There can be no denying that Social Networking has been the Internet phenomena to watch over the last couple of years, displaying explosive growth around the world. In fact just about anywhere that people have an Internet connection, people have embraced social networking. It is true to say that most large social networking services have a very long tail of geographic distribution, especially those which allow the distribution of video content.

However, according to a new report from Datamonitor, published today, this explosive growth will come to an end in just five years time. Datamonitor expects global active memberships in social networking sites to reach 230 million at the end of 2007. By the end of 2007 Asia Pacific will account for 35% of the world’s social networking memberships, Europe, the Middle East and Africa (EMEA) will hold 28%, North America 25% whilst the Caribbean and Latin America (CALA) will account for 12%. Adoption curves vary dramatically by region, but Datamonitor expects membership growth in all regions to have peaked by 2009 and to have leveled out by 2012 and in the US things will get worse earlier…

“For social networking services, barriers to entry are virtually non-existent, and both competition and innovation are ferocious,” says Ri Pierce-Grove Technology Analyst at Datamonitor and author of this report. “Users have a vast array of options, from Titanic generalists like MySpace and Facebook to tiny individual networks on DIY platforms like Ning. This year revenues from social networking services should reach USD$965 million growing to USD$2.4 billion by 2012.”

Currently, there are two strains of thought about this market, both strongly influenced by memories of the e-commerce boom at the beginning of the century. At the moment, prevailing sentiment is excitement combined with anxiety. Players fear missing the next Google, the next Yahoo. But mixed with this exuberance is a thread of cynicism. Investors remember how few Internet startups survived the market downturn, and are repelled by what they see as overconfidence. The bulk of social networking sites are wise to postpone any consideration of an IPO.

“A sane approach to this market requires balancing the two perspectives,” says Ms. Pierce-Grove. “The extraordinary proliferation of online social networks is fueled by real innovation and is substantially changing the way we communicate. However, the hothouse atmosphere of easy capital, media attention, and user curiosity which stimulates creativity will not be sustained indefinitely. All players therefore must develop a two-pronged strategy in order to survive the extremes of heat and eventual chill which this market will undergo.”

Media properties, search firms, and other commercial entities will look to lock down the new constellations of audiences brought together by social networking services. Market experimentation will continue as operators seek the optimal combination of features and functions as well as more sustainable operational models. However, the sites themselves will not necessarily consolidate; special interest social networking services will continue to play a valuable role. “As the market becomes more crowded, it will become harder for social networking sites to remain independent. Acquisition can solve scalability issues, improve content and search capabilities, and extend visibility and reach,” concludes Ms. Pierce-Grove.