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ning3.jpgNing, a service that lets users create their own social networks, has passed a new milestone: Users have created more than 115,000 social networks, the company said.

But Ning’s efforts to build a real audience and retain it faces some serious challenges, and it’s not clear how it will ever get big enough to justify the massive $44 million investment it received earlier this year, which gave it a $214 million post-money valuation.

First, here’s what Ning does: Ning allows anyone without technical knowledge to design and build a social network and features full page customization and built-in widgets for photos and videos. Social networks on Ning include “Ask a Ninja”, a social network built around a ninja character and “Fingerstache,” a social network for users who make a mustache by drawing on their finger and putting their finger under their nose.

Ning’s challenges come in three areas: First, users of any particular social network built on Ning can’t share their data across different Ning social networks, negating the advantages of network effects. This means that each social network on Ning has to grow an audience to start from scratch. (From Ning’s perspective, separate data gives social network creators more control). Second, if any social network actually becomes popular, there’s a good chance that it will migrate off Ning because independence affords more flexibility and control. Third, alternative platforms, like Facebook, offer far greater reach. Build an application on Facebook and you can market yourself to Facebook’s 53 million active users. Even if Ning allows for data sharing across Ning users, it has a fraction the active user base of many social networks.

The number of social networks on Ning continues to grow quickly. Since the announcement on November 1st, the company says the number of social networks on Ning has grown past 122,000. On Ning’s blog, the company has kept tabs on the latest count of social networks created on Ning here (there are least nine other posts on the subject, including here, here and here).

Typical measures of a website’s popularity are page views, active users, time spent on site and login frequency. The number of social networks might matter, if only it meant users were active. But for Ning, that’s questionable because there aren’t many unique visitors per social network and it will be hard for Ning to grow at the lightning fast pace it expects.

Ning’s actual web traffic is somewhat of a mystery. Panel estimates do not accurately estimate traffic because Ning offers a white labeled service and other features that are not accounted for in panel estimates, according to the company. But Bianchini declined to share company data for Ning’s traffic measured in unique visitors or page views. That leaves panel estimates. The panel estimates of unique visitors per month vary widely. According to Comscore, Ning attracted 793,000 unique visitors in the US in September, a ratio of only 7.8 visitors per social network created. According to Quantcast, Ning attracted 158,000 unique visitors in the US.

By comparison, Facebook has 55,000 regional, work-related, collegiate, and high school networks. Facebook has 964 active users per network. MySpace is just one giant network. From Ning’s perspective, the comparison isn’t meaningful because Ning is designed to let many users create social networks. In contrast, Facebook creates networks based on real world organizations. Still, Ning’s low ratio of visitors per social network suggests Ning traffic might be spread thin.

According to Bianchini, Ning’s page views are growing 10 percent each week. She said 40-50 percent of Ning’s traffic is outside the US, numbers that aren’t accounted for by Comscore’s and Quantcast’s estimates.

Bianchini said Ning, a Palo Alto company, can develop into a major player. She said: “We’re doubling our size every 2-3 months and we only need to double another 10-15 times to become a top site.” Doubling 10 or 15 times would multiply traffic by a factor of 1,024 or 32,768. But many websites given that traffic multiplier would become a top site, so can Ning really make it? Consider this: A site with only 2 million page views (Ning probably serves many more page views than this) at that growth rate would grow to as much as 65.5 billion page views per month in as little as two and a half years. By comparison, Facebook serves over 65 billion page views per month. If you think it sounds far-fetched that Ning would grow that fast, you’re not alone.

Ning grew only 11 percent from last December to this past March, but then it doubled from March to September, according to Comscore data. The reason for the growth is that Ning launched “Your Own Social Network for Anything,” according to the company. Granted, Ning is still in early stages of ramping up traffic, but traffic growth is still choppy. Expecting Ning’s traffic to double every two or three months for the next few years is brave, to say the least.

[Update: Bianchini says internet history shows users prefer openness, demonstrated by the departure of early internet users from AOL’s walled garden, to launch their own websites. Bianchini’s vision is that masses of users will migrate to Ning because Ning offers that freedom for building social networks.]

Expectations for Ning are high, at least for its investors. Ning’s early backer was Netscape co-founder Marc Andreessen. In June, Legg Mason Capital Management invested $44 million at a $170 million pre-money valuation, a stunning figure, especially because Ning is still a young company. Legg also invested in Zillow, which we recently reported may be in trouble.

Why does Ning need all that money? Randy Befumo, Legg’s director of research, said, “I think that starting Web 2.0 is easy, but scaling it is much more complex. Scale ultimately involves infrastructure and people to make that infrastructure work, who are not free. Further, you can start great apps, but if you want to monetize, you need systems and staff. We see our investments as allowing good ideas to scale and also allowing people to begin monetizing good concepts.”

But with questionable traffic growth for Ning, what needs scaling? Buying more servers and hiring new employees doesn’t necessarily make Ning’s product more compelling to users. Trumpeting the number of social networks created on Ning seems to mask underlying questions about the utility of Ning’s service and whether it can grow into a substantial business.

[Disclosure: Doug Sherrets owns a small number of Facebook shares.]