What you argue here could probably be said about half the companies admitted to any YC batch, and still there are successes. Maybe the glass can be half full too?
I think the catch is focusing on "Facebook scale" in terms of users on a social network. I am not aware of any YC companies at close to their scale (or potential to get there) without being ad driven, freemium or running on borrowed money.
Small social networks are fine for what they are and, I think, have much more flexible options for getting the bills paid.
