How You Pay for Facebook

by Rachel Baker on July 22, 2014

By all accounts, Facebook is a pretty good bet for investing in right now. It will be interesting to see what the second-quarter results will yield for the company’s profit line and if Facebook will discuss the recent data study that caused so much of an uproar in their Wednesday 2nd quarter conference call.

There’s an interesting article over at cnet.com that looks how powerful Facebook can be and what people would give up to the use the network.

Facebook doesn’t charge its users to access the service. Instead, it runs ads, both in the flow of news from friends and in the far right-hand side of the site. Google, Yahoo, and many other websites that are also free to use rely on similar advertising strategies for a bulk of their collective revenue.

The tradeoff is that to use a given service for free, users are subjected to ads that are carefully targeted based on key information such as age, sex, location and algorithmically generated details about their likes and dislikes. A Gmail user emailing friends about a hunting trip might see ads for camping gear; a Facebook user who “likes” “Doctor Who” might see ads for a comic convention nearby.

Facebook’s data science team is in part an outgrowth of the need to better understand users, and a need to deliver them more relevant ads among other things.

For Facebook, of course, the option to disentangle advertising from its website would almost be impossible. Not only does the bulk of its revenue come from advertising, but free marketing for brands, such as Ford Motor or The Onion satirical news site, is also a large and important part of its offering. When a users say they “like” a page, its owner can send missives to their news feed such as the company’s latest announcement, or ads for its products.

That is the lens through which Facebook’s data science team is working.

How we pay for Facebook

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