It's not a secret: social networking sites have a monetization problem. To the best of my knowledge all major ones including facebook, myspace, bebo, hi5, friendster etc are trying to make money from advertising. None of them have been a success story so far.
The problem is that none of these networks have made an innovation in advertising. They have huge pageviews and are using brute force to monetize:
very high pageviews X very low CPMs = unsatisfactory revenues
On the other hand, there are some not-so-mainstream players, like SecondLife, GaiaOnline, Chinese Tencent, and some Japanese ones, which successfully overcame a taboo: they're able to charge their users for value added services.
The idea is to offer users some value added services, such as a decoration to include in your homepage (that everybody knows is a paid item) or offer a paid gift to send to someone else etc. This is almost impossible to accept for some people, but there are some people who are willing to pay for these services.
Why would people pay for these? There might be many reasons (status building, time saving, visual appreciation etc) but does 'why' really matter? At the end of the day people attribute some value and do pay to these stuff. Why do some people buy anything branded when a very cheap chinese version is available at a fraction of the cost? Same story here.
Some smarter networks went beyond just offering paid content to their users: they created an economy where suppliers can be formed within their system and these suppliers can sell directly to the users. The notable example is SecondLife and its Linden Dollar based economy. Think about it: users are happy to have a choice and pay for services/e-goods, suppliers are happy and innovating more and more, the social network is happy, investors are happy...
I struggle to understand why no major social network is putting a significant effort behind this. Especially when we know there are success stories around it. I fully agree that membership should be free. But why not giving the users a choice and providing them with additional services?
Maybe the old days where charging users was a taboo have a stronger impact to today. Maybe it has to do with US culture - don't forget that Europe was significantly ahead of the game in mobile network monetization on entertainment front.
Mobile entertainment market (estimated to be $65B in 2012) was monetized much earlier and arguably better in Europe. As the two mainstream players in social setworking are US based, let us hope that social networks' fate will be different than mobile networks' in monetization.
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Further reading: On the same topic, I found the following article on how to monetize a social network very interesting too, you might want to check it out.
Photo credit: blentley
