Social networking sites miss out on advertising

Social networking sites including MySpace and Facebook have not yet realised their full potential as advertising media, experts report.

Analyst firm IDC said that social network operators are only beginning to learn how to monetise their services, and that few offerings currently generate income in proportion to the media attention they receive.

However, the popularity of social networks will eventually translate into revenues. IDC estimates that social networks made about $400m in revenues in 2006, but could make as much as $1bn this year.

To generate new revenues in the future, the analyst firm expects that most social network services will employ a mix of business models, including advertising, subscriptions and e-commerce.

Of these three models, only advertising scales well enough to make social networks interesting for portals and major media companies.

So far, however, IDC noted that little advertising can be found on social networks. And while the issues underlying slow ad sales may eventually be solved, some services may never be able to attract brand advertisers on a large scale.

"Social networks cannot guarantee a brand-safe environment. Advertisers do not want to see their ads displayed alongside illicit content, for example," said Karsten Weide, programme director for IDC's Digital Marketplace: Media and Entertainment.

"The dilemma for social networks is that, if they start to control what content users can post, they will lose the popularity that attracted advertisers in the first place."