The most plausible contender for an "entirely new economic model" made possible by the internet is what Fred Wilson, the New York venture capitalist, has dubbed "freemium".

Can everything be free on the internet? I don't think so. There will always be a lot of services and products on the internet for which you have to pay for and that’s okay considering that these might be the services that you  would want to pay for happily. Watching your favorite game over the net or tracking your stock portfolio with expert analysis for example, are services that you might be comfortable paying for but would you be willing to pay to use Facebook or watch a video on Youtube?

Freemium models are the way of the future to develop market share on the Internet and turn these free models to paid while providing valuable services for free.

These freemium models lead to greater traffic and followings and once you have those you can monetize your current model by advertising and offering upsells. It is easier to sell branches of services based on your current service with a loyal following and steady base of traffic than it is to sell a premium service without any userbase.

Facebook has over 200 million monthly active users worldwide and growing. If they are doing US$ 50 million per month in revenue, that means their revenue per monthly active user is US$ 0.25. Is it a low figure. Sure. But, it is still enough to maybe keep them at break even. As the MAU increases, their revenues will increase.

The most important point here is that based on their freemium model, they have built a complete community and a loyal following. The revenue they are drawing in at this point is still at its minimum potential. They can increase their revenue per user to US$ 1.00 by making a few changes. Service charges on transactions, their own virtual currency, etc, etc. The choice and options are unlimited.

Facebook is the perfect example of a freemium model. Can they charge their users a monthly subscription? Sure, they can. But this would mean losing their market share to many other networks. Right now, it is very difficult for other networks to compete with them because they are "Free". Instead of asking for monthly charges they can monetize much more by upsells, advertisements, branches, sponsors, virtual currency, etc.

The internet economy today allows anyone to offer a service for free without a startup cost which is crazy. Since the cost associated with offering that service is so low, most people can continue to offer that service for a long time without charging anything. Once they have built up their following, community, traffic and user base, they can offer many other services and products which are paid versions associated with their free model and that should turn the Freemium model into a premium one.