(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.
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.