Society-transforming social media sites are the hottest thing today. They bring the whole world together by enabling millions of people to form digital communities, spread or get information, communicate with other people on the other side of the world or do business.

Image credit: Free Digital Photos user KROMKRATHOG

Image credit: Free Digital Photos user KROMKRATHOG

According to Forbes, Facebook, Yelp and LinkedIn are now well-established public companies and Twitter is about to follow suit and go public as well. Investors have been swarming in on all sites, but the looming question still remains: Is it smart to invest in these social media giants or will they too become a thing of the past, as was the case with Zynga and Groupon?

The main issue regarding these free-to-use services which rely mainly on money from advertisements is whether they offer a viable business model that can turn the communities into efficient return-generating engines for their shareholders, as is the case with Google.

Being present online can do wonders for your business. However, investing can be a tricky business; that is why all interested investors must ask themselves a few crucial questions before jumping on the investment train:

  1. Does the media site have a large enough audience and will that audience remain loyal?
  2. Can the media site monetize that audience and turn it into advertisement revenues?
  3. Can the media site provide a reasonable and acceptable rate of return on invested capital and can it attract new investors?

Facebook is present in every corner of the world. Their stock price hit above the $50 mark. However, there is no confirmation of effective return on investment on their advertising platform for businesses. We are yet to see how the loyal users will react to the ads since they were used to using a mostly ad-free platform. Facebook’s greatest advantage is the fact that they have the most users in the world.

LinkedIn stands firm as the best professional network which offers users an opportunity to search for jobs and promote their resumes to recruiters. They have a unique business model with revenues being derived from multiple streams, such as mobile and web ad sales, premium user subscriptions and database sales.

Twitter has become one of the most influential communication platforms in the world with over a quarter of billion users sending approximately 58 million “tweets” per day. Still, we are yet to see whether advertisers can successfully use “tweets” to reach the audience and a have a solid return from paid advertising.

Yelp is the best choice for users, advertisers and investors. It provides insight into a myriad of businesses; businesses are able to reach customers who are looking to buy goods and services; reliable reviews are available andthe returns for advertisers on Yelp are quite good, which makes this media site the site to beat.

Having these in mind, all future investors also need to be aware that the internet space is highly unstable and all things favorable today, might suddenly turn unfavorable tomorrow.