How Does Facebook Make Money

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(CNN MONEY) - Facebook Thursday released its first earnings report as a public company. It generated more than a billion dollars last quarter, up 32-percent...
but reported a net loss of 157-million dollars.

So, how does the social media giant make money and get out of the red?
Laurie Segall explains.

"If you're one of Facebook's 900 million users and chances are, you might be you're worth $1.21 to the company. That's how much they made per user last quarter. Let's take a look at how the company's actually making money."

See that digital cow on the Farmville game? Facebook makes a dollar-twenty every time you buy one. And that bullet-proof vest on mafia wars -- and your survival knife?

Facebook gets a slice of those sales, too. A dollar -twenty for your virtual protection. All of them are sold by Zynga, but Facebook gets a 30 percent cut of each sale. They're part of Facebook’s payments business, which accounts for 18% of the company's revenue. The nickels and dimes add up, Facebook collected $186 million last quarter. But the main way Facebook makes money is from the ads you see on the site.  

"We spend several million dollars every month, frankly on Facebook ads."

Design website fab.com says it had nearly 200-thousand users before they even launched, and two-thirds came from Facebook.   

"On any given day, 25% of the visits to Fab are coming from Facebook."

Some are not as sold on the success of paid Facebook ads.  

"The marketers we talk to tell us they're just not happy with the performance they're getting from Facebook."

Businesses like the company pages where they can advertise their brand for free, but the social network made its 872-million in ad revenue last quarter from paid ads like this.  

"When you click on those ads, that's how Facebook makes money. Facebook quite frankly doesn't care from a revenue perspective what happens after you get to that branded page."

GM has a branded Facebook page with 396-thousand likes.

"Unfortunately it's just about the only thing many marketers look at - how many likes do we have? We think it's an overly simplistic metric and one that doesn't really tell you whether you're having success."

But those likes may not translate to profits. Two months ago GM pulled all their paid advertising on Facebook. And, that's not the only concern.

"What really scares Facebook? Your smartphone. The company launched mobile ads four months ago and they're still not making a lot of money off of them."

"We're starting to see a lot of real money flow into mobile advertising but there's still a lot of potential to be unlocked there."

Analysts are expecting Facebook’s sales to top a billion dollars this quarter. For that number to keep growing, Facebook has to figure out how to make money off this...and not just this. Laurie Segall, CNN MONEY, New York.