It's not just fear of money. In consumer apps, "free" means the potential of having hundreds of millions of users globally. This includes people in relatively poor countries, who would never pay for anything online. Nevertheless, they pad your numbers. Not to mention that you can have multiple accounts, sock puppets, etc.
The market rewards this behavior: Facebook is worth $40B not because of ads, but because of the potential to eventually sell something to a significant fraction of its billion users. App.net would have a hard time being worth several billion dollars if you do the math, which is completely fine. Perhaps they could have 100k real users paying $50/year = $5M. That might justify a valuation in the tens or hundreds of millions, depending on growth rates. Fantastic for a bootstrapped company. Not nearly good enough for Twitter's investors who put over a billion dollars into the company.
The market rewards this behavior: Facebook is worth $40B not because of ads, but because of the potential to eventually sell something to a significant fraction of its billion users. App.net would have a hard time being worth several billion dollars if you do the math, which is completely fine. Perhaps they could have 100k real users paying $50/year = $5M. That might justify a valuation in the tens or hundreds of millions, depending on growth rates. Fantastic for a bootstrapped company. Not nearly good enough for Twitter's investors who put over a billion dollars into the company.
I wrote a blog post about this yesterday: http://diegobasch.com/the-dangers-of-being-a-product-instead...