The social media industry

The social media industry represents a profound transformation of the traditional media landscape, moving from hierarchical, one-way communication to decentralized, interactive digital networks.[1] Today’s dominant platforms are best defined as "two-sided platforms that primarily host user-generated content distributed via algorithms, while allowing for interactions among users.”[2] This highly interactive and networked environment has created immense wealth for the platform operators while simultaneously establishing a new, highly competitive and often precarious economy for content creators.

How social media companies make money

The vast majority of revenue for social media companies is derived from transforming user attention and data into salable advertising opportunities.[3]

• Monetization through advertising and algorithms: Social media platforms fundamentally operate as two-sided markets, with users on one side and advertisers on the other.[4] Platforms only accrue revenue when users consume advertisements, as organic content consumption typically yields zero revenue for the company.[5] The primary business goal is therefore to maximize user engagement and time spent, because "time on site mean[s] a user [is] available to be served more ads.”[6] This is the core engine of the "attention economy.”[7]
  • To achieve optimal ad placement, platforms employ sophisticated systems known as algorithmic mechanism design (AMD). These systems create bespoke markets, such as automated advertising auctions, that "monetize online traffic.”[8] Companies rely on these auctions and algorithms to sell and deliver ads. Facebook, for example, is specifically "programmed to optimize ‘engagement,’"[9] which involves using machine learning to evaluate ads based on the bid, ad quality and an estimate of whether the user will take a desired action.
• Data extraction and market control: Beyond mere traffic volume, platform value is deeply rooted in data extraction. As platforms act as intermediaries, they simultaneously offer services to consumers while "extracting data from them.”[10] This mediating position allows them to accumulate vast amounts of data; the ability to leverage this results in market concentration, giving rise to "digital monopolies."[11] Platforms aim to lock users into their ecosystem, either through the network effect (in which abandoning a platform would mean abandoning most of one’s social connections)[12] or through making it an invaluable part of shopping, entertainment, music discovery, et cetera.[13]
• Emerging revenue streams: To diversify revenue streams and mitigate risks in the advertising market, some platforms are expanding into transactional business models. This trend, sometimes described as super-appification, shifts business models toward incorporating "transaction, subscription, escrow, and advertising fees.”[14] TikTok Shop, for instance, represents a seamless integration of social shopping, allowing users to discover and purchase products directly from videos and live streams without leaving the app. Similarly, Snapchat launched a paid subscription service, Snapchat+, in an attempt to "diversify revenues beyond advertising,” [15] and other apps such as Instagram are introducing paid versions that won’t have advertising.[16]

Implications of the platform revenue model

The reliance on engagement as the primary metric of success has profound implications for the platform environment. Designers engage in "hypernudging," carefully engineering platform architectures to "alter behavior in predictable ways,”[17] often leading to platforms being "intentionally optimized to command and retain your attention.”[18]

A critical consequence is the amplification of sensational and divisive content. Because "outrage-provoking content draws high engagement,” algorithms may preferentially promote content that is negative or extreme.[19] Internal documents show that Facebook’s ranking algorithm, for example, once treated emoji reactions as "five times more valuable than ‘likes’," and replies were "weighted even higher, up to 30 times as much as a like.” This led to a system that rewarded posts likely to spark anger, misinformation and toxicity.[20] This structural flaw occurs when the platform’s chosen metrics (engagement) fail to align with what people actually want to see (accurate, positive content), thereby amplifying content that users agree should not “go viral.”[21]

How content creators and influencers make money

The rise of the social media industry has facilitated a new, cross-platform cultural industry of media creators, projected to be worth $480 billion by 2027.[22] Content creators, or influencers, operate as "jack of all trades entrepreneurs,”[23] generating revenue primarily through four methods:

• Revenue-sharing programs: Platforms offer programs like the TikTok Creator Fund, which pays creators based on views and engagement. However, this revenue often amounts to "pennies,” leading creators to seek other sources.[24]
• Sponsored content and brand deals: Creators act as brand ambassadors and post sponsored content. Influencer recommendations are highly effective, carrying "roughly the same importance to users as traditional advertisements.”[25]
• Affiliate sales and social commerce: Creators function as affiliates for in-app shopping features, earning commissions on sales made via their content (e.g., TikTok Shop).[26] This has created new careers, proving that individuals with relatively small followings "can have 5,000 followers and monetize your content on TikTok and TikTok Shop and make this a career.”[27]
• Direct payments and crowdfunding: Creators seek support directly from their audience, often via crowdfunding platforms like Patreon, which offers "a form of income that isn’t algorithm dependent.”[28]

Due to the unpredictable nature of platform algorithms and the volatility of ad revenue, top creators have moved beyond simple content creation. They function as "vertically integrated media companies with parallel businesses.” Examples include YouTube stars like MrBeast, whose snack brand Feastables "is more profitable than his YouTube content,” and Ryan Kaji of Ryan’s World, who diversified his brand into toys and apparel generating hundreds of millions in revenue.[29]

Implications of the creator economy

While proponents champion the influencer industry as more "open and egalitarian" than traditional media, the reality is that the working lives of creators are "fraught with stress and burnout.” The industry is characterized by a "deep inequality of viewership," with a tiny minority accumulating most views.

The central challenge for creators is what is often called the tyranny of the algorithm. Because "visibility is key to success,” small and marginalized creators face "algorithmic discrimination" as the system "is heavily stacked towards promoting content from already-popular creators.” This forces creators to employ sophisticated techniques, such as constantly "pumping out fresh content" and producing exciting modifications of trends. The volume of work required to satisfy algorithmic demand is daunting, leading to widespread burnout.

