First social networking sites was used for chatting

The first ever social networking could be traced to email service. Launched in 1971, it was the first electronic communication via the Internet. Though it was not as capable as it is now, it served a way to be socially contacted.
1978 saw the launch of BBS - Bulletin Board Service. It was used to be hosted on PCs. Users connected with other users via Internet through phone lines. The service was much slower by today's standards, yet was a good beginning .
In the same year, Usernet was born. It let the users to post news and other posts. This later gave rise to Groups which were predecessors to what are known as Google Groups or Yahoo Groups today. In 1988, first instant messaging service was born named Internet Relay Chat known as IRC. IRC was a unix based system. Members could use it for file and link sharing.

The first ever social networking site was Geocities. It was founded in 1994. Users could create their own Web pages based on their interest. It was followed by TheGlobe.com. People with similar interests could form a community and discuss between themselves.
The true predecessor to today's social networking sites was launched in 1997 with AOL Messenger. It was the real beginning as it let you create your profiles. The profiles could be searched over the internet and could be connected to. It was akin to adding friends or circles today.
Sites like Hi-5 and Classmates made an entry into the nascent social networking sites back then. Classmates was a hit with its ability to be able to connect with old classmates and friends.
Friendster and MySpace were launched soon after. MySpace ruled the SNS space until Facebook came up in 2006. They can be truly treated as the first modern social networking site. Soon MySpace surpassed Friendster on the basis of user base.
Facebook was initially launched in 2004 with the aim of connecting the US college students. In 2006, it went public. Two years later, in 2008 it surpassed the total members base of Friendster and MySpace. It now claims a global user base of around 150 million.

As for merits and demerits of the older social networking sites is concerned, it can only be stated that one cannot really highlight such a differentiation. The sites made use of the available technology at that time and made progress. Some of them closed down because of economic slow down or inability to keep up with the competition. There isn't any issue like demerits in them getting shut down.
You cannot say Facebook will continue to rule either. In fact, Google had tried it with Orkut at the beginning and then Google Plus. Neither of them are reaching the popularity level of Facebook. So, in the near future Facebook too may get routed by some new site.

There were different types of social communication in earlier times.

1. Email
2. Usenet Groups
3. IRC
4. Video chat using MSN and Yahoo! chat rooms
5. Penpal social network
6. SMS based social networks (mostly Chinese and Korean websites)
7. Web based social networks like Myspace, Facebook, orkut, twitter.

If we ignore email as social networking medium then usenet must be the next in line to be called as social network.

Usenet news groups were the first social networking during earlier stages of the internet. These usenet groups are obsolete now and mostly used for the piracy. But earlier people used to be using them as social network. There used to be forum service, moderation and content sharing within the groups. Each group used to be strictly moderated and had content posting rules. The communication for the usenet was using two types of interface - browser based and terminal based. Browser based were designed using java applets. There used to be some commands to access the groups and interface. Usenet were non centralized so they were also used for some illegal purpose.

After Usenet, the IRC chat became the second most popular social networking in the 90s. This continued even to date. Many of the people who are comfortable with computing still get to do meetups using IRC. Today companies like Slack and Hipchat are making use of IRC protocol to make webchat trendy again. There are still different types of IRC networks with different implementation protocols like MIRC, IIRC etc.

Video and Audio Chatroom from MSN and Yahoo! were very popular during 90s. After 2005, most of the chatrooms were seized due to illegal operations (like crime, drugs etc) inside them. Now most of the active chatrooms are within other social networks and on websites like talkcity.

Penpal system was active even before the dawn of internet. After internet, making penpals was more easy and people used to use the web interface to write the letters. After social networking like myspace the penpal system totally collapsed and now very few users around the world use this system.

SMS based social groups and one-to-one communication services existed in korea and china. Some sites opened for other international users, however such websites collapsed during dot com boom.

Web browsers like Netscape and Neoplanet used to host their own community forums, chat and SMS groups within their own social network.

Finally in late 90s, the first web based social network arrived. It was called Myspace. It was similar to facebook. It had most of the social profile and features. It had additional features for celebs, artists, business people. Later facebook started for campus users in 2005. And then even non campus users started to get on network. And in 2008 onwards myspace collapsed. Twitter, Google Plus, Fark and other networks arrived one after another with their own unique concept of social network.

Most of the earlier social networks relied on Java applets and Activex applets. Now nobody uses java for the webchat feature. These days people use NodeJS and sockets for quicker implementation of chat feature. Earlier websites used to load slow and there were no CDN features. These days almost every social network has to use CDN otherwise the data requests will collapse the server. Every modern social network has an option to either go centralized or decentralized system. Commercial social networks choose centralized approach as they want to mine the user data. In case of decentralized networks you can host your own node and connect with others. No data is logged in this system.

Older social networks performed their job based on the available technology in that time. So we can't say they had much of a demerit. They were only limited because of the technology of that time.