This is just another great example of how my life seems to parallel that of Derek Zoolander. (pop-culture reference here) I just read Catherine Taylor's worriment that niche social networks will end up in that classic advertising hard-spot between scale and target.
Her concern: commoditized ad inventory does poorly in niche communities and ignore the value of a niche, while being niche means the size/scale of those communities can't attract real advertising budgets. Platforms like Ning can end up making money, she explains, because they scale the trickle of commoditized advertising horizontally, but for the communities themselves, dreams of making money from advertising is a wash.
The assumptions of her concerns are correct, but the breadth of her vision falls a bit short.
I think niche social networks can do well, but only when the advertising comes from within the network itself. This was my comment on her post:
The most optimized advertising for niche social networks will come from network members themselves. They’re already participating in the niche, so their investment will have natural synergies, justifying the premiums that niche networks need to demand in order to sustain themselves.
Of course it also helps that sourcing network members naturally break down one huge barrier to monetization: getting on an advertiser’s radar.
For a great example of this, we could turn Facebook's original Flyers system.
Facebook got very early on that giving community members an easy way to advertise within their community has fantastic potential. Flyers, the original advertising product, allowed you to target your ad within your community, create your "flyer" and then deploy it to your niche.
As Charlene Li pointed out (albeit anecdotally), the response rates can be quite high.
Another great example could be nextNY -- a business/social network I'm a part of in New York City.
If nextNY had advertising opportunities, I would certainly consider advertising to the group, because my company's brand and I already have rapport with the community, derived from my active participation in it. Since trust is one of the most valuable things a business can have, advertising to a base of people who naturally trust you provides great benefits.
Because nextNY is such a loose association of people from several ends of the community, I've found the opportunity to sponsor both BarCamp and Cupcake Social 2.0 -- both communities in which I have a presence -- and have found positive (if only anecdotal) results from those two investments.
So, I do believe niche networks can support themselves -- I've seen it -- and I think that support has to come from within the community. Tools like AdBrite may be the best at managing this now, but I imagine we'll see more services offering community flyering technology coming soon.