Generation MySpace is getting fed up

By Spencer E. Ante and Catherine Holahan

updated 6:30 p.m. ET Feb. 8, 2008

If you want to socialize with Chris Heritage, you won't find him on Facebook. The 27-year-old Port St. Lucie, Fla., business analyst joined the social network last year after his buddies bugged him to get an account. But he soon became fed up with the avalanche of ads, especially those detailing what his friends were buying, and he quit the site in November. Now, Heritage expresses himself through a blog, happy to pay $6 a month to publish on a promo-free Web site. "It's worth it to not have to look at the ads," he says.

Uh-oh. Social networking was supposed to be the Next Big Thing on the Internet. MySpace, Facebook, and other sites have been attracting millions of new users, building sprawling sites that companies are banking on to trigger an online advertising boom. Trouble is, the boom isn't booming anymore. Like Heritage, many people are spending less time on social networking sites or signing off altogether.

The MySpace generation may be getting annoyed with ads and a bit bored with profile pages. The average amount of time each user spends on social networking sites has fallen by 14 percent over the last four months, according to market researcher ComScore. MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December, ComScore says. The total number of people on such sites is still increasing at an 11.5 percent rate, but that's down sharply from past growth rates. "What you have with social networks is the most overhyped scenario in online advertising," says Tim Vanderhook, CEO of Specific Media, which places ads for customers on a variety of Web sites.

Advertising on social networking sites is growing fast. Last year global ad spending on these sites shot up 155 percent, to $1.2 billion, says researcher eMarketer. This year, eMarketer expects it to jump 75 percent, to $2.1 billion. During its Nov. 4 earnings call, News Corp. gave an upbeat forecast for Fox Interactive Media, which includes MySpace.

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But the forecasts for torrid growth may prove unrealistic. Besides the slowing user growth and declining time spent on these sites, users appear to be growing less responsive to ads, according to several advertisers and online placement firms. If advertisers can't figure out how to reverse these trends, social networking could end up as a niche market in the online ad world, smashing hopes and valuations across Silicon Valley.

The current strength in advertising on social networks may be exaggerated by guaranteed ad deals and hopeful experimentation. Google and Microsoft, in hot competition with each other, promised a number of sites a minimum amount of advertising revenue in exchange for the exclusive right to place ads on those sites.

But the early results from those deals are mixed. On Jan. 31, Google said it didn't generate as much revenue from social networking ads as expected. Google, which has a $900 million guaranteed deal with MySpace for placing ads alongside search results, says existing ad approaches aren't working well on social networks so far. "I don't think we have the killer, best way to advertise and monetize social networks yet," said Google co-founder Sergey Brin.

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