How do social media companies generate revenue from user data?

While social media platforms offer free services to users, they operate a massive data collection and targeted advertising economy in the background. A September 2024 report by the US Federal Trade Commission (FTC) revealed how these companies process user data to generate revenue.

Although opening an account, watching videos, or browsing posts on social media platforms appears free for users, the world's largest technology companies generate billions of dollars in revenue from these services. The foundation of this revenue model lies in delivering users' attention to advertisers and ensuring that advertisements are shown to the most accurate audience.

The September 2024 report by the US Federal Trade Commission examined the data collection and usage practices of nine companies, including Meta, YouTube, TikTok, X, Reddit, and Snapchat. The research showed that companies collect data from both on-platform and off-platform activities. While time spent on videos, liked posts, followed accounts, and clicked ads are used to determine interests, location and movement information is estimated using IP addresses, device settings, and GPS sources.

In addition to directly reported information, companies can deduce age, interests, and consumer groups through behavioral analyses. User groups are created using signals collected through the targeted advertising system, and advertisers pay to reach these audiences. The FTC report emphasized that some companies share data extensively with third parties and have significant shortcomings in data management and retention periods.