Will social networking ever make significant profits?

Assuming several more years of loss-making, is social networking a bubble that will burst, or will it become the equivalent of a public service on the internet – or, perhaps more likely, serve as a loss leader to pull users into the arms of a multinational’s assorted goods and services? For now, the race to monetise continues. Backed by the Murdoch empire, it should be no surprise that MySpace appears to be leading the way with an aggressive advertising strategy, and while Facebook sprawls ever outward, moves toward targeted advertising provoke user ire.

Twitter makes no profit, and it’s thought that Google’s YouTube will lose half a billion dollars in 2009. There’s a reason for this – who wants to advertise next to a user-generated video of a man eating an entire tub of ice cream? The storage space for photos puts considerable strain on Facebook’s finances, so the price for all that video must be pretty steep for Google (but with profits at $1.42 billion for the first quarter of 2009, it can bear it better).

All this leaves social networking firms with the same problem as newspapers – how to monetise content. And how not to sell your customers down the river in the process, so undermining trust in what is an increasingly personalised service. After all, it’s this direct contact that people so value in social networks – who wants the adverts to get in the way?

For the stars on Twitter, it’s the direct contact they value with fans, without the ‘filter’ of the media. This has its own entirely unfinancial problems. Speaking on Larry King Live after Ashton Kutcher’s Twitter ‘victory’ over CNN, Sean Combs praised this lack of filtering, then confessed to doing some of his own by blocking all the ‘negative’ people who commented on his tweets. There’s also how easy it is to ‘pose’ as celebrities on Twitter, something that seems hard to solve without a third party who knows them personally, or some kind of invasive personal identity verification at source.

In this quest for profits, there are two ends of a scale to slide between – advertising and subscription – at least for now. It will be interesting to see if these digital pioneers come up with something different, as considering the amount of money that’s being thrown around in tough times, there must be a lot of very confident people out there, somewhere. Should we just remember that most start-ups take a while to earn? Speculate to accumulate, etc.