The Future of Social Networking Sites

I might as well go public with my views on this, since I've been talking about it offline for a few weeks now...you've probably read someone else who's said the same thing, but I haven't come across anyone yet. Here goes...

Social Networking and "Web 2.0" sites are in vogue. The attention isn't unjustified because of the following reasons:

1. Web 2.0 sites involve the users, who help it grow
2. Credibility gets transferred from the users to the site, and word-of-mouth is the chosen mode of promotion
3. Because of relatively greater involvement, these sites have greater advertising potential, as well as (usually) more demographic data to support advertising allocation.
   
4. Web 2.0 sites are addictive. Period.
   

Consmer Trends:
Revenue models vary. There're a large number of Web 2.0 sites around, particularly in the social networking space. Consumers will display the following trends, particularly in the social networking space:

1. For general purpose social networking, they will flock to the larger sites. I mean - how many social networking sites would you like to be a part of?
2. From these will develop social networking sites based on the policy of exclusion because it won't be possible to compete with the big guys in the general social networking space. Exclusion will be either by:
• Segmentation on a monetary basis - VIP rooms, Super Deluxe packages etc.
• Segmentation based on other critera - Occupation; Specific facility provided by a site (like freelance work, event info etc); Specific interests like art, cars or movies; Sexual Preferences etc.
  

Again - how many social networking sites would you like to be a part of? Point two above relates primarily to segmentation, which is a direct consequence of growth where no one really wants to be a me-too site. The more the number of sites, the greater their need for differentiation, (update:) hence the development of other Web 2.0 sites that don't rely on social networking. However, there's always the threat of successful social networking sites (particularly Orkut) of providing additional facilities to their users.

Eventually, because several sites are in direct competition, consolidation is bound to take place. Niche advertising revenue split across five sites doesn't help any. So, for example, four mobile development social networking sites on Windows, Symbian, J2ME and Palm OS might join together to form a mobile enthusiasts Web 2.0 group.

In the end, only large general players like Orkut and Hi5 will remain, or focused, smaller, exclusive and consolidated groups like a Carpentars United (silly example, but you get what I mean).

Anyway - this is just a theory, and is open to questioning, discussion and ridicude. I'm thinking of starting a little blog that reviews my favourite online businesses to help improve my understanding of the online space...

Update:

• wrt software development, Narayan Murthy says that there's opportunity in niche, because one can't compete against those with financial muscle. For the social n/w space, I've observed a similar trend (but for different reasons) in point 2 of consumer trends (above).
• Business 2.0 gives you a Web 2.0 tour. Nice. Note that very few of the sites featured are social networking sites...