How do social media sites make their money?

Facebook has an Alexa traffic ranking of 2. Not a very big number is it? If you have never heard of Alexa before, you may think that that isn’t very good, but what it actually means is that it is the second most visited site on the net – the first being Google.com.


Twitter has and Alexa rank of 9, LinkedIn has a rank of 16, Flickr 32 – the list goes on.

This means that these sites need some serious server power to handle the millions upon millions of visitors they get each day. The problem is servers are extremely expensive to buy and run, due to them needing to be kept cool and have a super fast internet connection, both download and upload.

So how do social media sites run if it is so costly? Where do they make their money? How does Facebook make it’s money? How does Twitter make money? How do LinkedIn, Foursquare, Twitter, Bebo, Flickr, Myspace etc. all make their owners billions?

It’s complicated…

Unfortunately I cannot provide you with a hard and fast answer which applies to each social media site, as they all use different methods, but what I can do is tell you how individual sites like Facebook and Twitter make their money.

How does Facebook make money?

On Facebook there are adverts, you may have noticed them at the side of some of the pages. Often they are very well designed to blend in with the theme of the site, so that you almost think that they are just more recommended pages.

Facebook's LogoThese adverts will be potentially get hundreds of millions of views each day. This probably means that they cost a fair bit to buy, so ‘the Facebook Team’ will be cashing in big time on them.

So Facebook make their money through advertising, right? Well actually only some of Facebook’s revenue comes from advertising. The exact figures are only known by a select few, but I would estimate that less than half of Facebooks revenue comes from it’s adverts. So where does the rest come from?

Facebook credits.

Since Facebook introduced it’s credit scheme last year, a whole host of new applications and offers have sprung up, all giving you the option of using Facebook credits to provide a service (e.g. watch movies on the site) or improve an experience (e.g. level up faster in a Zynga game).

Facebook currently takes 30% of the money spent on credits for itself, and at just over £2 for a movie or 25 ‘farm cash’ that doesn’t really seem that much.

However, with over half a billion registered users, if each user buys just 50 credits (around the price of one movie – £2 ish) a year, assuming the 30% cut Facebook gets, it could be turning over almost £1 and a half billion each year, on credits alone!

With over 400 games and apps where users can go and spend their money, Facebook are sure to be gaining a lot of cash via their credit scheme!

Facebook has recently been valued at a figure of somewhere around £30 billion ($50 billion) but in the future, who knows how high this figure could climb!

How does Twitter make money?

Twitter has no ads, so how does it make it’s money? Twitter is a microblogging platform which many users use from their mobile phones. Twitter charges users who update their feed via mobile, and it generates an awful lot of money through this.


Twitter's Logo

Despite it costing mere pence per transaction, often users will update their feed mutiple times each day. Millions of users posting millions of updates, many from mobile devices, every day is why Twitter is now valued at almost £5 billion.

Twitter is still a multibillion pound firm in the making, as I am sure it has may more money making schemes and pans up it’s sleeve ready to launch in the near future.

Other sites

How do Foursquare make their money? Well a lot of it comes from their recent deal with American Express, in which I believe it is making around the same amount as Facebook per transaction, although it doesn’t have the same sized member base that Facebook has.

Many other sites like Flickr and Bebo currently don’t appear to be making any money, as their founders set out with a goal of improving the web, not making money. However in years to come no doubt these sites too will become as successful and profitable as Facebook and Twitter, that is of course if we don’t all just switch to using the two giants: Facebook and Twitter!

Blogging Vs. Microblogging

Who Will Win?

I’ve been blogging for over two years now.

It’s been a fun experiment, spending hours pouring into long-winded pieces of prose, carefully editing each word to pull out just the right meaning, and finally clicking the magic publish button… just to have it be read by a total of 3 people (which usually includes both my mom and my mother-in-law).

There’s nothing the matter with blogging. It’s a mighty fine platform for building an audience, spreading the word, and making a difference.

But sometimes I wonder if there’s not something more.

TechCrunch recently reported on the insane exponential growth of Tumblr, a microblogging service that is now getting close to 8 billion page views a month.

What is going on with microblogging and is it better than blogging? (Or the better question: has the train left without me?)

As noted by Wikipedia, über blogger Jason Kottke made the following observations way back in 2005:

A tumblelog is a quick and dirty stream of consciousness…They remind me of an older style of blogging, back when people did sites by hand, before Movable Type made post titles all but mandatory, blog entries turned into short magazine articles, and posts belonged to a conversation distributed throughout the entire blogosphere.

Aha! With just these few astute observations, a new picture starts to emerge.

Blogging Has Developed Rigid Standards

Blogging in many ways has formalized. It’s good for long thoughts, deeper ideas, but in measurable ways it has quietly crystallized into a rigid and imposing system.

Popular blogging services like WordPress force you to come up with a title for every post, no ‘ifs’, ‘ands’, or ‘buts’. And if you don’t choose a category, you’ll end up with the silly looking “uncategorized” label gracing your posts.

Whether you like it or not, there are stringent rules to follow if you want to play the game on their service. And after all, the search engines are hungry to index your posts and make them easily digestible for the web, so why not fall in line?

The conformities are obvious:

  • Trackbacks automatically organize incoming links.
  • Sidebars run down the right side of the site.
  • Subscriber counts brag the latest stats.
  • “Follow Me On Twitter” banners scream for attention.

What started out as an experimental ecosystem has turned into a fairly well-governed digital edifice. And in the meanwhile, the abundant room for free thinkers and self-expression slowly diminishes.

Microblogging Is A Freer Laxer Environment

Let’s be honest.

Most days bloggers write nothing at all because the sheer pressure of creating a masterpiece of a post is just too overwhelming.

But on Twitter, one snarky tweet can say it all with less.

You can write two sentences on your tumblelog and no one will be bothered.

There is a freedom to do whatever you darn feel like doing. On Tumblr if you just want to post a picture that connects with your inner self on some deep emotional and unexplainable level, you just do it.

If you want to reblog a different Mark Twain quote every day, you have permission.There are no rules. You don’t even have to name your microblog.

Many times I’ve run into a very neat tumblelog only to be shocked that it’s completely anonymous. No descriptions, no user image, no advertisements, just a stream of short poignant content.

But Blogging Harnesses the Real Power of Ideas

Despite the benefits and freedom of expression granted by microblogging, the chances of changing the world (or making a profit) are much slimmer than regular blogging.

The reason is the power of a well developed idea.

Tweets are cute, but they lack the intellectual and creative substance of a more sustained thought. 140 characters or even a single paragraph cannot provide enough
context to tell the whole story.

How many times have you seen a quote taken out of context? That’s the fundamental risk of ultra-distilled micro-ideas. You aren’t quite saying enough for people to get what you mean. Traditional blogging has the potential to unlock a deeper meaning that cannot be conveyed by separate smaller units.

Bloggers have helped create a new brand of citizen journalism that is shaking traditional forms of media.

Aspiring authors have garnered the attention of big publishers and earned book deals by attracting a large fan base through their blog.

Blogs can do all those things for which microblogs are much less suited.

Although some Twitter users have made a name for their self and or participated in highly significant events (like the raid on Osama Bin Laden), microblogging still has a long way to go in terms of impact.

However more and more people are turning to microblogging to reach new audiences. By now every company uses Twitter, but more and more like Mashable, the New York Times, and Huggies are leaping head first into Tumblr as well.

So which platform is better?

Which has the greatest potential?

You tell me. I’m going to reblog Mark Twain quotes now.