How Does Facebook Make Money?

Facebook's first few days on the stock market are in the books: Shares closed Tuesday at $31, down significantly from their $38 issue price. You may wonder: How does Facebook make money? Sure, 900 million users and billions of photos, but how is this a business? It's pretty simple, actually.

 

 

 

Facebook's first few days on the stock market are in the books: Shares closed Tuesday at $31, down significantly from their $38 issue price.

You may wonder: How does Facebook make money? Sure, 900 million users and billions of photos, but how is this a business? It's pretty simple, actually.

The majority of Facebook's business is advertising: Those little ads on the right side of the Facebook screen.

The first three months of this year, Facebook sold $872 million worth of advertising, or almost $1 per user. That represented 82% of Facebook's sales, which sounds like a lot. But it's actually down from 85% last year and 95% in 2010.

The rest of Facebook's business is payments and "other fees": Mostly selling Facebook credits, which people use in games like FarmVille.

The first three months of this year, Facebook's payments business generated $186 million in revenue. That's about 18% of Facebook's overall sales, up from 15% last year and 5% in 2010.

(Beyond taking a cut from Facebook payments, the company generates revenue "in connection with arrangements related to business development transactions and fees from various mobile providers," but it says this line of business has been "immaterial" recently.

Expect the payments business to continue to represent more of Facebook's overall sales, as it looks to diversify away from advertising. Ads will likely generate most of Facebook's sales for a long time, but maybe not forever.