The most important lesson I learned when I had my first business in college was that advertising can be viewed as one entire stream of income, from the very beginning of interacting with a customer to an actual sale. When somebody sells ads on a site, or otherwise generates traffic, really what they are doing is making money so somebody else can make more money later on down the line in the sales channel.
Even though I did very well selling mortgage leads, somebody at the end was making a lot more money than I was per lead. They were making several thousand dollars for each loan closed, and could close a good percentage of them because my leads were fresh and unique. Before my business failed due to petty legal reasons, I changed my major in college to Real Estate and signed up for mortgage classes so that I too could start closing loans on my own. Had I been successful with my plan, I could not only generate tons of leads, but also maximize the money I make off of them by actually closing loans myself. In essence, I would have been pushing myself out over more of the industry. The middle man would replace the end guy, and in turn, capture the entire revenue stream.
How does this affect social networks? After a volume of reading, it is aparrent that most, if not all of them are having trouble with monetization. Bebo recently sold, and according to recent blog post from Markus Frind of plentyoffish, only is getting 14 cents/CPM. This is extremely low. Facebook/Orkut/myspace probably are not much higher.
Sites like facebook are trying to use new "social ads" to up CPM, basically showing you stuff that you are supposed to like based on words in your profile or what your friends supposedly like. They have some other good ideas like automatically parsing in their own affiliate link when you put in a link to another web site that sells stuff in a message to your friends. However, these strategies will never put the CPM of an SN site anywhere near that of google's, where people actually go to buy stuff instead of wasting time messaging/poking their friends.
How else is there for them to increase CPM? The main idea, relating to my earlier thought, would be to attempt to replace the end buyer of the advertising space on as many industries as possible. Of course, this can't be done with consumer goods or movies or stuff like that, because the barrier of entry and competition is just too high. However, there are plenty of industries out there, that advertise on social networking sites regularly, that could be subverted. The first things coming to mind are dating sites, adult sites (softcore), online gambling sites (me :)), credit repair, mortgage lending (brokering), "make money from home" crap, "free i-pod" scams, auto insurance, short term pay day loans, and more. About half the ads you see on those sites, the people at the end of the ad are making more money in the long term than they are spending on advertising. They have to be, otherwise they wouldn't be able to continue to buy the ad space month after month, year after year. Alot of these businesses are certainly not impossible to start.
When you call a bluff, the tables turn.
When I was selling mortgage leads to mortgage brokers, I thought the lending process was dark and mysterious. I thought they actually had all the money up front that they were lending. Once I went to real estate school, I learned the process was very simple, and most of the mortgage brokers were nothing more than sales people. I was doing the greatest part of their job for them, getting business in the door.
Knowing that there are business out there making more than they are spending on advertising on social networking sites, it is possible for SN sites to, as a long term strategy, own an interest in these types of companies, or invest in the early stages of promising ones. They could help them to grow with the traffic, which in the long term could yield much higher CPM because the entire income stream is flowing into them at that point.
Finding and/or creating/funding such companies would be an entire business in and of itself. It would certainly not be easy or automatic, but stands a much greater chance of attaining high CPM in the long term than any "social ads" ever could.