Social Networking Sites

The Economist writes:

After plenty of initial scepticism, investors now accept that MySpace and its rivals can make a lot of money by selling advertising space. Advertisers were wary of putting ads on individual home pages, which often feature lewd and unpredictable content. But they cannot ignore the fact that millions of young people spend hours on these websites.

The question for MySpace, says Mr Werbach, is whether it can grow into a business on the scale of Yahoo!, eBay or Amazon. Pali Research, an independent research firm in New York, estimates that MySpace had revenues of $150m and made a loss of $50m in the year to June 2006, after making payments to its founders. Pali predicts $300m in revenues and profits of $200m in the year to June 2007, excluding revenue from its deal with Google. Like other social-networking sites, MySpace has not had to advertise itself, and its users provide most of its content, which should produce profit margins.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.