When the mainstream media and bloggers start to question if Facebook, Silicon Valley’s most loved social network, is on the decline, it shouldn’t come as a surprise that second-tier social networks are visibly hurting too.

After all, if first-tier social networks are struggling with falls in traffic, decreasing user engagement and most importantly, undermonetisation, it’s only logical that second-tier social networks would be faring even worse.

And that does seem to increasingly be the case for many of them.

Problems for Piczo

News.com has an article detailing the woes of Piczo, a second-tier social network that has raised $18m in funding.

The three year-old startup, which has been most popular with teenage girls, has seen its traffic decline considerably.

At one point in 2006 the service was reportedly adding 35,000 new registered users each day, but as reported by The Times, traffic to Piczo in the UK, one of its most important markets, has decreased by 56%.

From positive mentions on TechCrunch to some random blogger’s comment that “teens control billions of dollars of spending worldwide and that understanding this demographic and knowing how to market to them online is a skill that Piczo can bring to its partners and advertisers,” Piczo was clearly seen by many as a promising startup.

Featured in the Wall Street Journal on October 2, 2006, it had a great story - viral growth was apparently sparked with an email to 100 users of a defunct service started by Piczo’s founder.

But fortunes can change quite quickly and the promise of this second-tier social network was replaced with layoffs and an employee exodus that is eerily reminiscent of Bubble 1.0

It would be neglectful to not point out that the problems caused by Piczo’s decreasing popularity are exacerbated by the fact that the site, like most other social networks, has not been able to generate revenues in line with expectations.

Piczo’s former director of operations, Parker Ranney, himself admitted that there’s “an issue of monetization.” I, of course, like other pundits, saw this coming.

In the company’s Wall Street Journal feature, Piczo CEO Jeremy Verba expected more:

“Like many other social-networking sites, Piczo relies on advertisements on the site for revenue, but Mr. Verba says the company hopes to branch into other areas like selling music, ringtones, and even Piczo-branded merchandise. The company is currently unprofitable, but Mr. Verba hopes to be profitable by the end of 2007.”

Clearly that hasn’t happened, demonstrating just how difficult it can be for even popular social networks to turn business plans into reality.

Just as I have predicted that many of the funded online video startups would start to feel pain in 2008, Piczo serves as a warning that many funded social networks face the same fate.

Faces.com Fails?

Mashable, meanwhile, is reporting that the plug may have been pulled on Faces.com, an Australian social network that had previously raised more than $2m in funding.

Like Piczo, Faces.com had received glowing reviews. TechCrunch went so far as to state that “Faces.com stands apart in social networking” (and note the “post slug” of “facescom-could-shake-up-social-networking” as well).

Yet it appears that all the positive reviews from the most “influential” Web 2.0 blogs still couldn’t create a successful outcome for Faces.com either.

Like Piczo, Faces.com had a business model sketched out:

“What’s most interesting about Faces, beyond its feature set, is the business model. It’s big on multimedia sharing and users are encouraged to upload a lot of pictures and music. Users seeking to exceed the monthly limits on upload (500 MB) and bandwidth (10 GB) can purchase a pro account for $25 per year.

“And then there are no limits to how much media you can put in your account or your visitors can play from your profile page. There will be advertising placed on profile pages and by audio in between every 4 songs played on free account user pages. The company says it will split graphic ad revenue with pro users and remove audio ads from their playlists.”

If Faces.com has indeed shut its doors, it’s yet another example that turning a social network into a viable business is clearly a tall order.

Other Second-Tier Social Networks Susceptible?

It will be interesting to keep an eye on other second-tier social networks, such as Hi5, Tagged and myYearbook.com.

At this point, there’s no reason to think that their fate will be any different from that of Piczo and Faces.com. Unless, of course, they decide to cash in the chips and find a party willing to provide an exit.

Unfortunately, when you take VC money at a valuation that isn’t close to being in line with what your company is really worth, cashing in the chips sometimes isn’t an option.

The truth is that the generic, mass-market social network is a commodity and has been for some time. This doesn’t bode well for once-popular second-tier social networks that simply expected their luck to continue perpetually.

At the end of the day, one thing is becoming clear. Bubbles may come in different shapes and sizes, but the result is always the same: they pop.