The Business of Social Media

Social media. Everyone has it, everyone uses it. In the past couple of years, it has seemingly dominated the internet, with mega-platforms such as Facebook, Youtube, Instagram, and Twitter getting the most attention. They are immensely popular, generating hundreds of millions of users from around the globe. The companies are worth billions and their CEOs are among the richest people in the world. Between July and September of 2016, Facebook saw $7 billion US in revenue. Since their services are free to users, you might wonder how they actually make money.

Facebook, for instance, is the social media behemoth. Not only are they Facebook, they are also Instagram, Whatsapp, and Facebook Messenger. It is a part of a vast network of social media outlets we all use. So what does that mean? Facebook generates the large majority of their profit from advertising.

Think about all the information you give Facebook for free, just by signing up and using their platform for an hour every week. You tell them your age, your gender, where you’re from, your education level, and where you work just by creating an account. As soon as you start using that account, making friends, liking posts, you tell them specifically what you do and do not like. When it comes to advertising, you have just done the majority of the work for them.

All this information you give allows Facebook to sell specifically targeting advertising to any company with deep enough pockets. They have different kinds of ad packages too, allowing businesses to tailor their marketing to the consumer. From there, social media users are hand fed advertisements through Facebook, whether they are on side bars, promoted posts positioned in your news feed alongside the content you actually signed up for, or halfway through videos when you already have an interest in how the story ends. Some of their biggest advertisers include Ford, McDonald’s, Starbucks, Disney, Nike, and Google. Essentially no company can afford not to advertise on Facebook.

Instagram represents another major social media block, even if it’s owned by Facebook. Much like Facebook, it uses advertising to generate most of its money, only with slightly different tactics. While on Facebook ads can easily be told apart from your regular content, on Instagram it’s much more subtle. Sponsored posts can appear in your feed like any other content, only indicated to be an advertisement by small grey writing disguised at the top. They can be up to every third post on your feed, so frequent you might scroll through without noticing. Instagram also has started placing advertisements in the “Story” section at the top, so that ads appear among genuine content.

So we can agree, advertising is one of the main ways social media makes money, and they’re good at it too. However, there are also elements you might not know of. For example, both Instagram and Facebook sell your private information: your name, likeness, habits, photos, and much more. Does that seem intrusive? Well, yes, but you had to agree to it in that user agreement no one reads anyway.

This is why social media has become one of the largest industries today. In a consumer driven economy, there are always new products that need to be sold, but they need to be desired first. Where there is room for advertisement and a guaranteed viewer base, there is money to go around and lots of it. As social media continues to evolve, there is no doubt advertisement will as well.

Read more in Part 2, where we explain how you can make money from your own social media accounts!


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