If a business makes spark plugs and sells them to stores it knows exactly how much it costs to make the product and how much the stores are willing to pay. These direct connections between inputs and outputs allow for effective price discovery.
However with Facebook and Twitter there is no pricing mechanism between what a user is worth and how much a user costs.
This is a general issue for any business that subsidizes operation costs with advertisements. Television and radio rely on outside ratings firms and market research companies to operate efficiently. TV and radio are passive experiences and advertisements are generally effective for certain kinds of products. The TV and radio stations are incentivized to make great content for both their audience and their advertisers.
Google AdSense has a fully functional marketplace where advertisers bid for keywords. This works because people use search engines to, well, search for things. A lot of the time they're searching for things they want to buy. The better the search results, the better the value for both the advertiser and the user.
People don't go to Facebook or Twitter to search or to buy things. They go there to communicate, to reference, publish and browse media, and to establish an identity.
They're fighting their users at every step. Their only course of action is to own their customers data and control their actions and identity. They cannot offer privacy to their users because they need to sell that information to marketers. They can't let 3rd parties have equal access to their users data and identity. They've got to control and restrict 3rd party clients. They rely on artificial scarcity.
This hurts both users and advertisers. These inefficiencies and misaligned incentives are passed on to both parties. It makes for a less effective marketing platform. It also makes for a worse product for users by interfering and adding noise to their communications.
The majority of Twitter's product was developed by outsiders. Retweets and hash tags are the result of a community of users and developers in control of their own evolution.
However, since the only way for Twitter to make money was to "just slap some ads on it", they had to have asymmetric read and write privileges.
That means they have to try and replicate the same kind of evolutionary product but with a limited number of internal and very expensive designers and developers. And again they're not incentivized to provide value for their users. They're incentivized to extract value.
Neither Facebook nor Twitter make content. They just provide the service of storing and organizing an ungodly amount of information. This is definitely a very valuable service. The problem is that it is a service much like how electricity is a service. It makes about as much sense to give out free energy and then "just slap some ads on it" as it does for these companies to give out free communication channels and then fill them with noise.
The store that sells spark plugs has customers. The spark plug manufacturer has customers. Their suppliers have customers. They know who wants what, how much they're willing to pay, and how to advertise to them.
Facebook and Twitter have users. The only customers in the equation are the advertisers. They have no idea how much their users are willing to pay and they have no idea how much their users are worth. They price ads based on what must amount to voodoo projections of their operation costs and a blind balancing act of signal-to-noise.
