The issue is coming to the forefront recently as more and more pundits note that Facebook, YouTube, and Twitter are all facing significant financial losses, even in the face of record-breaking global attention and site usage. The problem is that if you can't figure out how to monetize your site at 20 thousand users, how are you going to make money when you're at 200 million? In other words, if you're losing money when you're small, growing simply means you'll lose more money.
Some companies have been smart enough to not play this game. 37signals, for example, charge for their services. There are free accounts as well, but those are limited and act as trial accounts with limited features.
For everyone else, though, the business model of choice seems to be advertising. And it's just not working out so well. Almost universally, ad models are failing to bring in sufficient income to even cover costs, much less turn a profit. One major exception is Google's AdWords service, which continues to be the company's bread and butter. But for those entrepreneurs looking to leverage AdSense (where site owners get paid when users click text ads on their site), the amount of traffic needed to generate significant income is phenomenally larger, and along with it comes increased bandwidth costs.
So what are we to do? We've all fallen in love with social media its brethren, but if they can't make ends meet, they'll eventually disappear. If advertising can't cover the costs, they'll either have to continue to be subsidized by their parent companies and investors (a terrible business idea) or start charging for services.
Are you willing to pay for Facebook? Are you willing to contribute to footing the bill for YouTube? At some point, someone needs to cough over some money, and its looking more and more like that's going to have to be us. If you had to choose between paying for those services (even something nominal like $5 per month), or sacrificing your right to use them, which would you choose?
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