Social media websites and apps have changed the way we connect with people, organise groups and events, and find news and information. They provide us with a lot of positive benefits and most large social media companies offer the service free to the people that are using it. This means that the organisation needs to make money another way. This article explains how social media companies generate revenue and what it means for people using social media.

How do social media companies make money?

Most social media companies make money from advertisers – these are businesses or other organisations that want to sell or promote something to an audience. The money from advertisers is what enables the company to provide people with the social media service free of charge.

Is this a new way of making money?

This business model isn’t a completely new one, but it is different. Community newspapers and other traditional media have often charged businesses or organisations to advertise in them, so that they can make their content free or cheaper for their audience. Businesses still use these traditional media types to advertise, but the difference is that social media (and other types of digital advertising) has enabled them to target their advertising using very specific criteria. The reason that social media companies can offer this type of advertising service is because they collect, store and interpret information about the people using their social media platform, so that advertisers are able to connect with the people that are more likely to buy a product or be interested in certain content.

Why do organisations advertise on social media platforms?

Organisations choose to advertise on social media platforms because the ability to target an audience so well makes it very effective and efficient. It is a cheaper and more effective way of reaching the specific people that they want to promote a product, service or some other type of information to. For example, Netsafe uses social media advertising to reach certain groups of people with information we have created especially for them – like online bullying advice for teens that includes advice about talking to parents and schools, which isn’t especially relevant for an adult. Social media platforms are able to target these adverts so well because of the information that people enter into their profile and how they use the social media platform – for example, how old they are, where they live, the Facebook pages that they like and the content that they interact with.

How does this affect you?

Instead of paying a fee to use social media platforms, you are giving the social media company information about yourself that is then used to power the advertising service they offer to advertisers. The information that you share – like your relationship status, your age, the places you’ve been, the other accounts you like or follow, the content you interact with – is all information that can be used to target advertising to you. For example, if you are a woman and you change your relationship status to “engaged” then you may start to see ads about wedding dresses if advertisers have created advertising campaigns targeted at women who have the relationship status “engaged”.

There are some upsides to this for the people using the social media platforms. You are more likely to see products, events and information that you are interested in or that appeals to you. This means that you might be discovering things that you’re interested in that you may not have stumbled across otherwise.

Are there any risks?

When you’re using a social media platform, you are agreeing to the terms of service – the conditions of using the service. Part of this is allowing the social media company to collect and store information about you to use in its advertising service. This means that you are giving your personal information to the organisation to hold and look after, so you need to be aware that you are relying on the practices, processes and systems of the organisation to protect your data.

There is no doubt that social media platforms offer people a lot of positive benefits – connecting with friends, families and discovering new information are just a few of the useful things about using social media. However, it is important that people understand how they work and how their personal information is being used. We encourage people to look at the terms of service of the platforms that they are using to understand how their information is being used, so that they can make an informed choice about how much information they give on the platform.

How can you see information about ads?

Some platforms allow you to see the adverts that an account is running. On Facebook, you can visit the Facebook page of an organisation and click on “Info and Ads” to see the ads that are currently running. You can find out more about the adverts that are being targeted to you on Facebook in your ad preferences in settings.

More articles you might like

Help & advice

Netsafe offers a free service to people in New Zealand who need help with online issues. Our service is open from 8am-8pm Monday – Friday, and 9am-5pm on weekends and public holidays.