How Facebook cashes in on you

SETH FIEGERMAN
Last updated 05:00 25/12/2012
Mark Zuckerberg

NEW FACE? Mark Zuckerberg says profits are not the priority for his social network. But has that all changed?

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This post was originally published on Mashable.

For better or worse, this will go down as the year that Facebook really put a dollar sign in front of its users.

Facebook has been under immense pressure from investors to come up with ways to monetise, which has led to a fundamental shift in how it operates.

When the company first filed to go public in February, CEO Mark Zuckerberg stated very clearly that profit is not his or the company's first priority.

"Simply put: we don't build services to make money; we make money to build better services," he wrote in the public filing.

Eight months and plenty of bad stock trading days later, Zuckerberg revealed in an earnings call that every team at Facebook is now responsible for coming up with a revenue strategy for their product.

In the past year, we've seen Facebook try out a range of tactics to make money from its users, whether it's inserting more advertising into the News Feed or the recently announced option that lets people you don't know message your inbox for US$1.

Some of these efforts, like the messaging option, have been met with heavy criticism from users while others have largely been accepted as par for the course.

What matters now to Facebook from an investor standpoint is how much it can increase the money it makes from each user. Facebook generated about US$1.25 per user on average in the third quarter, up from about US$1.19 in the same quarter last year.

To put that another way, right now you're worth about $US5 a year to Facebook and the company would really like to see that number go up.

For that reason, don't hold your breath for Facebook to stop trying out new ways to make money off you in the new year.

Brian Wieser, senior research analyst at Pivotal Research Group, says that some features introduced this year like Sponsored Stories for mobile will likely stick around, while the company continues to test out others to see what works and what doesn't.

"I think you should expect just an ongoing testing and learning from an ad sales perspective about what balances near-term revenue growth with durability," Wieser said. With that in mind, here's a look back at all the ways Facebook tried to make money from you this year, as well as a glimpse at what they might do next year.

PUTTING SPONSORED STORIES IN YOUR NEWS FEED

Image courtesy of Facebook

Facebook launched Sponsored Stories in the beginning of 2011, in an early effort to monetise activity on the desktop website by turning users into quasi-brand promoters.

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This year, Facebook took that effort a step farther by placing these promotions in the user's News Feed, where they are more visible and presumably generate a higher click-through rate.

This has been a big money maker for the site, bringing in more than US$1 million a day, but it has also proven to be a bit of a headache.

Users filed a class-action lawsuit against the company earlier this year, objecting to the having their names and pictures used in the ads.

MOBILE ADS IN FACEBOOK'S APP

Image courtesy of Facebook

From the perspective of investors, nothing was more important for Facebook than proving it could monetise on mobile.

It did just that starting in the middle of this year by introducing Sponsored Stories, app install ads and Offers into the mobile feeds of its users. In the third quarter - just a few months after Facebook launched these mobile ads - it generated US$139 million from mobile ads, or 14 per cent of its total ad revenue.

Facebook now makes US$3 million a day inserting promotional content into your mobile News Feed and, as Zuckerberg noted during a conference call with analysts, "We're just getting started."

MOBILE ADS IN THIRD-PARTY APPS

Even after you leave Facebook, the company can still find ways to make money off you. In September, Facebook began testing placing mobile ads in third-party applications.

The ad exchange allowed certain websites and apps to use Facebook information to better target users with ads promoting a website or providing a link to download an app. Facebook recently put this ad product on hold, but that doesn't mean it's going away for good.

As a Facebook rep told Mashable, "We have learned a lot from this test that will be useful in the future."

PROMOTED POSTS

Image courtesy of Facebook

As the social network gets more crowded with posts from users and advertisers, some of your updates may get lost in the clutter. So Facebook decided to give users a new option in October to ensure that their posts are seen by more people.

For the low, low price of just US$7, Facebook allows users to "promote" their posts in their friends News Feeds. As Mashable's Matt Silverman wrote at the time, Facebook is now applying the "freemium" model for its service.

FACEBOOK GIFTS

Image courtesy of Facebook

After trying and failing to operate a gift shop two years ago, Facebook decided to give the gifts idea another shot.

In September, the company launched Facebook Gifts, helped by its acquisition of the gift-giving app Karma earlier in the year, in an effort to create another revenue stream. As mentioned, Facebook currently makes just US$5 on average per user per year.

If every user makes just one small purchase through Gifts, that amount will skyrocket in the coming year.

That's why you've likely seen more than a few prompts on the site to buy someone a gift for a particular occasion.

PAID MESSAGES

Image courtesy of Facebook

Facebook decided to squeeze in one more money-making attempt before the end of the year, announcing last week that it is testing a new option that lets users pay US$1 to ensure that a message is delivered to someone's inbox, even if it's not someone he or she is connected to on the network.

Until now, messages are only delivered to your Facebook inbox if it is sent by someone you are friends with, or who you share mutual connections with. Otherwise, the message goes to a subsection of your inbox called Other, which essentially serves as a spam folder.

Facebook is billing the option as an effort to crack down on spam by seeing if imposing a financial cost on users stops them from messaging people they don't know. But it seems just as likely that this could lead to an influx of spam from marketers and others who may be eager to get access to your Facebook inbox.

While the plan is subject to change, a Facebook rep told Mashable that as of right now, a user could pay a one-time fee of US$1 to message your inbox an unlimited number of times until you decide to mark it as spam.

VIDEO ADS IN NEWS FEED

The next big attempt from Facebook to make money may be placing video ads in News Feed.

Advertising Age recently reported hearing from "several industry executives" that Facebook is planning to let advertisers place 15-second ads in users' News Feeds on desktop and mobile by April, 2013.

Worse still, the ads will reportedly be on autoplay, meaning they will start playing once you open up the page, whether you want them to or not.

Welcome to the new era of Facebook.

Mashable is the largest independent news source covering digital culture, social media and technology.

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