NEW YORK (TheStreet) -- How does Twitter make money?Not only is there no clear revenue generator, its costs are certainly significant. Despite speculation to the contrary, the company denies getting a cut of text messages sent via the site and has, in fact, negotiated bulk rates for short message service traffic. Add in storage, hosting and payroll, and Twitter is a very expensive freebie. Twitter is an amalgam of what is good and bad about the burgeoning "freeconomy." The site costs you nothing -- a definite drawing card. But can it remain successful and/or free if there is no cash cow to milk? "People are making a lot of money charging nothing," writes Wired magazine editor-in-chief Chris Anderson in his new book, "Free: The Future of a Radical Price." "Not nothing for everything, but nothing for enough that we have essentially created an economy as big as a good-sized country around the price of $0.00." But "free" is often a trick executed with smoke and mirrors. Free shipping is probably just factored into the price. A free trial requires a credit card and opting out can prove complicated. Online, there may be a push to move up to a "pro" version or for-profit intrusions, such as data mining and the sale of user information to marketers. A free netbook, just for signing up for Verizon's ( VZ) or AT&T's ( T) broadband offerings? Well, factor in upwards of $60 a month to actually connect, and you've shelled out a baseline cost of more than $1,400 by the end of a two-year commitment for a $300 gizmo.
Just saying the word "free" makes some bargain-blinded buyers incapable of simple math or understanding the inherent hazards. What happens if Google ( GOOG) decides to pull the plug on its free version of Google Apps, as is frequently (but so far erroneously) rumored? Or your favorite photo-sharing site goes away and takes your precious memories with it? With free services, you are at the mercy of a company that can go belly-up, change its business model or be acquired by a rival that wants to make money. Handing over your data to others creates risk. In February, as many as 100 million Gmail users were locked out for more than two hours. In March, Google Apps was down for as long as 22 hours for some users. More troubling may be the recent theft of Twitter's confidential business documents from Google Apps by a hacker. In Google we trust, and all that. User privacy was also a concern for Facebook customers who went ballistic upon learning that the company had modified its terms of service, seemingly giving it the right to appropriate user content -- text, photos and videos -- for its own use. Public outcry led to a hasty retreat from the changes, but the incident shows that your intellectual property could be pilfered by entrusting it to an outsider. Big-name "free" services detract from other products worthy of support. The hype about a Web-based version of Microsoft's ( MSFT) Office, for example, draws attention from the powerful tools of OpenOffice.
We may not want to admit it, but paying for things is the most effective way to improve them. At one time, cable television seemed a pipe dream. Who in their right mind would pay for something already free for the taking? Now, cable is virtually a utility, and you are paying for the connectivity more so than the channels themselves. A recent article in the Columbia Journalism Review made this apt observation: "The first subscribers to HBO watched bad movies and boxing, but as revenue grew, it paid for an expansion of product." By comparison, YouTube is extremely popular, but the site and its video quality haven't evolved much. YouTube bleeding money for parent company Google probably isn't going to translate into a significant upgrade anytime soon. Barry Diller, chief executive of IAC/InterActiveCorp. ( IACI), created a stir recently when he railed against the "mythology" of free online content. Consumers, he said, are "willing to pay for what they perceive as value." Let's hope the free ride may soon be over. -- Reported by Joe Mont in Boston. Feedback can be sent to firstname.lastname@example.org.