Social Networks Are Big, And Commercial Failures (TWX)(GOOG)(YHOO)(MSFT)

The most provocative question about huge social networks like MySpace, Facebook, and YouTube is whether they will ever make money despite the tens of millions of users that they have.

The money that these sites have been able to get from advertising and marketing sources so far has been very modest. Press reports say that Facebook will only have about $500 million in revenue this year, a disappointment given its size.

A news study indicates that people using social networks rarely turn to them for buying decisions, a fact that undermines their usefulness to marketers.

According to research firm Knowledge Networks, 83% of the Internet population ages 13 to 54 engage in the use of social networks. The sample includes 27 sites with the largest being Facebook, MySpace, YouTube, Digg, and LinkedIn.

The report on social network use says that “less than 5% of social media users regularly turn to these sites for guidance on purchase decisions in any of nine product/service categories.” These include travel, banks and financial services, clothing, restaurants, personal care items, cars and trucks, cell phones, groceries, and drugs.

The reports also says, “In addition, only 16% of social media users say they are more likely to buy from companies that advertise on social sites.”

The research is further confirmation that large social media sites will have significant trouble getting online advertising share from properties like MSN (MSFT), Yahoo! (YHOO), Google (GOOG), and AOL (TWX).

Douglas A. McIntyre