Compare sites like Classmates to MySpace or FaceBook. The latter two are free while the first one charges for upgraded memberships.
Look at how much MySpace sold for and how much FaceBook is valued at. I don't think classmates even comes close. So personally I don't think the "enhanced memberships" is the way to go with social networking sites.
For now just do some testing of ad placements. A 20% increase in CTR (which isn't much - going from 1% to 1.20%) would increase the revenue the same as adding 10,000 new members assuming you have 50,000 members.
[edited by: BradleyT at 8:42 pm (utc) on June 19, 2007]
I think where Classmates went wrong was, you couldn't do much of anything on there without paying. There was no reason for any non-paying members to use the site. I believe enhanced membership can work; just don't totally cripple the free accounts. I find that some people will use the free account for weeks or months before upgrading to a pay account--these people won't last five minutes, if the free account is too crippled.