How do social networks make money?

[Devin Pringle]

Andre,

As someone mentioned, social media sites like Facebook sell ad space in the form of clickable banners in the side bar. The interesting thing about internet advertising in particular is that you can target individuals based on search behavior or profile information. For example, if my interests include boating or fishing, then those companies offering those services can pay for pay-per-click ads that target me as a user based on the information listed in my profile. Because they are targeting an interest, they are likely to get a better response, which is better than mass marketing. Every time someone clicks on the advertisement, Facebook is paid for that click. And because the ads are targeted, the likelihood that someone clicks on it is greater. This is in essence the same way that Google functions. However, Google ads are based on the key phrases that are searched for, and they don't necessarily know much about me as a user, while Facebook knows quite a bit about me, such as my age. In Facebook I can also target users by location or age range. So if I am selling a new candy in Michigan, I can target the younger generation, and in just that area, which actually helps you keep costs down.