As more companies emerge with business models based on social networking, consumer-generated media (CGM) is moving past the beta phase. Online connectivity, coupled with easy-to-use publishing tools, has given many outspoken Internet users the opportunity to post and share artistic and editorial content. Going past the initial excitement of reaching audiences beyond their immediate circles, many Internet users are now cashing on their creativity.

Some players in this space are aligning the tried-and-true online advertising methods with amateur content. For instance, Google is adding a new layer to sponsored search results by inviting advertisers to reach their target audiences through Youtube . Similarly, Revver allows Internet users to load and mix their own videos, using either their or professionally cut content. The company then directs appropriate advertising to the newly mixed video and gets a share of the resulting revenue. And Blogads connects advertisers such as the Wall Street Journal, Roadrunner and Howard Dean with its wide cast of bloggers who write about politics, fashion, education, gadgets and health, among other topics.

The nascent social-networking industry is also generating its unique value proposition with peer-to-peer business models where recommendations become exchange units and turn into dollars. The independent online music retailer BurnLounge is an example of this unique approach. BurnLounge positions itself as a community-powered digital download center, which gives musicians and listeners the platform to distribute content and make money through referrals and sales of their favorite songs. Internet users who can spare as little as $30 can use BurnLounge’s proprietary software and templates to build an online store full of music they like and recommend. Each referral and sale is traced back to its “lounge” where the owner earns either store credit and/or cents to burn. Its competitor Peer Impact takes it up a notch, enabling subscribers to recommend, rent and sell movies, games and TV shows in addition to music.

These new business models represent an alternative approach to traditional media production and distribution. Online social networks are fueling business through word of mouth marketing. Besides witnessing widely read bloggers gain acceptance as opinion makers and independent artists reach commercial success, we will see the rise of new media entrepreneurs who sell based on social capital.