How Do Social Media Companies Make Money?
Almost every social media site out there is free for users. For many of them, they will continue to be free no matter how much you use them. But they’re not providing a free public service. Like all companies, they’re in this to make money. So how on earth do they do it?
The most common method, by far, is advertising. Ads have been a core revenue stream of the internet (and other widespread media) for a long time, and they certainly aren’t going to go anywhere. Facebook, Twitter, Google+, YouTube, LinkedIn, and more all use ads. For a while, Instagram didn’t have ads, but they’ve started rolling them out recently.
Technically, you could call these a form of advertising. The difference is how they’re integrated. Standard ads and banners tend to be separate from the content, but promoted posts are slipped right into the social media interface.
Facebook, Twitter, and Google+ make good use of these. Pinterest recently go into the game with Promoted Pins that feature images from sponsors. If you go on your feed, you’ll often find a promoted or sponsored post a couple posts in, just far enough that you don’t ignore them, but not far enough that you easily miss them.
The king of premium fees is LinkedIn, largely because of its specialized networking nature. Whether you’re a jobseeker, advertiser, salesperson, or recruiter, there are premium options for every kind of LinkedIn user that give you more access and bump you to the top of the pile.
While still in beta, the network Ello will be trying this in the future. Since they can’t use ads (it’s in their charter), they’ll charge users small premiums to add extra features.
Facebook and Google+ have more robust interfaces, and use them to make liberal use of web apps. You know Candy Crush and other games you play with friends? Even if they’re free for you, that doesn’t mean they are for developers. And a tiny share of those in-app extras you purchase can really add up.
Charging users small amounts for extras is becoming more and more popular, especially on apps or games. Facebook gifts are a great example of this, where you pay a buck or two to send a small gift.
Social media sites have tons of demographic information that matches users up to their interests and preferences. However, more and more users don’t like their data being used this way, so many social media sites have started shying away from using it.
When you get right down to it, most social media sites don’t make money for years. For example, Twitter started in 2007, and didn’t have its first profitable quarter until 2014, and Facebook took 5 years to have a positive cash flow. While working on being profitable, companies keep the lights on with investments, venture capital, and IPOs of stock. While it might not make sense for investors to invest in an unprofitable business, the idea is to have them build a customer base, then start to capitalize on that base.