You might wonder how social networking sites, such as MySpace and Facebook make a profit when they do not charge their users? While other networks, including LinkedIn and Ryze have "value" paid memberships as an option which has attracted professionals who have the kind of income to afford monthly dues, for free social networking sites cater to a different demography altogether.

In fact, studies have shown that majority of the users on free networking sites would discontinue the use of sites if they were required to pay dues. While the obvious answer to profiting from such sites would be advertising, studies have also shown that users would stop visiting sites which had excessive advertisements. If you are a business looking to utilize social networking for profit, there are a few things to bear in mind.

First and foremost, if you are looking to advertise your business on social networking sites, consider the demography. Clearly MySpace and Facebook target the young generation and youth. Do you have a niche product/service that caters to this group? If so, through niche marketing, advertising on these sites could mean handsome rewards and growth. Furthermore, customers would react positively to such advertisements because it relates to them and their lifestyle.

Advertising aside, many companies have, in essence, become users of popular networking sites. Companies have created profiles and used this as a medium to build customer-relationships through discussions and dialogues. In fact, this interaction has become personal and unlike the past where the product did the talking, now businesses are doing much more in creating a long-term relationship by getting their customers involved.

How does this translate to profit? Customers are more engaged or prone to purchase products from a company that takes the extra mile in developing a relationship versus a company that doesn’t. Along these lines, companies have also incorporated creative promotions and contests online to keep customers engaged.

Taking it a step further, companies have also started experimenting by creating their own social networking sites. Intel, for one, has launched Open Port to test the market. It carries the same principles as MySpace, enabling users to create profiles, share content and network. While there isn’t anything new, it helps "Intel customers" or avid buyers of the product to log-on and establish their network. Here, profit is attached to customer views on the product and the influence customers have on the decision-making power of their network to purchase the products.

The concept of profiting from Social networking is really a Catch 22 – to make money, you need advertisements or paying users but in doing so, networking sites can lose traffic and customers. It depends on your target demography and your niche. If you can develop a social networking site that is in demand and targeting members who are willing to pay, than you can become a profitable company by having a large network of paying members. If you choose to have a free site, you can attract advertisements that make sense for your demography.

Clearly, there are other avenues and it takes innovation and creativity from the part of the business. LinkedIn for instance has become a source of recruitment and is considering charging companies that hire from the network. There are no-short of strategies to steer a company to profitability in social networking but creativity is key.