Nothing in the online advertising space has attracted more attention recently than the phenomenon of social networking. And judging by the audience numbers for these online communities, nothing probably could. (Well, if Tom Cruise and Katie Holmes began renting out ad space on baby Suri’s Pampers, perhaps.)

The news tap started to flow with the announcement early in August that Google will provide search services, including search ads, to MySpace, by far the biggest fish in the social networking pond. For that right, Google will pay MySpace owner News Corp. a minimum of $900 million between 2007 and second-quarter 2010, as long as MySpace meets certain traffic targets. Beyond that minimum payment, the two will share ad revenue from the site.

It’s a large deal and points to a validation of social networks as ad vehicles; but what it means for the rest of the space is still far from certain. MySpace occupies a place of its own in the social-networking hierarchy by virtue of its astounding growth over the past year. Hitwise reported in July that traffic to the MySpace site had increased 132% from the year before, making it the most popular single Web site in the U.S. More people went to MySpace than went to the Yahoo! Mail Web site — although Yahoo! was quick to point out that its mail site is only part of a whole portal.

But MySpace isn’t the only social network around, although most of the others haven’t seen anything like its stratospheric growth. These include pure-play online communities such as Facebook, Friendster, Bebo and Tagworld; Web sites that include social networks as one part of their offering (MSN Spaces, AOL’s AIM Pages, YouTube and Flickr); and vertical networks targeting a particular community, such as Whyville (kids), Boompa (car enthusiasts) and Catster (yes, cat lovers). Some of these sites are corporate-sponsored: Sheraton Corp. runs Shareandbelong.com, a site where members can share travel stories to win vacations, and Nike underwrites Joga.com, a soccer-themed social site born before the World Cup and still running.

At least some of these sites are growing like crazy. Nielsen//NetRatings reported that photo sharing sites ImageShack and Flickr increased monthly unique visits more than 200% from July 2005 to July 2006, from the 2.2 million range to 7.7 million and 6.3 million respectively. MySpace couldn’t match that vigor and only increased uniques 183% during that year — but went from 16.2 million in July ’05 to 46 million a year later.

The ad model for social networks is almost totally in play, as sites roll out a range of marketing opportunities to see what will succeed. Some marketers, particularly those with movies, games or recording artists to push, are creating profile pages within these networks to promote their wares. Others are buying display ads from the networks themselves or from third-party ad networks. Some are sponsoring promotions or specific content areas with prominent branding. Still others are seeing their ads delivered through run-of-site placements through ad networks. And of course, search advertising is on the way, thanks to the Google-MySpace deal and one that followed almost immediately after between Microsoft and Facebook.

An August report from marketing research firm eMarketer (prepared before the Google-MySpace deal announcement) estimates that U.S. marketers will spend $280 million on advertising on social networks this year, or about 1.7% of all online ad spending in the U.S. That amount will grow to $1.9 billion and 6.3% of ad spend by 2010.

The eMarketer report was published just before the Google-MySpace and Microsoft-Facebook deals were announced. But its author, senior analyst Debra Aho Williamson, says the Google deal in particular makes search marketing “the biggest wild card in social network advertising.”

“Google has a lot to offer MySpace beyond just text ads,” she says. “It wants to sell other types of advertising, such as display ads, and the deal will provide that opportunity. It has a fledgling e-commerce operation in the form of Google Checkout, and I firmly believe MySpace is going to integrate more areas of e-commerce in the future. So that was a very important deal for both companies, both tops in their respective categories.”

One thing that makes social networks enticing is that these networks already send a lot of traffic to the search engines. Hitwise found that more than 10% of Google’s traffic for the week of July 1 2006 came from MySpace, up from 8.2% in May. And comScore qSearch estimates that MySpace saw 0.7% of total U.S. searches in May 2006.

So these social-net users are searching, and — in theory, at least-they should therefore be as amenable to keyword-related search ads as users on the general Google or Yahoo! search sites. And many of those searches come with an intention to buy: Hitwise found that for the week ending August 26, MySpace was responsible for referring 2.53% of all traffic to shopping sites, up from 1.28% six months earlier. Most prominent among those sites were the big names in e-commerce, including eBay, Amazon.com, Gateway, Walmart.com and Craigslist.

How well pay-per-click ads will work in the social context remains to be seen. Seb Bishop, president and CMO of MIVA, which runs its own contextual ad network, says that performance ads in communities such as MySpace might need an overlay of demographic targeting to make them truly relevant — a problematic need, given concerns over privacy within the communities.

