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How Is Facebook So Rich When I’m Using It For Free?

How Is Facebook So Rich When I’m Using It For Free?

Free? Not really. Facebook has 1.4 billion daily users and on an average, it makes $20.21 per user. While the app is free, it collects insights on our usage and sells it to marketing companies.

That’s not all, there are several other unconventional ways in which your favourite app or game makes money off of you. Some of these might even help you if you have your own blog or online business and wish to monetize it.

The Freemium Model

Free+Premium= Freemium. True to its name the freemium model uses a strategy where it offers a basic service for free but charges money for additional features. 

There are 4 types under the freemium model:

#1. Classic Feature Limited Freemium

This has two versions for users. A free version with basic features and a paid version for people who want to access its exclusive features, similar to VIP passes at an amusement park.

Example- Skype. Everyone can use Skype’s video calling feature for free, but if you want its premium features like no ads, group screen sharing, unlimited free calls to landlines and mobile phones then you need to pay for it.

#2. In-app purchases

This is basically a free game/app that everyone can use. But they come with an ‘in-app store’ where you can buy lives, power-ups, weapons and avail extra features. Buying items from these stores are called in-app purchases.

Example- Candy Crush. Once you get used to an app/game you feel so loyal to it that you wouldn’t mind spending on their in-app purchases. At that moment it may seem like you are only spending a few bucks but people have spent over $ 200 only on candy crush. In fact, in the past,  free games on the app store have made more money than the paid games. 

#3. Free Trial Period

Apps or games using this model allow you to use it for free for a selected period after which they charge you. It is similar to test driving a car before you buy it.

Popular examples of websites that use this model- Netflix & Hotstar. These are free for a month, after which you need to subscribe to their plans.

#4. Ads and sponsored Content

These work just like regular billboard or T.V. ads the only difference is that these ads are online. 

Example: Facebook and most websites such as Buzzfeed, ScoopWhoop, Cosmopolitan, Snapchat use this model to make money.  Like a regular advertisement, a brand will pay to promote its products on such websites.  An additional benefit that brands get from online ads is that they’re targeted advertisements, meaning if you’re into music you’re likely to see music ads on your Facebook page but if your friend is into food she will mostly see food ads on her page. The market is no longer segmented based on gender, profession, age instead it’s segmented into people’s behaviour, likes, dislikes and tastes. All this information is easily captured by your activity online giving online websites another way to make money – by selling your data (more on this below). 

The Sponsorship Model

If an app or website indirectly helps someone (especially the government), then they will get sponsored by an institution/organization/individual. The sponsorship comes in after an app gains a lot of users and the creator then needs funds to grow it further.

Example: Khan Academy is a US-based non-profit educational app created with the goal of educating students online. Since it is such a resourceful app it has received funding through many sponsors some of which are – Bill and Melinda Gates, Google and the O’Sullivan Foundation

The Sell-Off Model

Many times a free app becomes very popular over a short span but doesn’t really make any money. At such times the creator is in a dilemma because they can’t charge its users since this will make the app unpopular. So they resort to the ‘sell-off’ model whereby they sell their app to a large giant who in turn gets  access to their large userbase, 

Example: Whatsapp is a free service and that’s why we love it. So making money through advertisements was a big NO NO for the owner. In fact, at one point the owner also tried charging users briefly but that too didn’t seem to work out well. So despite Whatsapp’s popularity, it was still making a loss. Meanwhile, people were becoming disinterested in Facebook. So Facebook decided to buy Whatsapp for $19 billion to reconnect with its users! Now Facebook has access to WhatsApp’s 1.2 billion user base and aims to make it profitable by creating WhatsApp for business organizations and charging them instead of regular users.
Lots of free apps, websites and blogs eventually have to sell their service to someone simply because they can no longer afford to own it.

Rumour has it: Facebook offered to buy out Snapchat for $3 billion, but Snapchat said:

Not Going to Happen.gif

The Affiliate Model

In this model two blogs/websites/app share content across each other’s platforms to benefit from their respective followers. Imagine if you publicize your friend’s post on your wall and she publicizes your business on hers, she will get likes from your friends and you from hers. Similarly, in this model, a brand publicizes its products and services through a popular website to get their traffic. In return, the website gets a percentage of that sale. A lot of blogs follow this method.

Example: Buzzfeed & Cosmopolitan makes use of this model. In fact Amazon has it’s own Affiliate program that lets you share its products on your social media handles, personal blog or website. If the product gets sold you get a percentage of that sale.

The User Data Model

Was your Facebook page spammed with ads of a bag you purchased off Jabong? After having a conversation about a particular dress on Whatsapp did you see the dress all over your Facebook page? However creepy that may sound, that’s just how Facebook makes money. It sells your data to marketing companies that use your information to target advertisements according to your tastes. Other than Facebook many websites might collect and sell your email address, social media handles and other contact information to marketing companies for a fee. But this isn’t a very common or ethical way of making money. It could be an invasion of privacy.

When they say don’t keep all your eggs in one basket it doesn’t only apply to investments, but also revenue models. Many brands have multiple sources of revenue- For instance, Facebook uses the Freemium model and also the User-Data model. You can also use this for your own business and diversify the ways it makes money.

People are constantly innovating and coming up with new ideas to monetize a service. If you have a blog/website/app that is free for users, share your story with us on how you monetize it.

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Talkative, clumsy, punny, intuitive are just a few buzzes of this queen bee. An aspiring business journalist looking to find her throne in the corporate world.

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