The per-user profit of Facebook (in very fuzzy numbers) is on the order of $1-$2. Presuming there would be some feasible way of capturing this or its equivalent revenue by non-advertising means, a subscription-based service is feasible.
The real problem is that most users are subscription-averse, which has a knock-on effect of making it difficult to attain sufficient network size (and network effect value) while charging fees. Advertising has been the low-friction means to do this for the past decade or so.
An alternative model is to find a sufficient subset of users who are willing and able to pay for a service to underwrite both the remainder and the network growth effects. Craigslist would be the prime example of this. A small fraction of advertising in a small fraction of markets underwrites the remainder of the firm's activities.
Privly is not disruptive because it doesn't remove people's desire to use Facebook. If it did manage to kill Facebook's business model, people would not be happy because it doesn't replace Facebook.
Of course this is a moot point because in general people don't care about privacy, so Privly can remain safely parasitic for the indefinite future. Eventually some major event or series of events may get people to take privacy more seriously, and in that case Privly would be well positioned for growth, but were such a sea change to occur Facebook would be the first casualty with or without Privly.
This service is actually worse than the previous ones because instead of mooching off other sites to host the data they actually host it themselves. There's no business model to pay for their hosting.
(Privly hat back on) Our biggest challenge to legitimacy is interfacing with the web in a way that is private and allows sites like Facebook to "news feed" something only if the user reading the news feed can read the content. This is why we need to work towards a standard where both Facebook et al and Privacy can coexist. There are many options in this area, with differing amounts of privacy, but it is ultimately up to the posting user to post and the host site to decide what to do with it.
It is up to the individual user on what level of privacy is enough for them.
I think this has great potential as a cross posting mechanism. I can't switch to Diaspora because of network effects. How do I leave my family at Facebook? With Privly I could cross post very personal content, but not give the content to anyone outside the family.
There may be a peculiar outcome though. If AdBlock manages to decrease demand, will that increase the cost of advertising or increase its effectiveness? Those not adblocking would be the ones easily sold.
Advertising profits not dropping could be enough of an illusion so that, with enough adblocking, one could try a Groupon in reverse.
@wmf: one business model would be users paying for privacy themselves.
Is your aunt glenda passing away going to make your feed? Nope, because Coca Cola wants to tell you that they've got a limited edition coke bottle out for the 2012 Olympics.
However, I don't agree that Privly would necessarily end the current set-up entirely. It might result in a little more bargaining power for users who, up until now, haven't had any leverage in the user-host relationship.
One outcome that doesn't mean the end of user data-based businesses is where they modify their 'terms of use' to restrict or ban the use of this service. In this case, it's not clear how users could wrest back much control over their information, however.
If that's true then there isn't the economic incentive to bother with any paid accounts.