I'd have to disagree a little here: I think the "free" aspect of the web is a tendency towards marginal cost. If the marginal cost of a user is a fraction of a

I'd have to disagree a little here: I think the "free" aspect of the web is a tendency towards marginal cost. If the marginal cost of a user is a fraction of a cent, it does not make sense to charge every user -- they inherently know that the service should be free, and even if they don't, a competitor can gain an easy advantage by replicating what you do and offering it for free. Amid all of this "free" bashing, it's also very important to note that not all "free" services are supported by ads. The "freemium" model (free services supported by paying users) works quite well for many services, including those that have a high enough marginal cost that making money off of advertising isn't enough -- these should be the same services people are willing to pay for, since they cost a lot more to support. If they aren't (ie, the YouTube example), then you're probably just fucked. But it may very well still be early to call the game on YouTube, for example: the internet has a notoriously short time span, even though it might take a long time to "mature" a business. I'm not familiar with YouTube's specific financials, but given the size of the site and audience, I would be very careful to rush to conclusions on the current and future profitability of the site.