I've been pondering your question for a couple of days, but the answer's no clearer, and I get the distinct impression that nobody really knows the answer. Seeing as how I"m in the thick of things trying to make a living on the Net, it's a vital question to me!

Much of the basic cost of running the Net is paid for by fees to ISPs. Note that every packet is paid for twice, once by the sender's ISP fees, again through the recipient's ISP fees. The biggest sites purchase bandwidth in megawholesale lots. I remember sitting in one of eBay's network operation centers and watching the big wallmounted displays showing, among other things, realtime graphs of bandwidth consumption, and it felt like watching Niagara Falls. Hundreds of gigabits sustained steadily, with little blips that, to scale, represented the bandwidth usage of thousands of mere humans. Also to scale, the cost of the bandwidth was pocket change to eBay.

Part of the reason that basic infrastructure costs are a bargain is that we're still working through the huge overbuilding spree of the late 90s. Everybody invested billions in laying fiber optic cable, before the crash, so for a while longer there's plenty of bandwidth available without much new construction. It won't last forever, however. Coasting along on the old "dark fiber" may be why the US is now lagging behind most developed nations in bandwidth availability. In Japan people take for granted 80 megabit Net connections, while here in the US we count ourselves lucky to get 1.5 megabits, or 8 on cable (as long as your neighbors aren't watching digital TV or downloading movies).

I can't help but inject a note of relevant politics: Countries with the best Net service are all those in which the government took the initiative and either built the capacity itself, or created industrial policies and tax breaks that effectively promoted bandwidth investment. This is one area where anti-government rhetoric is having a seriously detrimental impact on our economic fortunes. We're way behind, and falling farther behind every day.

The US government build the Interstate Highway System and and it paid off a billion-fold. Why the hell are we so reluctant to make a similar investment in an "Information Superhighway"?

While it's fairly clear how the basic infrastructure is funded, it's equally clear to me that nobody has any good idea about how to make money running pure Internet businesses.

Businesses with one foot in the material world have a clear path to making money on the Net. Amazon and eBay deal with material goods, for the most part, and use the Net as a sales and marketing channel. I work a lot with small businesses, and it's also clear how a Web site can be a useful marketing tool for professionals like photographers, real estate agents, brokers, etc. But how to make money on the Net alone, aye, that's the chimera that millions are chasing right now.

The fact that most people unthinkingly assume that advertising is the road to riches on the Net only reveals a total lack of imagination. "Oh, look, it's on an electronic display, let's cover it up with advertising!". It's a mindset that differs from that of a graffiti tag artist only in terms of scale and a spurious respectability that comes from association with business. But it's still graffiti, and aesthetics aside, I'm not sure it generates revenue commensurate with all the screen real estate you have to devote to it.

What civilians generally don't know is how unfair to the hosting Web site is the advertising proposition. You're paid only if people click on the ad, which pisses me off: I didn't design the ad, it's not my fault if it's ineffective or pushing a product nobody wants, but I have to give up precious screen space and just pray for a few pennies to roll in. Yeah, pennies: You might get up to a nickel for a click-through. Yee haw.

So people trying to live on advertising pursue a strategy of making it up in volume. This leads to the fake Web sites we've all hit, showing ads and a bogus search directory that leads you only to other "properties" in each network of Potemkin Village Web sites. Some people doing this have registered several hundred thousand domain names, casting a wide net to catch a few stray pennies swimming in the flow; whales sifting for plankton.

Advertising on the Internet is a great big circle jerk.

This is such a big question that I'm going to have to stop now and post what I've written so far. If I wait until I get it all written, I might get distracted and never finish it. It's worth an ongoing conversation, so, more later, on the advertising house-of-cards, and current fads for trying to "monetize" pure information.