Twitter and the conundrum of ‘free’ (social sites)

After a couple of highly frenetic work weeks and several crazy road trips later, I am finally back in the blogging scene.

Given the recent uproar over Twitter outages, the question begs to be asked (and answered), if you aren’t willing to pay for a service, should you be whining when it doesn’t deliver? What, if any, should your expectations be from a free service? Conversely, if you are a free site/platform, how do you justify additional investment in your company, if you don’t have any means of generating revenue?

This is a huge challenge for free social sites like Twitter. Good news is that you have millions of users, bad news is you have millions of users but no revenue. And if there’s no revenue, it’s heck of a lot more daunting to keep scaling to meet the needs of your burgeoning user base.

There’s where the venture funding helps, but sooner or later, Twitter (and free social sites like Facebook, Orkut, Friendster, and others) will have to figure out a way to make money. I think it’s quite dicey when the valuation of these social sites is based on freeloading users who don’t want to pay to use the site. Given that none of these sites like Twitter, Facebook have figured out a way to monetize this freeloading user base, the popular option seems to be advertising.

I have my own doubts about advertising as a sustainable revenue model for social sites. Especially, if the intent of any social site is to entertain and engage the user, driving them off the site with links to another site seems highly counterintuitive.

Therein lies the biggest challenge for these free sites, it’s all fine and dandy as long as the venture funds keep flowing in, all the site has to do is focus on getting more users (and of course, make sure the site doesn’t crash under all the traffic). Acquiring users for a free service is the easy part, but this story will get much more interesting when these free sites are forced to support themselves like some of the other ‘growed up’ social sites like LinkedIn.

Om Malik of GigaOM suggests charging power users like Robert Scoble, who according to Malik overwhelm the microblogging site. I think that’s a great idea, but how long do you think users will stick around if they have to pay for what they are used to getting for free?   

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