Can social networks make money?

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: When they’re labeled as “social,” why do you want social networks to turn commercial? But marketers will leave no stone unturned to milk every Internet surfer who enters a social network—even inadvertently. But success is miles away. Why? Because the online social networking properties don’t have any underlying business model.

Today, the Big 2—MySpace and Facebook—together have over 100 million global users, but their ad revenues are pathetically low. Web market researcher eMarketer estimates that US advertisers will spend $755 million on MySpace and $265 million on Facebook this year. Dozens of other social networks in the world will get only tiny slivers. Even in the entire US market that holds maximum potential, social network ad spending is expected to stay low and eMarketer estimates that it would reach $2.6 billion by 2012 from this year’s projection of $1.4 billion.

True, the overall online ad market itself is too sluggish—just $30 billion or 6% of the global ad spending. But social networks that could succeed in quickly attracting millions of consumers have so far failed to translate online population to profits. So their share in the online ad business is just 4%, assuming that they’re earning a little over $1 billion at present.

Why this drought? Mainly because marketers thought that ad revenues will be directly proportional to the number of eyeballs. That may be true in certain consumer categories, but not for gullible youngsters on whom most social hangouts are dependent. But either by choice or under some compulsion, marketers have been ignoring consumers’ behavior while selling ads on social networks.

When these consumers visit social networking sites, they’re least interested in displayed ads. They’re basically part of online social utilities because they’re offered free. And as they want to be quickly in touch with their remote counterparts, they just don’t want to be distracted by any kind of ads. Plus, most of them are not logging in regularly; they’re inactive. The active ones keep hopping from webpage to webpage, without caring for advertisers’ messages. Clearly, if social networks are about such a chaotic scramble, number of members with them can’t be the right indication to judge a site’s popularity.

As marketers have been turning a blind eye to these factors, the fiscal results are lackluster. But now commercial pressures are forcing vendors to transform and refurbish these virtual networks to face the harsh market reality. Traditional sites are fast adopting new tech platforms to chase consumers with ads. Thus starts the Social Networking 2.0 era.

Mobile social networks are among the emerging trends. Nielsen Mobile, says that the UK leads Europe in mobile social networking. Its findings reveal that in the UK, nearly 810,000 mobile subscribers (or 1.7% of all mobile subscribers in the country) visited social networking websites every month on their mobile phones in the first quarter of 2008. That reach percentage was twice as high as it was in other major European markets—though similar to the US, where 1.6% of all mobile subscribers (4.1 million in all) accessed social networks with their phones in December 2007.

Obviously, mobile players are aggressive. Nimbuzz, a mobile communications company, has started offering an application to provide mobile users in the UK with free calls, chat, etc. Covering 23 social networks, including Facebook and MySpace, the solution is for free mobile VoIP calling, conference calling, instant messaging, chat and group chat. Likewise, targeting European customers, T-Mobile and Nokia have recently decided to promote new Internet services and personal social communities on mobile devices.

These efforts aim to extract some bucks from financially dormant social networks, which are otherwise facing existential crisis. Will marketers succeed?