How do social medias earns such a huge amount of money.. obviously only sponsors is not enough for the huge earning. What could be other sources…
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Ads is the answer, but the answer is really *by knowing a lot about its users so it can help advertisers show ads to customers who will buy from them which means the advertisers will pay a high rate for ad space*.
It starts with the advertiser. If I’m advertising shoes I can only pay a certain amount for an ad and still have a profit. Let’s say I can afford $20 in advertising costs for every pair of shoes I sell. If I pay $X for every 1,000 ad views (called impressions) or $Y for every ad click to my website AND I know how often visitors convert from my ads once they get to my site I can very easily figure out how much I’m willing to pay for every 1,000 ad views or for each click.
The key as an advertiser is that rate of impressions or click to conversion. The higher that conversion rate the more I can pay and still sell shoes profitably. It’s been very simple from a technology standpoint to do that site tracking and math as an advertiser for like 20 years. It’s basic stuff.
Now you’re Facebook. You have a TON of “ad inventory” aka users you can show ads to. How do you get *the most expensive ads* in front of each user? The answer is to know a lot about them! You track, record, monitor, model, calculate, etc as much data as you can to put shoe ads in front of shoe customers accurately so you can sell ad space to me (the shoe seller) at a high price because my own data says impressions or clicks on Facebook convert really well. Facebook does this by knowing your likes, friends, posts, and what you view on the web (every webpage with a Facebook like button sends your data back to Facebook for example) and countless other sources of data.
Now you’re Reddit. How do you sell your ads for the same price Facebook does? Guess what…you CANT because you barely know jack shit about your users. My shoe selling business might be willing to pay 1/10th the price for impressions or clicks on Reddit because Reddit isn’t very good at putting my ad in front of people who want to buy shoes.
Google is worth over a trillion dollars because of how much it knows about its users (through Google search, gmail, chrome, android, YouTube, google docs, etc) and how accurately it can help advertisers show ads to the right people, so advertisers are willing to pay Google, Facebook, and other networks a high rate for ad space. Plus they made it so easy even your local dentist can advertise successfully. Meanwhile Reddit, Twitter, and others know less so they have to sell their ad space for less money otherwise advertisers will quickly realize they are losing money and go elsewhere.
The industry is of course very complex. There are people who specialize just in banner ads, or ads on Google search, or video ads, or social media ads. There are people who spend their career in marketing analytics making sense of data from dozens of sources across millions of potential customers (me). There’s entire industries and technologies around questions like:
What if someone sees multiple ads before they buy…which ad really caused the sale?
Is a 15 second video ad driving as much of the sale as a click on a social media post?
If I spend more on TikTok and send the same audience ads through another site will the conversion rate be even higher than just TikTok or just the other site alone?
If I stopped ads in a market how much would my website sales be impacted?
And on and on
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