Wyatt Peak is not a blogger I'd heard of before but I caught this post over at Hacker News and wanted to point out the flaw in his logic...

Well, it’s not so much that entrepreneurs have changed, as that their circumstances have. In reality, they’ve never been any good at monetizing ideas, because it wasn’t a skill that needed cultivating in the past; so long as you were able to think up a product or service people wanted, you could sell it to them. But this hinged on the fact that it cost you something to produce: build a product, mark it up by a few percent, and there’s your profit.

This system breaks down, however, when products stop costing anything to produce. The cost of provisioning service to a single user of a site is effectively zero, close enough that it can seem worthwhile to give it away in order to expand your userbase. Unfortunately, in doing so, you lose the revenue stream which has supported businesses since the dawn of commerce

The irony here is that the actual problem with startups is they hold the same view he states above.  What I mean by that is most startups act like the cost of adding a single user is effectively zero and that's why they get in trouble.  But in reality it's not. 

Let's look at an example.

The way I figure it Facebook pays about $5 per user per year.  That's based on publicly available facts that I have (As of April '08 they had 30 million users, 10,000 servers, 700 employees at around $65,000 per year average, 1 million dollar electric bill per year, 200 Million Capital Expenditures, etc...).  That number might be (and probably is) wildly inaccurate but it makes the point.  There is a cost per user and while it is low it's no where close to zero. 

In fact it's a cost that's higher than many traditional businesses in the past.  Microsoft, for example, puts software on $1 disks and sells new versions every 4 years making their marginal cost significantly lower.  So by Mr Peak's logic startups are in the same position that businesses have always been in and should be able to create an acceptable markup just like businesses have always done. 

In truth startups today don't make money for the reason everyone already knows: They thought they could make money off ads and the ad market dried up.  Plain and simple. 

(As for Mr. Peak I don't really agree with him on the stuff he seems to be saying but he seems smart and is a surprisingly good writer for someone who just started at this so I subscribed)