The economic downturn has started to hit the social networking sites.

The bubble in social networking has burst, decisively. LiveJournal, the San Francisco-based arm of Sup, a Russian Internet startup, has cut 12 of 28 U.S. employees — and offered them no severance, we’re told…. The company’s product managers and engineers were laid off, leaving only a handful of finance and operations workers — which speaks to a website to be left on life support.

I thought this line in the analysis was interesting:

Executives at Six Apart, the blog-software company which sold LiveJournal to Sup, are happily counting the money in its bank. And they should consider themselves lucky that Vox, the LiveJournal knockoff it started, hasn’t been more popular. At this point, having a larger social network in the portfolio would be a drag on the company’s value.

Put another way: the problem with ‘free’ is that it doesn’t make any money.  Being successful and free means that you’re paying a ton in support costs, and not creating any revenue.  Previously, people building networks like LiveJournal and Vox could build the sites, hoping to sell out and dumping the problems of how to monetize on someone else.  But in harsh economic times, there’s going to be less patience with hypothetical profits, and there’s the very real issue of how to monetize when most customers and corporations are desperately trying to cut costs from their lives.

And, of course, there’s the very real question of whether there is a finite number of social networks someone can devote attention to.  Do a lot of people support a myspace page AND a facebook page?  How many networks beyond that have they signed up for?  There is, I suspect, a great thesis in here for some enterprising grad student.