Despite the fact that most social networking or gaming sites are making a mint off of virtual goods, Gaia Online, a social gaming company for teens and 20-something-year-olds, expects advertising to become a greater part of its revenue stream.

Seven-year-old Gaia, which currently has nine million monthly uniques, and 85% of an audience based in the US and Canada, is generating over $1 million a month in virtual goods sales, said Craig Sherman, who became CEO of Gaia in 2005.

Today, virtual goods sales accounts for 2/3rds of the revenue. Over time, Craig expects virtual goods to be 50% of revenue with advertising accounting for the other half. Craig wouldn't disclose the CPMs (cost per thousand impressions), but said Gaia was doing three billion monthly pageviews.

It's counterintuitive to think virtual goods would be half of the revenue, Craig said. But in his view, advertising is very difficult on the Internet. But Gaia can create holistica campaigns that can be very powerful for marketers. On Gaia, it makes sense to have virtual Coke machines or have an avatar wear Nike's, he said. In one instance, Gaia held a campaign for the movie Alice in Wonderland. As part of that campaign, tens of millions of rabbit holes were placed across the site and users would see the hole and could jump in. Campaigns on Gaia run as low as $50,000 to $1.5 million for a six-month campaign, said Craig.

Craig also talks about how Gaia, which caters mostly to females between 13 and 25 years old, is holding up in a world where most teens and 20-something-year-olds spend their time on Facebook. 

Has or is Gaia losing its audience to Facebook? I asked.

"It is something they do in addition to, not instead of, Facebook," he responded.  

In our next couple segments, we explore this topic. Additionally, Craig talks about the types of acquisitions Gaia would like to make. Gaia has more than $10 million in the bank.