Stormy future ahead for Facebook and MySpace

Social-networking sites will enlist 230 million active members by the end of the year and will keep attracting new users until at least 2009, according to an analyst report. But investors are still wary -- and for good reason, as long-term growth is by no means certain.

A report by analysts Datamonitor, titled The future of social networking: Understanding market strategic and technological developments, predicts that growth in the number of people signing up to social networking sites will peak by 2009 and plateau by 2012.

It also suggests revenues from social-networking services will hit US$965 million this year, swelling to US$2.4 billion by 2012.

Growth in the membership of social-networking sites varies dramatically by region, according to the analysts, which predicts Asia Pacific will account for 35 percent of global social networking users by the end of this year, followed by EMEA (28 percent), North America (25 percent), and the Caribbean and Latin America (12 percent).

However, while Datamonitor likens the current hype and excitement around social networking to the heady days of the dot-com boom, it says there is anxiety as well, and warns that investors are pulled in two directions: they do not want to miss out on the "next Google or Yahoo" but are cautious of being overconfident about a Web phenomenon that is not proven over the long term.

Mos social-networking sites should therefore postpone an IPO, said the analyst.

Speaking at a Web 2.0 conference in the US recently, Mark Zuckerberg, founder and chief executive of Facebook said his company is "years" away from such a flotation.

Ri Pierce-Grove Technology, analyst at Datamonitor and author of the report, said in a statement: "The extraordinary proliferation of online social networks is fuelled by real innovation and is substantially changing the way we communicate. However, the hothouse atmosphere of easy capital, media attention and user curiosity which stimulates creativity will not be sustained indefinitely."

The analyst added that players must develop a "two-pronged strategy in order to survive the extremes of heat and eventual chill which this market will undergo."

Datamonitor said the current growth in social networking offers opportunities for businesses to get involved in supporting the infrastructure needed to run such sites, and it advises technology providers to look for ways to support social-networking services.

The analyst also takes the view that consolidation in the marketplace is likely as it becomes more crowded.