The question assumes that it’s an either-or situation. I think Gmail provides a great counterexample for how a paid Facebook might work.
I see it as entirely possible that, once Facebook growth starts to level off, they could “take a few more users off the table” by offering a paid, ad-free alternative for anyone still on the fence. In fact, they’d still be collecting massive amounts of information that could be exploited by advertisers off-site, simply suppressing display of ads to end users WHILE THEY ARE ON FACEBOOK.
Another option would be to simply charge users to opt out of sharing certain data – that is, to basically say that participation in the various information sharing aspects of Facebook is the core business and utility, and required for free use.
The real question is, what would be a fair price to opt-out in that case… Perhaps they could even use variable pricing, and allow users to effectively “buy out” their own display inventory based on how much said user is worth, and which features they wish to turn off? How cool would it be to see the “real cost” of blocking Farmville notifications from my stream? 😉
Either option (or one of several others one could imagine) would pose an opportunity to potential competitors to offer a truly “free” solution; but given that (a) most existing users would simply continue to use the ad-supported version, and (b) migrating from Facebook to another option would be time consuming and difficult, it is unlikely that even such a “mistake” would have a big impact on Facebook market share…
In fact, by offering both “free” and “paid” versions, it’s also possible that Facebook might be able to make inroads with individuals and organizations who currently ban the use of Facebook over privacy and security concerns.
Would I pay $50/year for an ad-less Facebook, as I currently do for Google Apps Premium? If it meant that advertisers no longer had automated access to my home address, then YES, I would happily do so…
This answer originally appeared on Quora: Couldn’t Facebook and Twitter charge users a very small annual fee to immediately generate massive cash flow?