Wow. This is an excellent, realistic article. Some of the great nuggets:
"Consumer loyalty is directly linked to the amount the consumer invests out of pocket. Apple has a fiercely loyal base partly because they feel really stupid spending an extra $300 on a product that isn't something special. With social networking sites the amount spent is zero - and the loyalty corresponds.
Facebook and mySpace are only as valuable as the next big thing. In other words: they are fads. Now, fads can be successful if they're managed right, but they all share one thing in common - they won't be around tomorrow. If you need proof, look no further than Frendster. In 2003 they had 20 million users. Today, they have less than 1 million die hards. Those are fickle crowds.
So, why is this a problem? Because eventually investors - be they VC's or acquiring organizations - want to see some growth in their investment. With a fad-based industry, all value becomes speculative and opinion based. In order to make money, investors need to assume that tomorrow, the perceived worth of the product will be higher. Let's pick on Facebook a little. Facebook now needs the next investor to believe it's worth $2 billion at least. - invest $1 billion, recoup $1 billion. Sorry if I laugh a little."
And:
"Let's put this into perspective: We have a product that has a monetary value of zero to its users being used to build further products of negligible value - and these products are actually being sold or invested in!"
And this has me asking the question: is it not better to charge for a product and therefore create a loyal and mature customer base on top of actually getting some real revenue? I mean sure, you might not have 30 billion users, you will probably have to make something that is higher quality than something that is free, but the results to me seem to be much more valuable.