As a result, the market research firm expects the nascent ad category to grow by 55% in 2008--down from the 70% projected earlier, and well below the 163% increase last year.

Rather than simply blaming a weak economy for the revised outlook, eMarketer points to inherent difficulties for marketers approaching social networks.

"The challenge is that all of these new forms of advertising are more difficult to plan, measure and quantify than what advertisers are used to, and that has impacted spending growth," wrote eMarketer Senior Analyst Debra Aho Williamson in the report released Tuesday updating its social networking ad estimate.

Williamson told Online Media Daily that most marketers still consider social networks as part of experimental spending--usually the first type to be cut during tougher economic times.

The forecast is the second wave of bad news for social marketers this week, the first being a report by Prospectiv indicating that consumers are not engaged by ads on social media.

News Corp. last week reported that third-quarter revenue at Fox Interactive Media, which is dominated by MySpace, had dropped to $210 million from $233 in the previous quarter.

Company executives also acknowledged that News Corp. would fall short of its $1 billion target for digital ad revenue in its fiscal year ending June 30.

While MySpace has made gains through ad initiatives such as its HyperTargeting program--including a doubling of CPM rates--the largest social network continues to face hurdles in monetizing the site.

In particular, News Corp. COO Peter Chernin last week highlighted challenges including the vast amount of inventory on MySpace, targeting a diverse user base, and defining new metrics such as the value of a "friend."

As a result, eMarketer reduced its projection for ad spending on MySpace this year to $755 million from $850 million. Likewise, it cut its ad forecast for Facebook to $265 million from $305 million. Together, the two sites account for 72% of social network ad dollars.

While Facebook has seen an explosion of third-party applications in the last year, they don't necessarily boost ad revenue. Moreover, if marketers create applications on Facebook rather than buying advertising, ad dollars may actually be lost.

"Facebook has left itself a little bit vulnerable when it opened up the site to let any developer or marketer to create applications," said Williamson. Only certain high-profile promotions, such as the bracket app CBS Sports launched on Facebook for the NCAA basketball tournament, generate revenue for the company.

The updated eMarketer report estimates $40 million for widget and application ad spending in 2008, up from $15 million last year.

In terms of the recent round of data portability initiatives announced by MySpace, Facebook and Google, Williamson said it's too early to know exactly what impact these information-sharing efforts will have on social advertising.

But to the extent that social networks have mostly positioned themselves as destination sites to date, "that model may be threatened in the future," she said. "Social networking will eventually will become a feature of Internet browsing experience more than a destination."

That, in turn, could add another obstacle to monetizing social sites.

Despite the much-hyped promise of social networks, eMarketer predicts they won't amount to much more than a niche category-accounting for only 5.1% ($2.6 billion) of total online spending in 2012.

"It's no small change certainly, but definitely not something that looks like it's going to overtake the entire online ad industry," Williamson said.