Before 1994, the Internet was basically unknown. It was just a tool for professors and researchers to connect with their peers. All websites had to be non-profit.
In 1994, the National Science Foundation took away these restrictions. Anyone could register a domain name and start a website, even to sell stuff. Pepsi.com was one of the first, but at the time it seemed a pointless gimmick.
Flash forward to 2008. In the past five years, power has become consolidated between a few major websites, despite the flat nature of the Internet. Google, Yahoo, Facebook, MySpace, and eBay are the major players. These corporations control billions of dollars in capital, yet with the exception of eBay, provide free services. How does this happen?
The way it happens is through advertising. Much like how newspapers make money from the classifieds or how the local Pennysaver is completely free despite rising print costs, websites make money from selling ad-space. With technology like HTTP cookies and click-counting, advertisers can pay only when viewers click their ads, or even only when they make a sale. If you think no one buys anything online, take a look at this.
That’s a graph of how much stuff people bought in the 2007 Christmas season. At the peak, for the week ending 2007-12-16, sales totaled nearly 5 billion dollars. Thanks to comscore.com for the stats.
As you can see, people have no aversion to buying things on the web. And unlike with newspapers, websites have far lower overhead. Each visitor costs less than a hundreth of a cent each, while advertisers may be willing to pay in dollars for clicks or sales.
The reason social networks have become so large and wealthy is because most people contribute to them for social benefits, while all …
