How do sites like myspace, friendster, or facebook make money?

[stu_coates1]

Banner adverts!!

Each time someone clicks that advert, the company pay i.e. facebook a tiny financial payment. In April 2006, the weekly revenue of facebook was $1.5m!

he reason why social networking sites are so popular with companies that place banner ads is that since users write about their own interests and hobbies, companies don't need to spend vast amounts of money in market research working out how and where they can target and segment their target audience on the internet - instead they simply have an application that triggers a certain type of banner advert relating to a facebook user’s interests from their home page.

i.e. If someone states on their homepage that one of their interest is rap music - A Nike trainer advert is triggered by the text 'rap music' and a banner advert will appear then, targeting a consumer that they know has some sort of relationship for the Nike brand (through music and through using rap artist as product endorsers).

Therefore, companies are not placing random banner adverts at a million people when only 1000 of those targeted may be one of their target audience - this way, companies can ensure that all (or most) of the consumer they target have some relation to the product they are selling. For this reason, banner adverts in social networking sites are priced a lot higher than those on say yahoo or msn.

To put it into perspective of how much companies value such advertising, facebook only started up in 2004 and was recently approached by multi giant Google for a whooping $2.6 Billion (That’s not bad in three years of business) And even furthermore, the founder is a 23 year old university graduate!

Hope this helps