Social shopping is something that e-commerce companies (Amazon, eBay, etc) have been trying to perfect since the birth of e-commerce. Years ago, a couple of friends and I were sitting around questioning how can social networks (at the time Friendster) monetize their users effectively? As of now large social networks (Facebook, MySpace, Friendster, Orkut, Hi5, etc) have generated revenue through banner ads. This model is nowhere near the potential they have for generating revenue from their visitors. As of now, Amazon is the best example of effectively monetizing their user base through social interactions. Via user generated content, Amazon has been able to get users to buy more. Providing an open forum to discuss products has proven to be an effective model. So why haven’t the main social networks implemented such features? As Alex Iskold suggests, Facebook is about to.

Imagine getting updates that your friend just finished a great book, or is listening to a great song, or that they just bought the hottest new pair of jeans. A large portion of purchases that people make are based on recommendations. If you had a constant stream of what products your friends, family, and acquaintances were purchasing, presented in an effective manner, chances are at some point you will make a purchase. This is what Facebook is hoping to do and I have a feeling that they may be the first to effectively execute it. I’ve heard of bloggers that make hundreds of thousands of dollars from effectively monetizing their blog with affiliate programs. Imagine what will happen when Facebook becomes an affiliate for large e-tailers. The only thing to note here is that this will need to be launched gradually. Remember the backlash that the Facebook community had when Facebook introduced their news streams? I’m guessing Facebook would suffer a larger backlash once they become commercial.

Regardless, effective social networking monetization is coming. I think Facebook is going to be the first to do it. As of now most social networks have been focused on what free features they can add that will make users spend more time on their site. Now they are going to start figuring out features that will make users buy more on their site.