http://www.economist.com/opinion/displaystory.cfm?story_id=13326158

“Some Web 2.0 darlings (MySpace, YouTube) managed to find buyers before the bubble burst, thus passing the problem of finding a profitable business model to someone else (News Corporation and Google, respectively). But quite how Facebook or Twitter will be able to make enough money to keep the lights on for their millions of users remains unclear. Facebook has had several stabs at a solution, most recently with a scheme called Facebook Connect. Twitter’s founders had planned to forget about revenues until 2010, but the site now seems to be preparing for the inclusion of advertising.

The idea that you can give things away online, and hope that advertising revenue will somehow materialise later on, undoubtedly appeals to users, who enjoy free services as a result. There is business logic to it, too. The nature of the internet means that the barrier to entry for new companies is very low—indeed, thanks to technological improvements, it is even lower in the Web 2.0 era than it was in the dotcom era. The internet also allows companies to exploit network effects to attract and retain users very quickly and cheaply. So it is not surprising that rival search engines, social networks or video-sharing sites give their services away in order to attract users, and put the difficult question of how to make money to one side. If you worry too much about a revenue model early on, you risk being left behind.

Ultimately, though, every business needs revenues—and advertising, it transpires, is not going to provide enough. Free content and services were a beguiling idea. But the lesson of two internet bubbles is that somebody somewhere is going to have to pick up the tab for lunch.”