Free is not a business model. Within 12-18 months expect Facebook and Twitter to go the same route. Their burn rate is starting to catch up to them and Twitter's search deals will shrink.
Do you have any idea how much money Facebook is raking in with advertising? The targeting available on Facebook is unparalleled in human history, and they are making a mint on it.
In my experience, a good click-through rate is about 0.1%, which makes sense since they're essentially banner ads 2.0, there's no intent captured at all. That said, they were cheap enough that I was able to acquire new users for my Facebook app at around $2 each in my small-scale tests.
Yes, I do have an idea. And it is largely do to their user growth. This growth is not sustainable and will start to taper in 6-12 months. Facebook clearly is making money from ads (I'm not discounting this). It's been estimated at somewhere in the $400-600MM range. Of that Microsoft and their own ads make up the bulk of that. That is starting to dwindle and they are going to be headed in the direction of virtual goods a la Tencent. My point is that social media sites like Ning, Facebook, and Twitter are figuring out that free is not a business. Ning is just the first to admit it.
Huh? You seem to be implying that a growing user base gets them unreasonably high advertising rates. Are you suggesting that advertisers are willing to overpay for facebook ads because of their strong growth trends? That may have been the case when Microsoft did their deal, but that was a while ago. These days, advertisers either have past experience to draw on, or they can dip their toe first without making a big commitment. Either way, I expect most of the ad revenue on Facebook is from people paying what they consider to be a fair price.
As for virtual goods, this has been part of their revenue mix for quite a while too. From the whispers I heard a couple years ago, it wasn't the majority of revenue, but it was a healthy chunk.
Facebook's estimated average revenue per user has hovered at the same level for a few years and is something like 1/3rd what MySpace's ARPU was. Both suggest to me that Facebook has still been favoring growth over revenue, and that as growth starts to taper off, they'll have plenty of opportunity to offer a "free" service and make a profit at the same time.
Are you sure about this? I imagine they are keenly aware of their burn-rate vs. growth-rate. At some point they may have to make a course correction to bring in real revenue. FB's primary goal was probably to out-pace myspace and they've obviously done that. I'd say they are in an excellent position to make good money.