• by Mark Walsh  @markfwal, November 14, 2008

Gartner Research Vice President Andrew Frank said in a blog post Thursday that the time has come for social media companies to demonstrate that they actually can make money.

"A cold wind's begun to blow on Web 2.0 startups, especially those whose business models run along the lines of building a large and loyal audience and then monetizing it with advertising," said Frank. As a result, companies that until now have been buoyed by rapid audience growth and high-octane buzz are pulling out the stops to generate ad revenue.

As examples, Frank points to Google's rollout this week of sponsored video ads on YouTube search results pages in an attempt to extend its successful paid search strategy to monetizing video. Only a small percentage of the $200 million in revenue that YouTube is expected to generate will come from video ads.

"This is part of an overall strategy to make the site more attractive to professional content owners, such as MGM and CBS, which recently agreed to license some of its catalog material to the site," said Frank. Doubts have already been raised about how well YouTube can compete with professional video hubs like Hulu when it's starting off with movies like "Lone Wolf McQuade" and episodes of old series including "Star Trek" and "The Young and the Restless."

YouTube has also struck a deal with U.K. production company Fremantle Media, which has created many reality shows and game shows, to develop original programming exclusively for the video-sharing site.

Frank also cited MySpace's effort to boost professional content by featuring Hulu videos on its stand-alone Primetime site. In addition to Hulu, a joint venture of NBC Universal and News Corp., MySpace also has partnerships with Warner Bros. and Sony to deliver content through Primetime.

MySpace earlier this week also kicked off a deal with MTV Networks to insert ads on unauthorized network clips uploaded to the social network by users. The underlying ad system from Auditude also holds the potential for Viacom to monetize clips uploaded to YouTube. That's assuming the media giant can resolve its lawsuit against Google over massive copyright infringement on YouTube.

Notable exceptions are Facebook and Twitter, whose executives indicated at last week's Web 2.0 conference in San Francisco that they were still more focused on growth than becoming profitable.

At ad:tech New York last week, Frank described a strange mood, fusing euphoria over Barack Obama's election with anxiety over the grim economic outlook. The "economy-induced fear could not be suppressed, and for many was clearly triggering flashbacks to the beginning of the decade," he said.

"As a result, many reassuring words could be heard, like "at least this time we're not at the epicenter," and "although we've revised our projections, we're still forecasting double-digit growth for online advertising in 2009."