A lot has been said about the continued rise of social networking websites and their influence on the internet as a whole. With Facebook continuing to storm ahead around the globe, and MySpace still possessing massive traffic levels, social networking websites seem to be increasingly generating massive levels of traffic levels.
Despite the huge growth in social networking traffic and visitors, the revenue models for social networking websites is still very much on shaky ground. Quite simply, and ideal business model has yet to be established.

In 2006 and 2007, big things were predicted for the social networking sites. Yet the companies that invested on the hope of that idealistic wave are now finding out that monetizing that traffic is less than easy.

Similar to other multi-national corporations this year, NEWS Corporation reported a first half net loss of $US5.9 billion ($9.19 billion) due to a $US8.4 billion write-down on Dow Jones and other assets. MySpace, which is part of Fox Media (owned by News Corporation), didn’t fare much better: in the most recent quarter, Fox Interactive Media posted revenues of $226 million, down 3 percent over the same quarter a year earlier; operating income was $7 million. Clearly the MySpace acquisition is not reaping the big rewards for Rupert Murdoch (or even small ones, it seems).

One problem (of many) with social networking websites such as MySpace and Facebook is they do not provide a receptive audience to advertisers. Quite simply, the end-users of these websites are there to socialise and interact with friends, not to go window shopping or even consider any sort of digital sale. As any online marketer will tell you, CPM and CPC rates on social networking sites are ridiculously low, and are only going to go lower during the current financial crisis. There’s a reason for this: the conversion ratios are absolutely terrible, of course before the conversion stage you at least need to get some click throughs, and social networking sites are also notorious for their completely dismal click through ratios (CTRs) as well.

So while they possess huge amounts of visitors and page impressions, social networking sites have yet to figure out how to make a viable business model of it all. Until some bright spark finds a way to monetize that traffic and actually help companies drive online/digital sales, social networking sites will continue to struggle to attract advertisers and their bottom lines will continue to run flat.