The garage-to-glory stories of social media big names aren’t foreign to most. Perhaps less enthused about though, are the actual gears behind these tech behemoths.
What keeps these multi-billion dollar businesses running and thriving despite seemingly taking little from the end user’s wallet? How do they permeate both our work and personal lives while generating revenue almost imperceptibly? (Key word: almost)
With all the hubbub on the state of Pinterest’s IPO earlier this year, while Facebook was slapped with its biggest fine yet, we examine the social media business models behind a few of the biggest names today.
By and large, Facebook remains unmatched in the social media game. It still boasts the most monthly active users (MAU) compared to any other platform, as well as the highest market cap. We reckon it boasts the most lawsuits too.
Facebook’s social media business model is similar to the one used by most of its other competitors - an advertising model.
In this year’s Q2 alone, ads represented over 98% of Facebook’s revenues!
The revenue streams which comprise the other 2% or so stems from its peer-to-peer payments feature as well as its many subsidiaries. That’s right, even with Whatsapp and Instagram in the picture, that number still falls below 2%.
We can thank Facebook’s colossal amounts of user data for this, which is used to enable advertisers the ability to hone in on exactly who they want seeing their ads.
As of this year, YouTube comes out on top as the #1 most visited website in the US, while fellow tech giant Facebook sits at #3.
And similarly, YouTube’s social media business model is based on advertising as well. Youtube’s bread and butter are videos which are uploaded and watched entirely for free, while ad space is sold to advertisers.
Bear in mind though, that YouTube is a massive source of income for content creators as well. So the video-sharing platform has to fork out dough to pay the users themselves as well.
Here, YouTube takes a 45% cut, while the creator makes do with 55%.
And hence kickstarts the cycle - creators endeavour to make better videos in an effort to possibly eke out a viable income from YouTube, which attracts more eyeballs, which then increases the effectiveness of ad campaigns.
From its selling price of $1 billion to Facebook, to its estimated value of over $10 billion now, Instagram is now worth approximately 10 times more than when it was acquired in 2012.
Instagram runs on a social media business model of advertising as well, to no one’s surprise. Its users (us), generate free content, which don’t give Instagram much frankly.
The real money comes on the backs of companies who have the option of various ways of displaying their ad campaigns through Facebook’s Ads Manager.
When done properly, these ads can at times even appear as native content. Thanks to the photo-sharing platform’s ability to show ads to those who are more likely to want to see it, users generally find them more helpful rather than intrusive, keeping all parties happy.
Monthly Active Users: 303 million
Business Model: Freemium, Subscription, Advertising Model
While LinkedIn does pale considerably behind the shadows of its social media counterparts, it attracts a very different demographic, with C-level positions and fresh grad job seekers interspersed in the mix.
The world’s largest professional network has multi-faceted social media revenue models to go with it too, employing Freemium, Subscription and Advertising Models. LinkedIn’s revenues are derived from its four solutions:
Talent Solutions: LinkedIn’s most valuable division is its hiring solution, made to help recruiters hire faster, and hire better.
Marketing Solutions: But that’s not to say the platform doesn’t benefit from advertising too. The advertising business model ties in here, where companies can create sponsored ads. For LinkedIn, these ads typically come in the form of articles.
Premium Subscriptions: The Freemium model comes into play when users are willing to pay a premium for the use of additional services like LinkedIn Sales.
Learning Solutions: Back in 2015, LinkedIn acquired online learning company Lynda and converted it to LinkedIn Learning, where users can learn career-boosting skills online (think Udemy).
There isn’t a product, because we are the product
Most social media platforms sensibly diversify their revenue streams, but the advertising model clearly comes out on top in terms of social media revenue models - with the product being the user’s eyeballs.
But it’s not enough to have mere eyes on a screen. Effective ads require sufficient data to achieve adequate engagement. No engagement means no revenue. Hence, these various platforms differentiate themselves by how they engage with their users.
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