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.
I literally can count on both hands number of times I clicked on google or facebook ads.
the point is - online ad market is getting saturated.
Free IS a business, and has been proven time after time over the last few centuries if not longer.
Companies don't fail because they chose to offer something free, they fail for other reasons.
From the very little I've read about Ning, it's clear they took way too much funding for a start.
Could you come up with some examples of this? Not trolling here, but I can't come up with any pre-internet free models off the top of my head.
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.