Paul, you're completely ignoring my main point by focusing on this idea that I'm suggesting ad-based models don't work. I'm not saying that.
What I'm saying is that because consumers that don't invest out of pocket are fickle and that ad-revenue follows consumers, valuations of companies that survive solely on ad revenue should reflect this.
Right now they do not, hence they are overvalued. When a company is overvalued, it's not a good time to invest. The fact that there continues to be a market is based on the fact that Facebook, or a site of equal stature hasn't actually had to justify its value.
Once it does, the house of cards will adjust a little.
I think fickleness is more closely related to switching costs than sunk costs. In other words, I don't pay a dime for Gmail, but it would be quite difficult to move away from. Facebook probably doesn't have quite that much of a lock on your data, but I guess that depends on who you are and how you use it.
Everyone would easily switch to a better mail system that offers some kind of a one-click migration/import from GMail, provided it is really better in some ways. In fact, however harsh it may sound, GMail can be ruined in a matter of months just because the majority of its user base is not loyal. Compare it with Apple in terms of loyalty, if in doubt.
Well if you think Murdoch made a mistake it's not surprising you think Facebook investors would be making the same one.
The people who believed Google would monetize their business in a huge way seemed to do alright. I don't think Murdoch regrets his decision. I do think people should be cautious but you're going way beyond saying just that.
Well, although I think the mySpace deal is crazy, it's at least somewhat attainable. Murdoch has a bit of a history though of making bad moves in tech. He was nailed on Gemstar. Compared to the $11B he lost then, mySpace is peanuts.
The money being talked about though for Facebook and others cannot possibly be recovered though unless a number of stars align, and that's too much for me. ;-)
You don't seem to understand refutation. I'm not claiming your main point was that ad-supported sites are fads. I'm claiming that follows from what you say. And if something false follows from what you say, what you say is also false.
"consumers that don't invest out of pocket are fickle"
If consumers who didn't pay for stuff were not making investments in other ways, I suspect it would be easier to get users to register. Time is an investment, as is trust.
"Consumer loyalty is directly linked to the amount the consumer invests out of pocket."
"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."