy headline, you can influence a large number of specifically targeted people.
Sponsored content generates less revenue for social media companies than display advertising, but it is still an effective revenue stream.
3. Subscriptions And Premium Memberships
Another approach is to offer "premium" paid memberships in exchange for an “ad-free" experience. While most social networking sites avoid this strategy, a few have used it successfully.
Many online dating sites withhold important features from users unless they upgrade to a premium account. For example, LinkedIn premium unlike the free version gives you 30 InMail messages, advanced search, unlimited visibility of your extended network, automatic candidate tracking and integrated hiring, with a recruiting-specific design. But you'd have to pay for all these features.
By paying for the service (or subscription, or app), you are providing a form of "monetary compensation" to the social media platform to compensate for the "lost revenue" they would lose by not showing you ads.
For example, Spotify Premium, YouTube Premium, and Twitter Blue.
4. User Data Mining / Harvesting Personal Data
'User data' and 'user privacy' have risen to the top of the list of social media concerns in recent years. However, for the first ten years of social media's existence, personal user data was not even a thought in the minds of most social media users.
Clicks, likes, shares, time spent on specific pages, scroll time, purchase behaviour etc are data that continue to be collected from millions of people every day.
So, how is this data being used?
As previously discussed, some of it is used by advertisers to understand when to show what ads to whom, in order to optimize advertising dollars and results. However, social media companies also bundle and sell user data in bulk. Data sales account for roughly 13% of Twitter's total revenue.
What exactly does "selling data" mean?
Social media companies do not sell "identifiable information" such as email addresses, phone numbers, home addresses, or other personal information. They sell anonymous "aggregate data" in bulk to data analytics firms. For example, which states have the most pages? Or which tweets are most popular in which countries?
This type of aggregate data could be useful for both political and commercial purposes.
They all do it: Facebook (Meta), Google, Twitter, TikTok, and so on.
Social Media Advertising is Here to Stay
Social media companies' primary business model is to provide their service (app) for free in order to grow their user base while making money on the 'backend' by selling advertisement space.
However, by collecting user data, social media companies can provide their clients (the companies that pay for advertisements) with laser-targeted audiences, making their ads more effective.
In contrast to a TV commercial, where your audience could be a random group of 12 million people, social media offers 'direct targeting' of 12 million people who like both cats and Spanish bicycles.
More effective ads mean more ad dollars spent by advertisers, which means more revenue and higher share prices. For a social media site to grow from 100 million to 2.91 billion users and beyond, access must be simple, almost effortless, and, most importantly, free.
Using an advertiser-supported model rather than charging each user individually is without a doubt the simplest way for social media companies to gain as many users as possible. The greater the number of users on the site, the greater the number of advertisers willing to engage them, and the greater the amount of money those advertisers are willing to spend.
But just like any tool, it can be misused. Ultimately advertising has been on radio, TV, and now social media, so it’s not going away.
PAST GREATS
GIAMBATTISTA DELLA PORTA (1535-1615)
Giambattista Della Porta was an Italian scholar, polymath, and playwright who lived in Naples during the Renaissance, Scientific Revolution, and Reformation.
He was educated at home, where scientific topics were frequently discussed. His father was in the service of Emperor Charles V since 1541, and della Porta was well educated by private tutors. At the time, Charles V was the Holy Roman Emperor and King of Spain, and his empire stretched across Europe to the Netherlands, Austria, and the Kingdom of Naples.
Della Porta travelled widely throughout Italy, France, and Spain, always returning to his estate near Naples to study in peace. He never needed to work because the family's wealth appears to have been sufficient to allow Della Porta to devote himself to studying.
He is best known for his work 'Magiae Naturalis,' also known as 'Natural Magic,' which was published in 1558. The book, which covered a variety of subjects such as astrology, mathematics, and philosophy, was an instant success and cemented his reputation as a "professor of secrets" in the European world. Although written in Latin, the book was later expanded to 20 books in 1589 in various languages such as Italian, German, and French.
Porta wrote a book on cryptography because he believed he possessed a special ability for decoding all types of texts. De furtivis litterarum notis (a book describing encryption methods and cryptanalysis.) is believed to be the first text on the subject that not only explained various methods for encrypting messages but also provided detailed instructions for deciphering coded messages.
His interest in a wide range of disciplines resulted in technological advances in agriculture, hydraulics, military engineering, instruments, and pharmacology. In 1606 he published a book on raising water using air force. In 1608 he published a book on military engineering and another on distillation.
Business & Startups
Orchestrate
Orchestrate (formerly Getwallets) is a payment infrastructure company that provides access to multiple payment providers to fintechs and merchants through a single integration.
Orchestrate claims to be the quickest way for fintech businesses to add new payment methods, expand into new areas, and provide various payment options to African clients — all with little to no code. The startup was also launched in 2021.
To see what’s in the works with Orchestrate, visit the
website.
Random Facts
NASA’s internet speed is 91 GB per second.
Tweet of The Week
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