Social Sites May Find Monetization Difficult

A new study by Parks Associates indicates that attempts at monetizing social networking sites may backfire, leaving providers with few options to generate revenue from their users.

The findings may also reflect a broader issue among service-based websites where consumers are increasingly turning away from fee-based services in favor of free ad-supported ones.

For example, the New York Times recently ended its TimeSelect premium service and opened up most of its archive to the public web. Rupert Murdoch has even said he is considering opening up the Wall Street Journal's Web site and ending the premium service there.

The main demographic for social networking continues to be the 18-25 age set, research firm Parks Associates says. According to their findings, four out of every five broadband users in this demographic use some type of social networking site on a regular basis.

However, making money from this potentially lucrative group of consumers could prove difficult. When asked if they would continue to use a social networking site even if it charged a fee as little as $2 per month, 72 percent said it would be enough to make them stop using the site.

Almost two out of five would stop using the site if it contained heavy advertising. That is an interesting problem: for many of these sites, those ads are a primary source of revenue.

However, at the same time, being a large social network is not necessarily a good thing when it comes to adverting, especially if it has broad appeal, Parks Associates research director John Barrett said. Advertisers obviously look to target lucrative demographics, and some sites may not be able to deliver this.

"Sites aren't able to sell a hodgepodge mix of consumers for very much," Barrett said. "It's one size fits nobody."

There seem to be some positives for the industry in the study however. Only six percent of those surveyed said that they were tired with the social networking site they used most and were ready to switch, while only 26 percent said they would stop using a site if their friends were not on it.