The internet is built on free-or-nearly-free operation. That's the beauty of it and I don't think Web 2.0 is likely to fall apart any time soon because of it. As the author says, the VC-funded "get big fast" sites will face some major challenges going forward, since the market has proven itself transient and eager to move on when things take a wrong turn(the growth of news.yc is attributable mostly to refugees of other sites moving in), but those companies are really a sideshow to the main event, which is happening in little fits and starts and niches.

I feel that the real stars are usually operating fairly quietly, building on a primarily-open model rather than a walled garden, and creating strong businesses in a highly traditional fashion: by being the best around. (cue the Joe Esposio song)

You can still build a stable foundation on an open model if your company holds the expertise in the technology; your immediate competition is likely to be arrogant and compete in the sprint for the walled garden, rather than the marathon for the open model. (other companies working towards an open model are collaborators toward a standard, but competitors in services. Hardly an unusual situation.)

If the competition gets a lot of momentum in an inelastic product(for example, operating systems or instant messaging), that can kill you early on, but over the long term the most-open player usually becomes disruptive and causes the marketplace to expand with a new set of services. That is my observation of most such situations in technology.