NEW YORK: Ads on MySpace and other social networking sites make mucho moolah, no mistake. But according to a review published Wednesday by Business Week magazine, most of the folding stuff flutters into the coffers of site owners - ie News Corporation - rather than those of the advertisers.

The latter, it seems, are experiencing fast-diminishing returns on their social networking ad investments. Witness Mark Seremet, the former ceo of customized clothing company Spreadshirt, who in late 2005 and early 2006 ran ads on MySpace and Facebook.

"Somebody would get the shirt, then tell a friend," he says. "It was really an amazing change for the business."

But by 2007 when Seremet quit to join another company, MySpace's potency in terms of ad click-throughs was in dire need of a Viagra-style boost. Click-through responses s went into freefall, tumbling from a respectable 1% in 2006 to 0.1% in 2007.

"Users became more or less desensitized to the advertising," says Seremet, now president of video game publisher Green Screen. "You won't make money on it."

He is not alone in his disillusionment.

Web marketers, ranging from Google at the apex of the ad triangle to the plethora of small companies at the base, are bestrewing ad dollars on social-network sites without getting their hoped-for returns.

Google cfo George Reyes, in a conference call to analysts last week, admitted his disappointment with the results of ads placed under an exclusive deal with MySpace parent Fox Interactive Media: "We have found that social-networking inventory is not monetizing as well as expected," he complained.

He is echoed by Google co-founder Sergey Brin, who concedes that the search titan has yet to find a "killer best way" to advertise on social networks.

Web measurement specialist comScore reports that MySpace saw its US audience slip from nearly 72 million visitors in October 2007, to less than 69m in December.

Moreover, the time spent on-site also diminished in December, falling to an average of 179 minutes per visitor per month, down year-on-year by 24%.

"There's too much [advertising] when you sign on," complains MySpace user John Sigona (32) who likes the site but ignores the ads. "They don't interest me," he claims. 

But not everyone is so downbeat - notably those who continue to make money irrespective of the end result. AdBrite's vp of marketing Paul Levine, for example.

"I think it's a massive opportunity. And, like any medium, it takes a while to figure out what will work. I think it's no question it will be big business."

Data sourced from Business Week (online); additional content by WARC staff