How do advertisors create and pay for the ads that fund Facebook, which is free for all users/members?

After the blockbuster film Social Network hit the top of the charts, it became well-known that a lot goes into earning money from sponsors and advertisers.  At the beginning, growing this website required many donations and shares from various businesses.  However, the majority of its current income is from online advertising and direct donations.

Advertising is the act of calling the public’s attention to one’s product or service by paid announcement(s).  On this social networking site, advertising can be done in several ways.  Advertising opportunities include: Making a ‘Group’ for people who support your product/service; making a ‘Fan Page’ for people who ‘Like’ your product; or making an advertisement that will appear on portions of the Facebook network allocated for advertising.

Creating a group, fan page, and/or advertisement is very simple.  To create a group, a member clicks ‘Create New Group’ on their homepage.  Following this, the page will ask the user to name the group, write a description, choose basic settings, and invite friends to join.  To create a Fan Page, a member will follow almost identical procedures, which are also primarily done by naming the Fan Page, providing a description of the product or idea, and inviting others to join.

The procedure for literally making an advertisement requires many more steps, and generates most of the income.  First, one must click on ‘Create an Ad’.  This will lead the advertisor to the electronic form to fill out for an ad.  Once this is selected, the user is led to a page that asks for the Exteral URL or Fanpage the advertisement is being created for, type of advertisment, an image, and description of the product or service.  This is followed by the ‘Targeting’ section of the form.  This is where the advertisor gets to choose who can see the advertisement.  Targeting options include location, age, gender, likes/interests, and connections obtained by Facebook users.  Last but not least, the next section of the form is based on money and the budget.  Most of this section asks for basic information, such as currency, champaign name, budget per day, how many days the advertisment will be showing on Facebook,etc.  Then, The advertisor picks how much money they are willing to bid per person that clicks on their ad.  This leads to Facebook making, based on the reccommended rate offered by the Facebook website, $1.86 per click on the advertisment.  In 2009, this lead to an estimated $475,000,000 in advertisment revenue for Facebook.  Facebook also sells virtual goods, which made about $75,000,000 in revenue in 2009.

So, if Facebook makes all this money, and is currently well know as a multi-billion dollar company, what functions does all of this money go to?  What economic functions go into making a website like Facebook?




By Derek Eisen

Period 3

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One Response to How do advertisors create and pay for the ads that fund Facebook, which is free for all users/members?

  1. mlmuntz says:

    There is some nice information here, but many sentences are awkwardly written, or contain superfluous words. You say “procedure for literally making an advertisement” when the word “literally” is not needed. You say “champaign name” but I don’t know what that is, and you don’t explain it. In the process of explaining the paid advertising system you say it costs $1.86 per click, is this always true?
    You say “lead” when you mean “led,” “well know” in stead of “well known,” make sure you proofread your writing before you hit publish!
    Ok for a first entry, I expect more next time! 8/10

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