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A Puzzle to Monetize Social Networking Sites

Few U.S. consumers are willing to pay a modest monthly fee to use social networking sites, according to "Digital Media Habits II" -- a market study by Parks Associates.

This online survey of Internet users found 72 percent of social networking users would stop using a site if required to pay a $2 monthly fee. Likewise, nearly 40 percent would stop if a site contains too many advertisements.

These findings clearly present a puzzling challenge to the companies competing in the social networking space.

Parks Associates found 80 percent of broadband users ages 18-25 use these sites on a monthly basis; however, monetizing these users is proving to be difficult, with even category leaders such as MySpace struggling to create significant profits.

"Having a big base of loyal users is not enough," said John Barrett, director of research at Parks Associates.

To really succeed, social networking sites must consistently deliver to advertisers a desirable consumer demographic -- preferably when they are about to make a purchase decision. For example, a site devoted to car buyers presents obvious advertising opportunities while sites with broad appeal are too watered down to command a premium.

"Sites aren't able to sell a hodgepodge mix of consumers for very much," Barrett said. "It's one size fits nobody." Therefore, perhaps segmentation and targeting strategies are the key to this monetization puzzle.

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