Social networking sites are businesses, and they have the right or, in the case of publicly held companies, the obligation to make money.
That's the question everyone has grappled with since MySpace's Tom Anderson became everyone's first social friend.
For a long time, the default monetization scheme was advertising. But now that's changing. Suddenly, social services that used to be free are now available only for a price. It's a bad direction for social media to take, and I'll tell you why.
Here are four companies that are leading this trend.
Pheed is Hollywood's answer to Twitter. It's run out of a Mulholland Drive mansion. (Think Entourage, but with engineers instead of actors and hangers-on.)
The site has already landed 200 stars, even though it's so new it didn't at deadline even have a Wikipedia page. Chris Brown, David Guetta, Ashley Tisdale and Miley Cyrus are enthusiastic early adopters.
Anyone can sign up to Pheed for free. But users can also charge for their posts. They can choose to charge a monthly subscription or offer pay-per-view for live broadcast events. The user selects the model and the pricing.
Pheed keeps half the money, and it says some of that revenue goes to pay third-party processors.
Pheed founders say charging money for content improves the quality.
That's a very Hollywood way to look at social media that stands in stark contrast to the Silicon Valley view, which is that great content rises from massive scale -- that you improve content by increasing, not decreasing, the number of people who can produce content.
Celebrities love the idea of Pheed, because it's a way for some of them to monetize their own fame.
And that's why I'm concerned about this monetization model.
Right now, celebrities are exploited by gossip rags, who post link-bait headlines to drive the celebrity-obsessed masses to their sites. I predict that celebrities will use Pheed to exploit their own fame for money.
The way this will work is that instead of posting snapshots from their personal lives first on Twitter, they'll do it on Pheed to their paid subscribers. Of course, the gossip sites will steal the pictures and write the same kinds of stories, but in doing so they'll drive interest in subscriptions to the celebrity's Pheed profiles. In fact, it's already happening.
A site called TheHollywoodGossip.com posted a short, vacuous story with a purloined personal pic under the headline, "Miley Cyrus Pantless Pheed Pic: Boo!"
What's happening here is that Cyrus is exploiting the gossip site's exploitation of Cyrus. The site is driving traffic to Cyrus's Pheed profile, which I assume Cyrus will charge fans to subscribe to in the future.
This will become the whole business model for the likes of Kim Kardashian and Paris Hilton, who are famous for being famous and want to convert their fame into an additional revenue stream. Pheed now enables them to sell prurient glimpses of their glamorous and scantily clad lives directly to the public.
The monetization scheme, in a nutshell, transforms what a social network is, from the public square to the shameless celebrity red light district and freak show.
Facebook has been trying to monetize its social site in a variety of creative ways since going public May 17.
Earlier this month, Facebook began testing in the U.S. a service that allows everyday users to pay a small fee to have a post "highlighted," which means placed big and prominent on their friends' news feeds. It's glued to the top and, unlike other posts, doesn't go down right away to make room for new posts.
That sounds reasonable, until you consider that Facebook actively prevents most of your friends from seeing your posts on their news feeds. They use an algorithm called EdgeRank, which judges how close you are with each of your friends based on how much activity you each have on the other's profiles, then delivers the posts only to people Facebook software decides should see it.
Each of your posts on Facebook is blocked from appearing on an unknown majority of your friends' News Feeds.
Facebook "tweaks" this algorithm constantly.
So what Facebook is doing is blocking your posts on the one hand and charging you to deliver them on the other.
It's possible that Facebook could reduce the percentage delivered in order to add incentive for paid delivery -- essentially fabricating demand. They've been accused of doing so for business Pages, and with some good evidence.
On Sept. 20, Facebook changed its EdgeRank algorithm to deliver a smaller percentage of posts by business Pages, according to an analysis by the advertising, marketing and public relations firm Ogilvy & Mather.
The site EdgeRank Checker, which monitors and tests the activity of EdgeRank, reported that "the typical Facebook Page in our data set was experiencing 26% Organic Reach the week before the 20th. The week after the 20th, these same Pages were experiencing 19.5%. These Pages lost approximately 6.5% of their Reach after the 20th."
The Ogilvy post came right out and said it: "The change comes at a time when Facebook is trying to maximize the amount of paid advertising it has on the platform, in an effort to bump its share price after a struggling stock share post-IPO."
Facebook's constant "tweaks" to EdgeRank are secret, as are their motives and objectives for doing so. But it appears to me that they're using EdgeRank non-delivery as a control to dial up incentive for paid delivery of Facebooks posts.
And that's wrong, especially since users are almost totally unaware that any of this is happening.
Tweetbot For Mac is a nice feed aggregator from a company called Tapbots that runs on your Mac desktop and shows you streaming content from Twitter. After being in alpha and beta testing phases, they finally shipped. The cost? $19.99!
It's a ridiculously high price for the kind of application that would normally cost zero or, at most, maybe $3.99.
And, in fact, it's even far higher than the developers would like to charge.
The reason for the high price, according to a company co-founder, is that Twitter has recently limited the maximum number of users that third-party apps and clients can allow.
Because Twitter is artificially limiting the number of customers Tapbots can make money from, and because they've got to limit the number of users anyway, they're using price to implement that limitation. Only a fraction of the potential user base will be willing or able to pay.
I'm not sure whether to blame Twitter, Tapbots, both or neither, but I don't like this turn of events.
Like the Facebook EdgeRank fiasco, scarcity is being artificially manufactured, and the result is that people are given access to a social resource based on willingness or ability to pay the artificially inflated price.
Caldwell believes that advertising creates incentives for companies to treat developers badly, and abused developers result in unhappy users.
So he created App.net to be an open platform paid for by users. It costs $36 per year to join, or $5 per month if you pay month-to-month.
His intentions are noble, but the end result is a bad thing. The subscription fee sounds trivial to Stanford grads and elite technology pundits, who generally praise the initiative. But to the majority of people around the world, and to many people struggling in the industrialized world, a subscription fee is simply a bad or impossible investment.
As a result, App.net is by definition an elitist private country club where the riff-raff are weeded out by virtue of their inability or unwillingness to pay.
Despite Caldwell's reasonable points about developers being abused by advertiser-supported social networks, ads are still the best way for them to monetize.
Social networks are a precious public resource, providing contacts, information, ideas, learning and more to the global public. They should be a place where everyone is welcome and everyone is equal, and where the free exchange of ideas can take place without the majority being excluded, or systematically ignored, because of money.
At least, those are the kinds of social networks that I want to participate in. What about you?
Mike Elgan writes about technology and tech culture. Contact and learn more about Mike at Elgan.com,
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