"The fact is, it's a good bet these social networking sites will never figure out a workable business model because there may not be one. On the internet, it's accepted faith that if you build traffic, revenue will follow, typically from advertising.
But it simply may not apply to social networking sites such as MySpace, Twitter and Facebook.
That's for a reason that makes perfect sense on the face of it. Social networking sites are about people communicating with one another and sharing information. It's not a format that's suited for ad messages. In that environment, advertising becomes social interference, in some ways akin to eavesdropping, and it has the potential to backfire.
Why should we know this already? Because of the telephone.
Telephones have been around for more than 100 years, and yet despite numerous attempts, Americans have resisted attempts to put advertising on phones, even when the phone service was offered for free. Note too the rising public protest over telephone marketing, which eventually led to the federal do-not-call program several years ago.
One might argue that over time internet users will give in and accept advertising on their social networking sites. One might also reason that over time hell will indeed freeze over and Canada will indeed run dry. But it is the sort of bet anyone in their right mind would place billions on? No.
There are several lessons to be drawn from this.
One is that where big money in involved--call it greed--our inability to remember lessons of the past can be mind-numbing.
Another is that after all these years, we still don't fully appreciate how different and unique a medium the internet really is. We assume that because advertising works in some environments, it works in all. And it doesn't."
Agree or not, economic bubbles happen. One will happen again.