“How will [Google] actually display the right ad to the right user at the right time?” Bishop asks. “You’ve got to make sure that you have that information in that user profile, which is very difficult to get, thanks to the likes of [New York state Attorney General Elliot] Spitzer out there making sure that you can’t get a hold of that information. But without that demographic profile information, it’s going to be a challenge to make sure that the ads convert as well for their advertiser base as those on the core Google network.”

But social networks have learned that they have to be careful about making use of the often quite extensive profile information they get from their members. Paradoxical though it may be, many of the same users who think nothing of posting personal details on their pages get vigorously protective if they find that information being used in ways that violate their privacy. Facebook recently caused a furor among its members by rolling out a service that notified members when their friends’ pages were updated with new content. As many as 500,000 users signed petitions calling for a removal of the feature as intrusive on their rights to their content. (Within days, Facebook announced the addition of privacy settings to the feed service, and that countermove seems to have quieted the complaints.)

There are other issues to confront before social networks gain wide acceptance as marketing platforms. Williamson points to marketers’ natural hesitation about inserting their brands and messages into an environment that’s built on uncensored content and free expression. “This is not an environment for the cautious marketers, the ones with 150 years of brand image to protect,” Williamson says. “Some companies are going to be totally horrified by the free flow of opinion that occurs on MySpace and networks like it.” Editorially controlled areas exist on most of these networks, but appearing in only those safe spaces risks limiting access to the broader membership.

Brand hijacking can also be a problem in the community-generated content on these networks, she points out. “A lot of member sites feature Pepsi brands or product images, but which are officially sanctioned by Pepsi? It’s very hard to tell. And I’m sure you could find pages on MySpace that show the Burger King in compromising situations.”

And there’s also the question of how advertisers will measure the effectiveness of their campaigns on social networks. At this early stage, most simply point to the number of page impressions they’ve received or the number of in-network “friends” who’ve linked to their pages. But those links can be automated through “adder” software, making the friend count yet another spammable performance metric. Over time, advertisers and social networks will have to come up with better yardsticks for tracking the results of messaging to these online communities, Williamson says.

But if their biggest fears about social networking can be allayed or even just mitigated, chances are good that advertisers will hold their noses and try at least an exploratory plunge into the medium. After all, MySpace accounted for 14.6% of all online ad impressions last May, according to Nielsen//NetRatings. That makes social networkers the kind of company advertisers of all stripes would like to keep.

Nothing in the online advertising space has attracted more attention recently than the phenomenon of social networking. And judging by the audience numbers for these online communities, nothing probably could. (Well, if Tom Cruise and Katie Holmes began renting out ad space on baby Suri’s Pampers, perhaps.)

The news tap started to flow with the announcement early in August that Google will provide search services, including search ads, to MySpace, by far the biggest fish in the social networking pond. For that right, Google will pay MySpace owner News Corp. a minimum of $900 million between 2007 and second-quarter 2010, as long as MySpace meets certain traffic targets. Beyond that minimum payment, the two will share ad revenue from the site.

It’s a large deal and points to a validation of social networks as ad vehicles; but what it means for the rest of the space is still far from certain. MySpace occupies a place of its own in the social-networking hierarchy by virtue of its astounding growth over the past year. Hitwise reported in July that traffic to the MySpace site had increased 132% from the year before, making it the most popular single Web site in the U.S. More people went to MySpace than went to the Yahoo! Mail Web site—although Yahoo! was quick to point out that its mail site is only part of a whole portal.

But MySpace isn’t the only social network around, although most of the others haven’t seen anything like its stratospheric growth. These include pure-play online communities such as Facebook, Friendster, Bebo and Tagworld; Web sites that include social networks as one part of their offering (MSN Spaces, AOL’s AIM Pages, YouTube and Flickr); and vertical networks targeting a particular community, such as Whyville (kids), Boompa (car enthusiasts) and Catster (yes, cat lovers). Some of these sites are corporate-sponsored: Sheraton Corp. runs Shareandbelong.com, a site where members can share travel stories to win vacations, and Nike underwrites Joga.com, a soccer-themed social site born before the World Cup and still running.

At least some of these sites are growing like crazy. Nielsen//NetRatings reported that photo sharing sites ImageShack and Flickr increased monthly unique visits more than 200% from July 2005 to July 2006, from the 2.2 million range to 7.7 million and 6.3 million respectively. MySpace couldn’t match that vigor and only increased uniques 183% during that year—but went from 16.2 million in July ’05 to 46 million a year later.

