The last few years have witnessed a new trend in the virtual world of Internet. Following the standalone personal and corporate websites that picked up in the 1990s, the internet users have embraced a new community – the online one, where they can interact with a large number of people and where they can together contribute to the creation of new content and share it with others, being both the users of information and its producers. A big wave of social networking sites hosting huge volumes of user-generated content (UGC) currently represents “the next big thing” in online business.

This phenomenon even has its own “hi-tech” name: “Web 2.0”. According to the Wikipedia, the term “Web 2.0” refers to “a perceived or proposed second generation of Internet-based services – such as social networking sites, wikis, communication tools, and folksonomies – that emphasize online collaboration and sharing among users”.

The scale of this phenomenon can be illustrated by statistics published by Internet metering agencies. Thus, in May 2006, Nielsen//NetRatings announced that April’s top 10 social networking sites collectively had grown 47% year over year, increasing from an unduplicated unique audience of 46.8 million one year earlier to 68.8 million in April 2006, reaching 45% of active Web users. Nielsen//NetRatings’ senior director of media Jon Gibs compares social networking sites to reality TV on the Internet: “The content is relatively inexpensive for publishers to produce, and social networking is not a fad that will disappear. If anything, it will become more ingrained in mainstream sites, just as reality TV programming has become ubiquitous in network programming”.

Top 10 Social Networking Sites for April 2006 ( U.S., Home and Work)

Source: Nielsen//NetRatings, May 2006, http://www.netratings.com/pr/pr_060511.pdf

Obviously, the sheer outreach of these websites suggests that these websites hold a huge potential for profits. A number of deals shook the market in the recent years, such as the purchase of MySpace by the News Corp. for $580 million in 2005, or the purchase of YouTube by Google for $1.65 billion in November 2006. Obviously, the acquiring companies must have big plans for these websites.

However, social networking websites are not as easy to deal with as it may seem at first glance. This report is an attempt to analyse the challenges lying before the owners of social networking websites in their quest to turn traffic into big bucks.

Next: Web 2.0 - Social Networking Websites: Potential Revenues

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