[InfiniteRand]

One thing I imagine is if you scale up assuming that algorithmic solutions will be good enough, and then find out that they aren't, you find yourself in a hole, because you haven't budgeted enough to hire human moderators now, and you have enough visibility and investors that it is hard to scale down.

There was some post on HN I think about a Morrocan links site that basically got into this situation, his solution was to freeze sign-ups and look for someone to buy his domain, which is probably not an appetizing option for Google. I think MySpace's experience was also somewhat like this.

Of course, in reality the situation with Adsense is not that they cannot function while using algorithmic moderation, but that they cannot provide a high quality service, so whether they like or not the most viable option is to provide a lesser quality service.