Many of the largest websites today are social networking websites with very high valuations. However, many of them make very little money and are running up huge losses. They are funded by venture capitalists, who are often unable to do an objective evaluation of the business and take the decision based on hype.
Social networking websites are based on the premise that people will spend time making friends. If you are in school, college or at job where you are underemployed, and have plenty of time , social networking is a good way to spend your time. The internet allows you to create any number of fake identities and you can pretend to be the person of your dreams.
However, it is very difficult to make money from social networking websites. Most of the profitable websites online make their money from the profit generated offline or online. The ecommerce stores make money from every sale and since the profit margins are higher online, they can spend more money on online advertising. People who frequent social networking websites usually do not have the money or inclination to make purchases online. Hence conversion rates are low, and one day, many of these websites will run out of money.