Audience Marketplace's CEO explains that the detailed personal information available on social networks is what makes them so valuable.

MySpace and Facebook are arguably two of the most powerful media forces in our time. Other, lesser known, yet still fantastic social networks -- like Tagged, Piczo, and Flixster -- rival huge media conglomerates with audiences exceeding 10+ million uniques. Ironically, these media powerhouses are some of the less effective media companies when it comes to monetizing their audiences' attention.

One day we will all look back on this time as the stone age of online advertising. As I scan the ads on MySpace and Facebook, I'm besieged with ads encouraging me to receive my free iPhone or to snap a photograph of a pop star in order to win ringtones for my phone. Despite the great intentions of these ads, they suffer from two distinct problems. First, they do not target my personal demographics. Second, they have no relevance to my psychographic behavior. After all, I already have an iPhone and more ringtones than contacts in my phone. If we're going to advance our state of advertising, we're going to need advertising to be more relevant.

There are six potential layers of data that can make advertising more useful to consumers.

1. Contextual data: What content is the advertising next to?
2. Demographic data: Who is viewing the advertising?
3. Behavioral data: What websites has the user visited and what ads has he clicked on recently
4. Consumer choice: What types of advertisements has the user explicitly expressed interest in
5. Relationship data: What do we know about the user's friends that can enable us to better target the advertising
6. Collaborative/predictive filtering: What does multivariable regression analysis of the targeting data available tell us that the consumer may want to view

Conventional wisdom says that MySpace and Facebook are powerful because of their massive reach and addictive usage. While true, they are in fact even more powerful because they are able to add significant layers of data to make their advertising more relevant. Indeed, very few properties other than social networks collect the various layers of data necessary to provide true relevance. Social networks have the potential to serve advertisements based on a user's age, sex, interest, relationship data, and with some modifications, they could add the rest of the data as well.

Some companies have begun to take advantage of this. MySpace, for example, recently announced that they will be selling their audience on a behavioral basis for between 20-60 percent more than their standard rates. The Wall Street Journal and iMedia recently reported that Facebook is also developing a sophisticated ad serving platform to leverage both the demographic and relationship data they already have.
 
The days of untargeted advertisements on top-ranked social networking sites are numbered. It's only a matter of time before top social networks find ways to add data layers to increase the value of their inventory. There's simply too much value lost under the current model.

While the CPMs of social networks may never exceed those of Forbes or WebMD, it's inevitable that they will increase significantly beyond their current levels.

Noah Robinson is president and CEO of Audience Marketplace. Read full bio.