How does Facebook make money?

Facebook generates more than $2 billion in annual revenue through ads, games, gifts, and cash cards.

Facebook makes most of its money through ads, which can be geotargeted or contextually targeted. Facebook also has a good deal of psychographic information it can share with advertisers based on users' profiles. Ads are shown on the right side of every page.

It also makes money via games which are primarily provided by Zynga. Facebook games include Mafia Wars and Farmville.

"Zynga is able to exchange in-game money and items for real money to a fraction of those users. Whenever Zynga does so, Facebook takes a percentage of the profits for themselves. Additionally, by hosting its games on Facebook, Zynga receives a large number of visitors to their own website, which Facebook charges them for," writes Tech FAQ.

Users can also buy and send Facebook Gifts to friends. Most are free, but some of them must be purchased. Facebook also has cash cards that can be bought in stores like Walmart and used on its site.