My pal Mark Dempster over at Sequoia sent me a study on CPM’s dropping.

The key finding here, in my mind, is what I’ve said all along: social networks are great for traffic but horrible for advertising. Social networking sites are probably not going to figure out a way to insert advertising into people’s conversations–just like message boards, chat rooms, and IM didn’t.

Again, communication services are amazing for traffic, but they suck for advertising. High CPMs are going to be reserved for vertical content and search, where people are in the cognitive mindset to consume sponsor messages, which when correctly aligned are perceived as content.

• “Among the verticals, Social Networking led the plunge with monetization dropping 47 percent, from 37 cents in March to 19 cents in April, below January lows of 22 cents. Entertainment monetization dropped 17 percent from 40 cents in March to 33 cents in April. Gaming and Sports were down marginally (4 percent and 5 percent, respectively). Technology remained relatively flat at 83 cents in April vs. 82 cents in March, but is still off January highs of 92 cents.”

If I was running a social networking site like MySpace and Facebook I would REMOVE ADVERTISING and drive all the traffic I could from the social network to niche content sites and search where it monetizes really well. This way folks feel like there is no advertising on Facebook/MySpace and they spend more time there.*
JasonNation: What do you think social networking sites should do to monetize their traffic?

* No, I’m not asking to get bought by Facebook or MySpace… I’m just pointing out what I think the right strategy is for social networking sites: build traffic and dump it to places that make money.