It’s hard to make money by charging a lot to a small group of people since now you’re dealing with anti-network effects. Doubling the price of a product will likely more than halve your user base.
If you try to build a network of paid users, you lose because you'll be run over by 'free' competitors monetizing indirectly.
HBO used this model way back when. It’s been a lasting business.
Yeah, the ad supported model has its problems, but it also makes the internet way more accessible. If we think about it, companies and people with more money are basically subsidizing these services for everyone else. They're the ones seeing the ads that keeps the lights on for users who can't afford to pay.
If everything was subscription only, a ton of people like students, low income families, people in developing countries would be shut out. "Free" services, even with their flaws, create a kind of digital subsidy. It's not perfect, but it means way more people can use these tools.
There's no reason why a subscription model could not also be used to subsidize people who can not pay, other than that companies are structured to extract as much as possible (by law, if they are public).
There are good network effect arguments about why this strategy can be effective, not simply 'altruistic.'
Ads simply make the extraction happen across the board, except that the ad model somewhat privileges technical users who know how to circumvent ads.
The problem (other than the obvious privacy and noise issues) is that it's not a neutral subsidy. It introduces a lot of biases.
Since advertisers are subsidizing the platform, they tilt the content toward things they want and away from messages they don't. Messages that criticize advertisers products (which include things like governments and political ideologies since they are advertisers) are de-emphasized and marginalized.
Since impressions / clicks / eyeballs are the goal, an inherent bias is introduced toward emotionally triggering and/or addictive or hypnotic content. The reason social media for example is so divisive and negative is that this keeps people engaged by triggering simple powerful emotions.
The service is subsidized by "whale players" that regularly spend a lot of cash, but they are a lot of freeloaders (to entertain the whales and to build brand popularity).
A cheap/free game supercharges network effects to amass players, each of which incrementally adds value to every other player. Most players will never directly pay enough to offset their own cost to the game maker. However, they will create a real community that draws in a small number of whale players who will directly pay for themselves and indirectly pay for all of the free players.
Not so different from the two-sided markets on Facebook and Instagram.
