This is kind of the $100 billion question: how is it possible that a website offering a completely free service will soon be worth about $100 billion? Put another way, how do they make so much money without charging us a cent?
The bulk of Facebook’s revenue comes from straight-up advertising. Sure, they have a few paid features, but it’s a specific kind of targeted advertising that really rakes in the dough.
As you go through your digital life on Facebook – tagging yourself in photos, “liking” status updates and TV shows, and checking in at various physical locations – you are giving up an incredible amount of information about yourself. And it turns out that all those little details – like your age, where you live, and what you “like” – are super valuable.
Facebook collects all this information and sells it to very hungry advertisers who then use it to create ads that are specifically tailored to you. So when you log into Facebook, you now see ads for stuff you’re likely to be interested in. And that, of course, increases the chance that you click on the ad, which increases the chance you eventually buy it.
To put it simply, Facebook deals in personal data. The more it knows about us, the more advertisers will pay for that information to better get our attention.
So, is Facebook really free?
Kind of depends on how you look at it. On the one hand, when you use Facebook, you’re receiving a pretty extensive service and not paying a dime for it. But on the flip side, there’s no such thing as a free lunch: you are sacrificing privacy, and potentially giving up a lot of your personal information. And Facebook is collecting that info and profiting from it – big time. Of course, you can manage your privacy settings on the site in order to limit how much you actually reveal about yourself. But even the most cautious users is are giving away crucial information by simply creating a profile and logging in. So, in a sense, the answer to the above question really depends on how much you value privacy.
See what Stephen Colbert and others have to say about this …