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MySpace, once the golden standard for social networking sites, is rumoured to be teetering on the edge of bankruptcy. On June 16 the company announced plans to lay off almost 30 per cent of staffers, roughly 430 jobs.

MySpace, once the golden standard for social networking sites, is rumoured to be teetering on the edge of bankruptcy. On June 16 the company announced plans to lay off almost 30 per cent of staffers, roughly 430 jobs.

MySpace was purchased by NewsCorp in 2005 for $580 million - largely considered a bargain at the time - but since then its profile and user numbers have declined significantly. One report suggests that the number of MySpace users dropped two-thirds in the past year alone, as MySpacers likely jumped over to Facebook, Twitter and other social networking sites.

Probably the real reason MySpace had to cut staff is that after all these years NewsCorp hasn't found a way to make social networking profitable, while the company is also struggling to keep its newspapers and networks afloat in the digital age. MySpace does sell some ads, but that revenue never quite covered the costs of hosting a massive network of personal pages, fending off lawsuits, monitoring content and keeping their product up to date.

A lot of networkers clearly prefer Facebook, which has a cleaner, more organized feel and offered a lot more functionality from the get-go. Truth be told, some of the ugliest personal profiles I've ever seen were on MySpace. Facebook doesn't have that problem because there aren't too many ways to customize your home page, and everybody's locked into that cornflower blue-on-white template. Facebook figured out, like Apple did, that people prefer simplicity.

But Facebook was reportedly losing users to a higher degree of simplicity and the rise of Twitter, which in turn prompted a massive Facebook redesign that emphasized status comments over other personal information in order to appear more like Twitter.

Meanwhile the number of Twitter users has exploded recently, reportedly doubling last March alone after getting some time on Oprah, but the number of repeat users - people logging on a second time - is still only in the 40 per cent range. People either don't get it, or they do get it and just aren't that impressed.

Now Twitter and Facebook are hitting the same wall as MySpace, Second Life, YouTube and many others in the social networking industry - how do you cover your costs and turn a profit when you're offering people a free service? Advertising is basically the only avenue at this point, but it doesn't really pay the bills fast enough for investors. To make matters worse, users rarely click on ads, and there is a limit to how many ads you can place on a page before a social networker will log out for good amid cries of "sell out!"

Facebook's newest strategy - creating an onboard search engine that links to other Facebook pages belonging to advertisers - places them in direct competition with Google, which somehow continues to make huge profits selling sponsored links as the default browser for more than 90 per cent of computer users.

It also happens to be the same strategy of Microsoft, Yahoo!, AOL, Google and every blog, media website and browser in the world. But the fact of the matter is that there are not enough online advertising dollars out there these days for all these online entities to thrive - not with television, radio, satellite radio, newspapers, magazines, billboards, video games, etc. competing for their slice of the pie.

Meanwhile there's a certain amount of pressure for companies, especially in media, to keep up with the times, but in a way it's the Internet equivalent of jumping on your horse and galloping madly off in all directions (with apologies to Stephen Leacock). If your company tried to stay current you would have a web blog you don't update as frequently as you meant to, a MySpace page nobody visits, a Facebook page that requires constant upkeep, a bleak storefront on Second Life that naked avatars fly by, a Twitter account that it's somebody's job to update every two hours, and someone on the payroll whose entire job is making sure your website ranks higher than your competitors' in browser search rankings. All in a bid to appear current and relevant to a next generation that doesn't seem to care what you do, and that is cynical enough to see your social networking presence as what it is.

It's a complicated issue. These free services cost money to provide, while at the same time they offer a new way for advertisers to connect directly to the dream "wired" demographic.

Where it fails is that the companies that underwrite this great social experiment have a hard time leveraging the network to create customers. The more they intrude on the conversation the more people will block them out.

The solution is for companies to take a serious look at what they hope to accomplish through social networking, and to find small but meaningful ways to measure success and failure. Is your presence about making sales, educating consumers, or creating name recognition in a crowded marketplace?

It's not enough merely to have a space online, and to be seen using the latest technology. People might sign up for Tweets about snow conditions on Whistler Blackcomb, for example, but they might recoil if every other tweet was an advertisement for discount room rates in the resort. Your online presence should accomplish something and it should be useful to the people who tolerate it. You need to do more than just show up.

This is all very new, and exciting in a way, but there are so many questions to answer - including questions about the long-term financial stability of the social networks themselves. While the concept has potential, at this point it remains just a concept.