I have been following the story around Ebay selling Stumbleupon, just a year and a half after it acquired it for $75 million. Around the time of the acquisition, many people speculated that ebay would like to get a foothold in the search market, otherwise largely dominated by Google; this GigaOm article was one of those mentioning "The toolbar, if you ask StumbleUpon users provides more useful and productive results, than say Google. By marrying the toolbar to Skype client, eBay can do an end run around Google’s dominance of the search business. A simple search box inside Skype client is all it would take."
However, this view of the world is flawed. I'd like to argue that search engines like Google use human tagging in a big way in their search rankings. Except that it's a different kind of tagging - the tags used by publishers on the web to refer to the documents they link to. Conventionally, this is called "anchor text" in search engine lingo, but if you look at it, it serves the same purpose as tagging on bookmarking sites like stumbleupon. The only difference is that Stumbleupon and Del.icio.us expand the scope of the tagging to users who might not be writing or blogging on the web.
If you compare the search results on a popular keyword like "Sarah Palin", you'll find that search engines like Google and Yahoo have many more results, as well as more relevant ones, than social bookmarking sites like Stumbleupon or Del.icio.us. This difference is even more stark when you move to more tail-ish keywords: e.g., try "Miruts Yifter", which produces just 1 result on Stumbleupon but more than 15,000 relevant ones on Google. And most of those 15,000 results are linked off from other pages on the wb with the anchor text (or tag) "Miruts Yifter".
Essentially, Google gets to use tags much more than Stumbleupon. And to top it all, they could also crawl Stumbleupon pages and use the tags available on those.
But the key thing to note is that anchor text/tags are just 1 component of the ranking mechanism on classic search engines. Link popularity, text on the page/title/url and many other components go into thr final ranking.
It's just naive to assume that social bookmarking sites will be able to build better search just based on "tagging".
However, these sites do provide value to users in other ways: 1) a permanent store of users' bookmarks 2) ability to discover people interested in a similar topic 3) a fun browsing experience. For all these reasons, social bookmarking sites aren't going to go away, but don't expect them to develop into full fledged search engines. Ebay's rumored decision to sell Stumbleupon might be a reflection of this realization.