Where is the value in online social networks?

Online social networks have become very popular worldwide but are the numbers misleading? Investors have valued social networks at billions of dollars largely due to the potential for revenues generated from advertising and the potential for analysing the data being generated in these networks. Is the behaviour of the users of these online social networks really supporting these presumptions?

Can advertising really generate the required revenues to match investors' valuations of these networks? I think that hopes and expectations are hugely inflated. I believe that the premise that advertising revenue can yield large future profits is based on the models from search engines where the purpose is different - users of search engines are "looking". My belief is that users of these networks do not easily get distracted by advertisements but rather focus on their task at hand when they visit the network, whether it be looking at friends' updates, making a new business contact or updating their profile information.

Secondly, is the data being generated really so valuable as to warrant the valuations? Indeed, the data can generated a lot of useful information about behaviour and other consumer patterns as well as valuable news and insight from various stakeholders. But this happens across many similar networks around the world and therefore any one instance should not be so unique as to put such a high price on it. Even if the data may be unique, what is the cost of extracting the garbage and useless data from these enormous warehouses and databases?

I also suspect that over 80% of the users of any given network are not active enough to be of any real value to the network. As with any real life club, the membership may be very large but active participation comes from a few. Many of these sites have yet to generate a profit. Moreover, it is unlikely that any social network will begin to charge the masses for using the site since it is not difficult to switch to the next most popular free network available. Is there really value in online social networks?