Whoa, that was a creative idea. I’m thinking to myself as I watch yet another person on YouTube come up with an entertaining and interesting idea. Everyday we view engaging content that takes time out of our day and helps us temporarily escape the harsh realities of this world (well at least harsh for some). While watching this engaging content we think to ourselves, “wow, I could do that!” This moment is critical to determining and justifying the following months and often years of our lives (at least for many entrepreneurs).

Justin.tv was one of these ideas for a number of people. They were the beginning of the recent wave of lifecasting services including Ustream.tv, Mogulus and a number of other video services. Overnight, the business plan that we believed was going to make us millionaires dissolves before our eyes as we see a new competitor enter the market with more funding, a better board and significant media coverage.

Everyday I have another person contact me with their “brilliant” idea that will make them fortunes. All they need is to launch their new free service that they will begin charging for 6-months down the road. Competition is harsh and without an extremely catchy idea or a serious team of advisors it will be practically impossible for most people to build something substantial.

Conversely, now is one of the few times in history where a few thousand dollars can get your product out the door and tested by the market. Today, Michael Learmonth posted about Mogulus and how their new revenue model is charging people. Brilliant! Charging people for a service is something that has apparently alluded many dreamers.

Rather than chasing after becoming the next Facebook or Google, it’s soooooooo much easier to start charging for your service. The funny thing is that charging for your service actually differentiates you from the rest of the pack on the social web. As I told one person today, you can charge for your service or go out and chase for investment money. The latter is a great idea if you are a good salesperson and well connected. For the rest, charge for your service!

Even if you are somehow able to talk an angel investor into writing you a check for $250k or even $1 million, not figuring out who your actual client is will kill your business. There are very few services that can run for free (or ad supported) and expecting yours to be that one is not a great idea. Then again many of my ideas are ad supported but hey, I’m one of the few that can make it, right?

Maybe I should rephrase my statement. If you don’t have a revenue model for your business, don’t bet your life on it. Figure out a way to make money while building your free service, otherwise you may just end up broke. Entrepreneurship is not about risking it all, it’s about taking smart risks. What do you think? Should startups charge for their services?

Following the rumors surrounding Fox’s attempt at merging their interactive division with Yahoo, bloggers have been postulating about what MySpace would be valued at. Fred Wilson suggests that Microsoft is going to have to now pay a premium for Yahoo! thanks to their ridiculous $15 billion valuation of Facebook. Today Henry Blodget posts about Microsoft potentially increasing their bid.

Regardless of the valuation that Yahoo! receives, social networks have become some of the largest entities on the web earning them outlandish valuations without even having an effective revenue model. All of this has happened in just a few years and brings back memories of the web portal days when everyone and their mother was working on creating a new web portal that would become the next Yahoo! Fortunately we are beyond those days but I’m still receiving inquiries from people that want their own social network.

So do you think the billion dollar valuations being thrown around are currently justifiable?

People always ask me what the most effective way is for monetizing a social network or a social application. My response? Charge people to build the social networks or applications and let them figure it out. The next best way of monetizing a social network site is through branded affiliations. Last night Google appeared to blame their missed earning on one thing: underperforming social networking inventory and an increase in traffic acquisition costs for those sites.

There has been discussion for years now about how challenging it is to make money from social networks due to the stickiness of the sites. Users end up heavily engaged in the sites and as a result they are spending less time clicking on advertisements. Facebook has attempted to combat this issue by serving up more targeted ads and displaying social advertisements through user newsfeeds.

So far, Facebook’s model is unproven and when Zuckerberg spilled the beans yesterday about their projected revenues for 2008 it appears that they don’t expect much of an increase in revenue generated per user. Facebook’s user base is expected to more than double and their revenues will not grow proportionally. I’m not sure if this implies that Facebook expects user growth to slow towards the end of the year but even at a $15 billion valuation, Facebook has some significant challenges ahead.

So far nobody has been able to come up with a solution. If the most effective web monetization company in the world (Google) can’t figure out a way to make money from social networks, it brings up the question of if it is possible. Do you think social networks can be monetized effectively? Are they too engaging?