A video app costs nothing to download and nothing to use. Yet it runs on thousands of computers and pays thousands of staff. In 2023 the company behind Facebook and Instagram took in about 135 billion dollars. Almost none of it came from the people using the apps.
From ads98 of every 100 dollars
Everything else2 of every 100 dollars
The money comes from ads. A shop, a game, a brand pays the app to put its ad between the videos you watch. Of every 100 dollars that company took in, about 98 came from ads. The rest was things like selling headsets.
You
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Advertisers
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The phone maker
Who pays the video app?
Advertisers, for putting ads in front of you.
Right. The app charges the advertiser, not you. That is why it can be free to download and still earn billions.
You, a little each month without noticing.
Not yet. Nothing is taken from your bank. The app never asks for a card. Its money arrives from the companies whose ads you see.
The phone maker, as part of the phone's price.
Not yet. The phone maker sells you the phone and stops. It does not pay the apps on it; most of them pay nothing to be there.
Yougive time
↓→
The appsells a moment of it
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Advertiserpays money
So there are three parties in the deal, not two. You give the app your time. The app gives advertisers a moment of your time. The advertiser gives the app money. Your time is the thing being bought and sold.
Move the control to set how long you spend on the feed each day. This uses a made-up but sensible rule: one ad every four minutes, one cent an ad.
What the app earns from you in a year11 dollars
What it earns from an average user, worldwide45 dollars
12 minutes a day12 minutes a day is about 3 ads a day. Over a year that is about 1,095 ads, worth about 11 dollars to the app.
What the app earns from you in a year27 dollars
What it earns from an average user, worldwide45 dollars
30 minutes a day30 minutes a day is about 8 ads a day. Over a year that is about 2,738 ads, worth about 27 dollars to the app.
What the app earns from you in a year55 dollars
What it earns from an average user, worldwide45 dollars
60 minutes a day60 minutes a day is about 15 ads a day. Over a year that is about 5,475 ads, worth about 55 dollars to the app.
What the app earns from you in a year110 dollars
What it earns from an average user, worldwide45 dollars
120 minutes a day120 minutes a day is about 30 ads a day. Over a year that is about 10,950 ads, worth about 110 dollars to the app.
What the app earns from you in a year164 dollars
What it earns from an average user, worldwide45 dollars
180 minutes a day180 minutes a day is about 45 ads a day. Over a year that is about 16,425 ads, worth about 164 dollars to the app.
The app's real average is about 45 dollars a year from each user worldwide. On this rule, how much time a day is that?
Somewhere between half an hour and an hour a day.
Right. Thirty minutes gives about 27 dollars and an hour about 55. The real average sits between them, and so do most real users.
About ten minutes.
Not yet. Twelve minutes a day is about three ads, and three ads a day is about eleven dollars a year. That is a quarter of the average.
About three hours.
Not yet. Three hours gives about 164 dollars, over three times the average. Some people do spend that long, and to the app each of them is worth three average users.
Move the control.
Average user, worldwide45 dollars a year
Average user, United States and Canada200 dollars a year
Real numbers. The company behind Instagram earned about 45 dollars a year from an average user worldwide in 2023. From a user in the United States or Canada it earned about 200. Same app, same feed. The difference is what advertisers will pay to reach each person.
20,000People who see the ad
→
5 dollarsPrice per thousand
An advertiser pays the app 5 dollars for every 1,000 people who see its ad. The ad is shown to 20,000 people. How much does the app get?
dollars
Right. Twenty lots of a thousand, at five dollars each. Nobody who saw the ad paid anything. The money moved only between the advertiser and the app.
Each of these is one party in the deal. Which is it?
One card at a time. Tap the pile it belongs to.
Card 1 of 5
A trainer brand whose ad plays between two videos.
A student watching videos on the bus.
The company that runs the app.
A café that pays to show its menu to people nearby.
A grandmother scrolling family photos.
A trainer brand whose ad plays between two videos. → Pays money
Not yet. This one pays money. The brand placed the ad, and placing an ad means paying the app for the gap it fills.
A student watching videos on the bus. → Gives time
Not yet. This one gives time. Every minute on the bus is a minute the app can put an ad into, and that is what the student brings.
The company that runs the app. → Takes both
Not yet. This one takes both. It collects the time from users and the money from advertisers, and sits in the middle of the deal.
A café that pays to show its menu to people nearby. → Pays money
Not yet. This one pays money. Paying to be shown is what an advertiser does, however small the café is.
A grandmother scrolling family photos. → Gives time
Not yet. This one gives time. She is not buying anything and not selling anything; her scrolling is the moment the app sells.
Advertiserpays
↓→
The apptakes both
↓→
Yougive time
Right. Whoever placed the ad is paying money. Whoever is looking at the screen is giving time. The app is the only party that takes both, and that is where it earns.
Free versionads between songs
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Paid versionno ads
A music app has two versions: a free one with ads and a paid one with none. In the paid version, who is the customer?
The musicians. They pay to be on it.
Not yet. It is the other way round: the app pays musicians a share of what listeners pay. Musicians are suppliers, not customers.
Still the advertisers. Every app is paid by ads.
Not yet. There are no ads in the paid version, so no advertiser is paying for it. The money comes from your subscription.
You are. You pay, so the app earns by keeping you.
Right. When you pay, the deal has two parties again. The app earns from you, so keeping you happy is how it earns.
Lesson complete
The app is free because advertisers pay it to put ads in front of you.