Internet Communications

How do social networking sites make money?
Answered by Science Channel
  • Science Channel

    Science Channel

  1. It seems like more people today keep in touch on social networking Web sites than they do anywhere else: They can e-mail, chat, play games, post pictures and more. Social networking sites are a curious example of the Internet as a growing industry because most of the sites, such as Facebook and MySpace, are free for users but still designed to make a profit. They are always looking for creative ways to build revenue, and sometimes they are aided by venture capitalists, investors looking to get in on a good idea early on and end up with a huge payoff later.

    Few people get venture capitalist backing when starting a social networking site -- especially since the economic recession began in 2007 -- but those who do get backing must approach the prospect with caution. It's possible to receive too much venture capitalist funding at the beginning and then be faced with a huge debt from that investment. If the supplied investment fund turns out to be more money than is needed to run the business, it could be difficult to pay back. Plan carefully and analyze your options thoroughly when considering venture capital or you could find yourself drowning in debt over time [source: Rosenbush].

    The most common revenue stream for social networking Web sites is the traditional display of paid advertising. Alternatively, some sites, particularly those in the field of online dating, charge users a subscription fee to access all of the site's features. Other sites, such as Facebook, earn revenue by charging third-party developers a fee to have their applications available for use on the site. In this case, Facebook will feature these developers more prominently than others. Some social networking sites even have optional premium accounts, offering upgraded features to users for a small fee.

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