Microsoft also reacted and opened its wallet, paying US$240 million for a 1.6 percent stake in Facebook, giving the social networking company an eye-popping valuation of US$15 billion, although Facebook's revenue this year will reportedly be around US$150 million. The deal extended an existing arrangement for Microsoft to provide online ads to Facebook.
Still, the threat from Facebook and similar sites to usurp the role of Web hubs, while real, shouldn't be overstated, Sterling said. Many services and content offered by search engines, portals and e-stores don't yet exist in social networking sites. Although this may change, at this point social networking sites generally focus more on entertainment and novelty, while search engines, portals and e-commerce sites lean toward utility, he said.
While others worry about them, social networking sites have their own challenges. Facebook and MySpace, in particular, have been in the crosshairs of law enforcement agencies worldwide, criticized for not doing enough to protect their members, especially teens, from predators. If this problem worsens, social networks could be in trouble.
"The value proposition of these sites that are mostly closed, walled gardens like Facebook is that they provide a cleaner environment for individuals to interact, compared with the open Web," Valdes said.
Safety isn't just about protecting members from criminals. Shortly after opening its platform, Facebook had to scramble and modify the program because some developers, eager to spur the adoption of their applications, designed them with self-promotion features that users complained were deceitful and triggered annoying and abusive actions, such as bulk unsolicited e-mails and intrusive message displays.
Lately, Facebook came under fire from members and privacy watchdog groups after launching an advertising program called Beacon, which it has had to modify twice in response to criticism that it is difficult to manage and understand and too intrusive in its tracking of users' actions in affiliated sites.
Even after the modifications, which included letting users completely opt out, issues remain with Beacon. Experts point to the program as an example of how social networking sites can miss the mark when trying to exploit their gold mine of user data for improving their advertising targeting.
"[Social networking sites] need to hold user privacy in high regard because, while the users voluntarily put a large amount of information [about themselves] on the sites, the key word to remember is 'voluntarily,'" said Stefan Berteau, a Computer Associates security researcher who has been at the forefront of scrutinizing Beacon.
Just because members of a social network share personal information there doesn't mean they have given the site carte blanche to share their information with third parties, he said. "It needs to be the users' choice what information they share with whom," Berteau said. "We believe there are ways to do very effective targeted advertising in a way that respects user privacy."
Whatever ends up happening, the dynamics, trends, opportunities and challenges seen in social networking in 2007 will be fascinating to see develop in 2008, Sterling said.
"It's one of the most interesting and important things happening on the Internet, because you've got large groups of people sharing information, coming together, and this emerging culture of participation where people are contributing content. It's a very interesting, fascinating and important area, in many respects as important as search, which had formerly been the dominant topic of discussion," Sterling said.