Jason Calacanis continues the conversation about why display ads don't really work (well) for social networking sites and suggests a few ideas of what could work. My take: throw in a recommendation engine. If people are to endure ads on their MySpace pages, at least let them and their friends pick the ads to see. If I know that my buddy is on the market for a new car, I'll think there's a better chance he'd appreciate a Toyota ad more than a random punch-the-monkey banner. And if a banner is funny or otherwise amusing (yes, there are amusing banners), people would recommend those too (just watch all these commecials uploaded on YouTube), eventually driving the overall quality of advertising up.
And here's Danah Boyd's academic take on why Friendster died.
Why MySpace Beat Friendster?