The ad model for social networks is almost totally in play, as sites roll out a range of marketing opportunities to see what will succeed. Some marketers, particularly those with movies, games or recording artists to push, are creating profile pages within these networks to promote their wares. Others are buying display ads from the networks themselves or from third-party ad networks. Some are sponsoring promotions or specific content areas with prominent branding. Still others are seeing their ads delivered through run-of-site placements through ad networks. And of course, search advertising is on the way, thanks to the Google-MySpace deal and one that followed almost immediately after between Microsoft and Facebook.

An August report from marketing research firm eMarketer (prepared before the Google-MySpace deal announcement) estimates that U.S. marketers will spend $280 million on advertising on social networks this year, or about 1.7% of all online ad spending in the U.S. That amount will grow to $1.9 billion and 6.3% of ad spend by 2010.

The eMarketer report was published just before the Google-MySpace and Microsoft-Facebook deals were announced. But its author, senior analyst Debra Aho Williamson, says the Google deal in particular makes search marketing “the biggest wild card in social network advertising.”

“Google has a lot to offer MySpace beyond just text ads,” she says. “It wants to sell other types of advertising, such as display ads, and the deal will provide that opportunity. It has a fledgling e-commerce operation in the form of Google Checkout, and I firmly believe MySpace is going to integrate more areas of e-commerce in the future. So that was a very important deal for both companies, both tops in their respective categories.”

One thing that makes social networks enticing is that these networks already send a lot of traffic to the search engines. Hitwise found that more than 10% of Google’s traffic for the week of July 1 2006 came from MySpace, up from 8.2% in May. And comScore qSearch estimates that MySpace saw 0.7% of total U.S. searches in May 2006.

So these social-net users are searching, and—in theory, at least-they should therefore be as amenable to keyword-related search ads as users on the general Google or Yahoo! search sites. And many of those searches come with an intention to buy: Hitwise found that for the week ending August 26, MySpace was responsible for referring 2.53% of all traffic to shopping sites, up from 1.28% six months earlier. Most prominent among those sites were the big names in e-commerce, including eBay, Amazon.com, Gateway, Walmart.com and Craigslist.

How well pay-per-click ads will work in the social context remains to be seen. Seb Bishop, president and CMO of MIVA, which runs its own contextual ad network, says that performance ads in communities such as MySpace might need an overlay of demographic targeting to make them truly relevant—a problematic need, given concerns over privacy within the communities.

“How will [Google] actually display the right ad to the right user at the right time?” Bishop asks. “You’ve got to make sure that you have that information in that user profile, which is very difficult to get, thanks to the likes of [New York state Attorney General Elliot] Spitzer out there making sure that you can’t get a hold of that information. But without that demographic profile information, it’s going to be a challenge to make sure that the ads convert as well for their advertiser base as those on the core Google network.”

But social networks have learned that they have to be careful about making use of the often quite extensive profile information they get from their members. Paradoxical though it may be, many of the same users who think nothing of posting personal details on their pages get vigorously protective if they find that information being used in ways that violate their privacy. Facebook recently caused a furor among its members by rolling out a service that notified members when their friends’ pages were updated with new content. As many as 500,000 users signed petitions calling for a removal of the feature as intrusive on their rights to their content. (Within days, Facebook announced the addition of privacy settings to the feed service, and that countermove seems to have quieted the complaints.)

There are other issues to confront before social networks gain wide acceptance as marketing platforms. Williamson points to marketers’ natural hesitation about inserting their brands and messages into an environment that’s built on uncensored content and free expression. “This is not an environment for the cautious marketers, the ones with 150 years of brand image to protect,” Williamson says. “Some companies are going to be totally horrified by the free flow of opinion that occurs on MySpace and networks like it.” Editorially controlled areas exist on most of these networks, but appearing in only those safe spaces risks limiting access to the broader membership.

Brand hijacking can also be a problem in the community-generated content on these networks, she points out. “A lot of member sites feature Pepsi brands or product images, but which are officially sanctioned by Pepsi? It’s very hard to tell. And I’m sure you could find pages on MySpace that show the Burger King in compromising situations.”

And there’s also the question of how advertisers will measure the effectiveness of their campaigns on social networks. At this early stage, most simply point to the number of page impressions they’ve received or the number of in-network “friends” who’ve linked to their pages. But those links can be automated through “adder” software, making the friend count yet another spammable performance metric. Over time, advertisers and social networks will have to come up with better yardsticks for tracking the results of messaging to these online communities, Williamson says.

But if their biggest fears about social networking can be allayed or even just mitigated, chances are good that advertisers will hold their noses and try at least an exploratory plunge into the medium. After all, MySpace accounted for 14.6% of all online ad impressions last May, according to Nielsen//NetRatings. That makes social networkers the kind of company advertisers of all stripes would like to keep.