How the heck do Ads make money?

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I heard they make money through user clicks, I don’t remember giving any money to anyone. Is clicking ads like mining bitcoins?

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Say you own a website that has an audience. Now say I have something I’m trying to sell, and I think the people who read your website would be interested in it. So I put an ad on your website. For every user that clicks on the ad, I pay you a certain amount. That’s how it works, in a nutshell.

The companies in the advertisements make money, when people purchase their products or services. So, in order to increase sales, they advertise, and they are willing to pay for that.

For example, let’s say I sell widgets. I’m currently selling about 100 widgets per month, but I would like to sell more (and therefore make more money). So, I make up a video ad, and I pay a fee for that ad to be shown on YouTube 10,000 times. Only a small percentage of those people who saw my ads actually bought my widgets, but the advertising worked, and I’m now up to selling 175 widgets per month–the advertising cost paid off.

Now, YouTube took some of the money I gave them and shared it with people who uploaded videos that aired my ads. (If YouTube didn’t pay those people, then they wouldn’t have made and uploaded the videos, and then YouTube wouldn’t make any money at all.) But, the way YouTube pays it out is based on how many times somebody watched the ad–user clicks. So, the more popular the videos are, the more people that watch them, the more people that see the ads, and the more money the video creator makes. Because the more times people watch an ad, the more money YouTube gets paid by a company like mine to air the ad.

If I own a business and want to promote it, I can go to an entity that has an audience and pay them to advertise my product to their audience. The amount I pay depends on the size of the audience and the return I can get from this ad. That is the way ads have always worked (on TV, Radio, Billboards, and any other ones).

Enter Social Media. Now we have millions of people filling their profiles on Facebook, Instagram and Tiktok with personal information, their search and shopping history on Google Search, and overall giving all this data about their habits to these big tech companies. These companies use all this data to categorize all their audience and deliver a very advanced tool of advertising.

Want to advertise your italian restaurant to people in your neighborhood? Instead of setting up a billboard on a bus stop, for example, you can now show your ad to everyone from ages x to y that are followers of italian food related content and have passed by a 300meter radius from your business at lunchtime. (It can get way more specific than that).

The Social Media Company charges you depending on your strategy: clicks, closed sales, views, etc, and you can choose the way you’ll be charged and the amount. This is the advertisers end.

Everyone is the audience, everyone can be the advertiser, and the big tech make money from the advertisers trying to reach a specific part of the audience that had been categorized before by those clever algorithms.

Have you ever asked why Social Media is free? Your data usage is too valuable. You are the product.

>I heard they make money through user clicks

Yes they do

>I don’t remember giving any money to anyone

The money isn’t from you, it’s from the company that is buying the advertising space from the website. It’s like when a company pays to put an ad on a billboard, expect it goes on a website instead.

Example: Nike goes to Google and says “Hey can you show people an ad for our shoes? We (Nike) will pay you (Google) $1 for every 1000 people that see/click on the ad”. Google agrees, includes Nike ads in the search results for “sneakers”, and Nike pays Google per click on the ad, or per views.

So when Google is showing you Nike ads, those ads are making money *for Google*, and *costing* money for Nike who bought the advertising space. The money doesn’t come from the people clicking on the ads, it comes from the company paying for the ad space.

Basically the company that the ad is for pays whoever is pushing out the ad a certain amount. This is based on how many users would see the ad in most circumstances. So for example i give you 500 euro’s for showing my ad for a week. This however is a very ineffective way of measuring how much it should cost so usually they go by viewer that saw it with a minimum required payment. Youtube for example says 10 euro’s minimum and for every person that sees it its 10 cent.(i think although their rates may have changed since i last checked)