I'm still not really convinced a huge ecosystem can be built solely on advertising. Under this view of the future, the problem is advertising supply shoots through the roof, and even before we consider advertising-specific issues like saturation, we're already looking at a quickly-dropping price. Consider the fact that someone getting constantly beamed advertising isn't really getting anything out of it and the prices drop even further. You can't count on making money that way. Even today it's already not a panacea and you can tell from HN comments that it's generally considered a weak business plan today to count on advertising to fund your startup. There's still a "step 2" missing here for me before you can really build a long-term platform out of it pervasively.
I think it's important to note that huge ecosystems have already been built solely on advertising. Forget google and go back 50 years to look at radio and broadcast television. I think those are the huge ecosystems you are looking for, not a startup.
Not in the sense I mean. Notice how I talked about supply and demand. In a mass media world, supply of advertising is actually very sharply constrained; a 30-second spot on the Superbowl is in short supply. Banner ads are not in short supply, and the idea that I can use ad-supported hardware to access ad-supported internet to use an ad-supported service like YouTube in which ads will be embedded into the video, and that all of these ads will somehow be profitable and something you can build your business on, is quite different from a world in which there's ten minutes of ad time an hour on three major networks to buy, and a finite amount of newspaper space, etc.
I think you're forgetting that not all websites/youtube videos are equal. Having a banner ad on some random webcomic is not the same as having one on penny arcade, just as having an ad on some youtube video is not the same as having one on smosh's video, just as having an ad on channel 738 is not the same as having one on basic cable. Furthermore, doesn't a website have these same constraints? I only look at each page for a finite amount of time, each youtube video is only a finite amount of length, each website only gets a certain amount of viewers.
I think the web in general still has the same constraints as more traditional media, they just aren't as obvious. A website getting x unique visitors could show x unique ads, a different ad for every visitor. But maybe that isn't very effective, so the website reduces the number of ads they show in order to have each ad by seen by more visitors, thus reducing the supply of available ad slots. These constraints aren't as obvious as they are for television or radio, but I think they still exist.
I think you're right that J. Startup can't depend on banner advertisements as a form of revenue, but J. Startup is probably using google as the middleman. However, in this situation, J. wouldn't be building an advertising ecosystem, but depending on google's already huge ecosystem.
I don't think it will be farfetched in the future to see free hardware given away in order to earn advertising dollars. I bet if televisions were cheaper, broadcasting companies would have given away free hardware, and perhaps in the future hulu will give wifi devices to get people to watch hulu whenever they have a free moment.
