For those of us that weren't around in the early 80s, what caused the video industry to crash back then, and what are the parallels to social networks?

I think it's pretty widely acknowledged that the gaming crash of the '80s was due to a glut of horrible software, since there was no approval process, crap flooded the market, and since people had no way to judge what was crap, they bought random games and hated them, and therefore stopped buying. I'm not sure this is relevant to Facebook.

Nintendo came along with an approval process (Nintendo Seal of Quality) and made games popular again. Sort of makes Apple look sensible for all their iPhone shenanigans.

I think it's relevant to Facebook, given that they're heavily focused on third-party apps, especially games like Mafia Wars, Farmville, etc.

In the '80s, companies like Atari collapsed because third parties were publishing large amounts of crap for their platforms, and this ultimately undermined the platform itself. The increasingly common crap apps and scams on Facebook seem to parallel this.

In fact it may be worse for Facebook, because the Nintendo solution would be much more difficult to apply. With video games, the revenue stream for both the platform developer and the third-party developer comes from end users. But with social media, the revenue stream comes entirely from the third-party affiliates - who would pay to use Facebook? If the people pushing the crapware are also the ones paying your bills, it's a lot harder to dictate quality standards.

I think the endgame here is sites like Facebook having to decide between attempting to directly monetize the use of their service, or opening the floodgates to spam. Either option will drive users away.

except, you know, Twitter isn't panicking about revenue. They're doing really nicely last I heard (Profitable from search deals, and abouts to launch various other monetization programmes?)

I've heard conflicting reports on this too. Do you have a link saying Twitter is profitable?

Profitability at this point seems unrealistic. I understand they have around 150 employees. Assuming a conservative $100k per employee, that's $15M annually just for salary and benefits. Add server costs, etc, and its must be well north of that.

Your employee costs are off - Fully loaded, average employee costs for a company like Twitter that hires in the radford 80th percentile in Silicon Valley are approx $190,000/year - that includes Salary (avg $150K), Benefits (22.5%), and operational (computers, internet, email, phone, real estate, etc...) ($8K/year)

Maybe it falls into the same category as the video game industry to you, but it doesn't sound like you're aware of Twitters recent monetization strategy: http://blog.twitter.com/2010/04/hello-world.html

I'm aware that they're trying to monetize with ads. Everyone is trying to monetize their social media service with ads.

The problem with that approach is that social media is not really a value-added product in its own right - it may facilitate conversation between participants, but it's the conversation, not the platform, that users derive value from.

The question that commercial social media faces is how to monetize emergent conversations between third parties. The typical answers are either pay-for-play or third-party ads. The former drives users away; the latter interrupts their conversations, also driving users away.

Really only Google has succeeded at an ad-based model, and they've done it not by attempting to develop their own walled-garden social media platform, but by recognizing that the platform is the internet itself, and developing their services as a layer that augments the entire network, regardless of what users are specifically looking for. I don't think Twitter is comparable - it may plausibly be a fad, but the internet itself certainly isn't.