Seems to me that 'ad supported' is always going to be more attractive to funders/investors, because the potential is effectively unlimited (certainly by comparison with paid-for services).
With pay-for services, there's a much smaller number of people who are going to (or be able to) pay, and when you start looking at those numbers, it's never the fabled 'hockey stick to heaven' that people dream of.
What if twitter just sold access to their stream, and a few million orgs (companies, individuals) were paying, oh, say, $20/month. And let's say... 2 million - why, that's only $480/million per year maximum! Gosh - who would ever want to invest in that? Instead, by going with 'ads', there's always the promise of some big change that could explode the revenue down the line.
Or the revenue could implode. Companies making money selling stuff people want face competition from other companies making better stuff. Companies relying on advertising as their main source of income compete with every other company selling advertising space. For example, Old Media isn't hemorrhaging money just because someone's selling better newspapers.
Precisely why I like pinboard.in so much, and why I love the idea of app.net.
I, as a consumer, don't want a service that I rely on to be heavily VC-funded in this day and age, because it means they will have unrealistic expectations to grow revenue phenomenally, which means they might screw the service with ads, or choke the data that the service collects; which means it is likely that the starting point of any new Web 2.0 product is awesome but it only gets worse after that, with ad and feature-creep.
We keep hearing that the cost of computing is coming down and yet the cost of a service (in terms of privacy lost, irritating ads shown, or restrictive API terms) seems to be going up and up.
With pay-for services, there's a much smaller number of people who are going to (or be able to) pay, and when you start looking at those numbers, it's never the fabled 'hockey stick to heaven' that people dream of.
What if twitter just sold access to their stream, and a few million orgs (companies, individuals) were paying, oh, say, $20/month. And let's say... 2 million - why, that's only $480/million per year maximum! Gosh - who would ever want to invest in that? Instead, by going with 'ads', there's always the promise of some big change that could explode the revenue down the line.