how does facebook make money?

[CFA]

i was just wonder how can facebook be worth a billion dollars how does it make its money.
yeah but how much does the advirtisement pay in order for it to be worth a billion. and there arent that many

[bellle]

advertisements.

[mcdevitk]

People actually pay money for fake pets and fake gifts. Also the massive amount of advertising has a little to do with it.

[JustWondering]

By selling advertisement spaces. Yes, there are "that many." Think about TV and Radio. They make money off just advertisements, so Facebook can too.

[J.L.]

Sadly, people pay a lot for those little ads that are on the screen.

[banana_cream_pie]

advertisements, and it is bcause many billions of people visit the website every day and a LOT of them click on the advertisements, and it really builds up.

[boobugg]

lots of advertisements! lol. and events facebook may host

[McSquizzee]

Well imagine this; you make a product that you want people to know about. You know that millions of people use facebook. Well, what better way to get your product out there than advertising on one of the most popular sites? So you pay 50 g's for a advertising spot.

Now imagine this happening a few thousand times. Yeah you get a billion dollars.

[spelunker]

Technology companies like Facebook or any company that is considered 'high growth' are valued not only by the amount of money they make, but how much money they stand to make. When Google picked up YouTube for $1.65B, the site wasn't making any money then. It still isn't making much money now, but it does have HUGE potential for monetization. Investors who bet on companies like Facebook or YouTube aren't investing on the fundamentals, ie - its intrinsic value based on assets and current profits. They're gambling on their speculated valuation based on the potential for its business to be further monetized. Take Craigslist, for example. That's a business that can easily, EASILY be seriously monetized. But rather than sell out to investors, they've stayed private. They're able to turn a huge profit while only monetizing ~1% of their website (job and real estate listings).

In the case of Facebook, they have what's essentially the Holy Grail of marketing. They have REAL information on REAL people who are voluntarily contributing an abundance of information about their personal interests, their relationships to others and, by clicking or not clicking on ads, either verifying or refuting their likelihood to click on ads and their interest in different products. Businesses used to pay huge $$ for this kind of information - through surveys, studies, etc. Advertising rates would be based on Nielsen's ratings for a given show combined with metrics as to who the audience /probably/ was, eg - 18-24 y/o single male. With Facebook, they're getting EXACT information. 22 y/o single female grad student belong to X, Y, and Z networks, who has previously clicked on ads for 'teeth whitening', 'yoga dvds' and 'musical instruments.' With this info, advertisers can better target their audience and are willing to pay a premium for this kind of highly targeted advertising.