Social networks need to be useful to make some money

Instead, the key to the future of these Web sites may lie in more practical functions, such as making plans, booking tickets or checking stock quotes.

"Right now, the big challenge for social networking services is finding a way to simultaneously encourage user loyalty and revenue growth," said analyst Ri Pierce-Grove of research firm Datamonitor.

Simply put, if people do more things on social networks, they stay online longer, share with friends and reveal more about their tastes and habits, allowing advertisers to better focus their messages. Advertisers usually pay sites based on the number of times an ad is clicked, and people are more likely to do that if the ad is specifically targeted to them.

Market research firm eMarketer predicts that U.S. advertising spending on social networks will exceed US$1.6 billion this year as the sites and companies that make applications for them push to harvest more personal information posted online, then sell it to advertisers.

But the search for the best way to do so is still on.

Advertising on Google Inc's social networks, including a partnership with MySpace, brought lower-than-expected revenue in the fourth quarter, company co-founder Sergey Brin said on a conference call in January.

"I don't think we have the killer best way to advertise and monetize social networks yet," he added.

Meanwhile, people may be tiring of the activities that social networks do offer.

Although these sites have added thousands of members in the past year, comScore data show that fewer people are signing on, and members are visiting their profiles less.

For instance, the number of U.S. visitors on MySpace fell to 68 million in February from about 72 million in October, while the average time people spent on their Facebook profiles dropped to 161.3 minutes from 195.6 minutes.

This indicates U.S. social networking is at the "mature stage of the growth curve," comScore spokesman Andrew Lipsman said.

Part of what made social networks popular are widgets. One of these small programs, "Vampires," lets members virtually "bite" friends. Another application allows people to virtually prod their friends by sending a message that they've been "poked."

Millions of people got hooked on these widgets, creating a new audience -- and potentially a new market -- for advertisers hoping to tag their messages to these applications.

The excitement around widgets touched a high point in January when Slide Inc, which makes a tool that lets people create slide shows and put them up on any social network, secured US$50 million from large institutional investors. That is far more than the median venture financing amount of US$5 million for Web 2.0 start-ups in 2007, according to Dow Jones data.

But some wonder whether squeezing sustainable cash from this audience will require more than fun and games.

"I think (investors) are going to lose of lot of money," said Charles Moldow, general partner of venture capital firm Foundation Capital. The widgets currently in fashion are very "lightweight" and do not command the loyalty of their audiences, he said.