See: http://www.nytimes.com/2010/05/16/magazine/16Journalism-t.ht...

"Advertising always accounted for the vast majority of the publishers’ revenues — with newspapers, 80 percent was the rule of thumb"

Regardless, it's a very different issue if your core value proposition is "using this is super useful and awesome because everyone you know is also using it". What would be the optimal pricing model for a TV network that was exponentially more enjoyable the more people were watching it? $0.

I think the reason things are ad supported is because making money from advertising is really simply. You need one person at your organization to call an advertiser, and a day of his work can give you millions in instant cash. Customers, on the other hand, require a lot more maintenance and generate less money per individual, so scaling up a business based on customers paying money is very difficult. (Even Microsoft, a huge company that sells software, prefers to get OEMs to buy you a Windows license. One deal with one OEM equals millions of dollars. One deal with you equals $39.)

Advertising isn't required; lots of services do fine without it, even some free ones that make money through other methods. I'm just saying that in general people seem to prefer paying with their attention to paying with their cash. If you can somehow shift that balance, then yes, advertising could go away. But I don't think that will ever happen, because people just don't value their attention and time like they do their cash. I think it's a side effect of human nature somehow.