Furthermore, creators are susceptible to audience capture, a powerful feedback loop where they produce content their audiences favor and "gradually begin to internalize it themselves.” To keep their income stream flowing, creators may feel compelled to put out sensational takes or "more and more sensational content to keep earning a living.” This pressure to commodify their lives and personalities, cultivating intimacy with audiences, can make creators feel "exposed, exploitative, and answerable to entitled audiences.”

To mitigate these issues, many social media creators are no longer relying on ad revenue from the platforms, but rather building separate businesses that trade on their name recognition, such as Emma Chamberlain’s Chamberlain Coffee, while others like Ryan Kaji of Ryan’s World have expanded into other media such as apps and broadcast or streaming TV.[30]

[1] Miller, V. (2020). Understanding digital culture. SAGE Publications.

[2] Aridor, G., Jiménez-Durán, R., Levy, R. E., & Song, L. (2024). The economics of social media. Journal of Economic Literature, 62(4), 1422-1474.

[3] Winseck, D. (2022) Growth and Upheaval in the Network Media Economy, 1984-2021. https://doi.org/10.22215/gmicp/2021.1. Global Media and Internet Concentration Project, Carleton University.

[4] Aridor, G., Jiménez-Durán, R., Levy, R. E., & Song, L. (2024). The economics of social media. Journal of Economic Literature, 62(4), 1422-1474.

[5] Aridor, G., Jiménez-Durán, R., Levy, R. E., & Song, L. (2024). The economics of social media. Journal of Economic Literature, 62(4), 1422-1474.

[6] Diresta, R. (2022) How Online Mobs Act Like Flocks Of Birds. Noema Magazine.

[7] Fitton, D. (2021) The rise of dark web design: How sites manipulate you into clicking. The Conversation.

[8] Viljoen, S., Goldenfein, J., & McGuigan, L. (2021). Design choices: Mechanism design and platform capitalism. Big data & society, 8(2), 20539517211034312.

[9] Viljoen, S., Goldenfein, J., & McGuigan, L. (2021). Design choices: Mechanism design and platform capitalism. Big data & society, 8(2), 20539517211034312.

[10] Nichols, T. P., & Garcia, A. (2022). Platform studies in education. Harvard Educational Review, 92(2), 209-230.

[11] Törnberg, P., & Uitermark, J. (2025). Seeing Like a Platform: An inquiry into the condition of digital modernity (p. 164). Taylor & Francis.

[12] Iansiti, M. (2021). Assessing the strength of network effects in social network platforms. Boston: Harvard Business School.

[13] Dijck, J. V. (2013). The Ecosystem of Connective Media: Lock In, Fence Off, Opt Out?. The Culture of Connectivity: A Critical History of Social Media.

[14] van der Vlist, F. N., Helmond, A., Dieter, M., & Weltevrede, E. (2025). Super-appification: Conglomeration in the global digital economy. New Media & Society, 27(6), 3314-3337.

[15] Amaan. (2025) The Social Shopping Revolution: How TikTok Shop, Whatnot, and Instagram Shopping Are Redefining Retail. Canadian Digital Marketing Summit.

[16] Milmo, D. (2025) Facebook and Instagram to charge UK users £3.99 a month for ad-free version. The Guardian.

[17] Törnberg, P., & Uitermark, J. (2025). Seeing Like a Platform: An inquiry into the condition of digital modernity (p. 164). Taylor & Francis.

[18] Fitton, D. (2021) The rise of dark web design: How sites manipulate you into clicking. The Conversation.

[19] Van Bavel, J. J., Robertson, C. E., Del Rosario, K., Rasmussen, J., & Rathje, S. (2024). Social media and morality. Annual review of psychology, 75(1), 311-340.

[20] Merrill, J.B., & Oremus W. (2021) Five points for anger, one for a ‘like’: How Facebook’s formula fostered rage and misinformation. The Washington Post.

[21] Rathje, S., Robertson, C., Brady, W. J., & Van Bavel, J. J. (2024). People think that social media platforms do (but should not) amplify divisive content. Perspectives on Psychological Science, 19(5), 781-795.

[22] Koerner, B. (2023) Watch This Guy Work and You’ll Finally Understand the TikTok Era. Wired.

[23] Glatt, Z. (2022). ‘“We’re all told not to put our eggs in one basket”: Uncertainty, precarity and cross-platform labor in the online video influencer industry’. International Journal of Communication, Special Issue on Media and Uncertainty.

[24] Grady, C. (2023) How BookTokers make money. Vox.

[25] Aridor, G., Jiménez-Durán, R., Levy, R. E., & Song, L. (2024). The economics of social media. Journal of Economic Literature, 62(4), 1422-1474.

[26] (2025) Is TikTok Gen Z’s QVC? Aspire.

[27] Burris, D. (2025) How TikTok Shop is beating Amazon and Temu in the social shopping space. CNBC.

[28] Glatt, Z. (2022). ‘“We’re all told not to put our eggs in one basket”: Uncertainty, precarity and cross-platform labor in the online video influencer industry’. International Journal of Communication, Special Issue on Media and Uncertainty.

[29] Forristal, L. (2025) YouTubers aren’t relying on ad revenue anymore — here’s how some are diversifying. TechCrunch.

[30] Forristal, L. (2025) YouTubers aren’t relying on ad revenue anymore – here’s how some are diversifying. TechCrunch.