This industry is following the technology adoption lifecycle - where the market/technology has reached the majority portion of it's lifecycle.
Geoffrey Moore has a book on this specific phase, which he calls it "Into the Tornado"
As with all new markets/technology that reaches the masses, they follow the phases
Innovators - SixDegrees.com, Friendster.com, Myspace.com - the early development saw a few successful experiments that gained tremendous traction - and as systems scale, there were lots of things that could go wrong. Technology wise, Friendster switched from JSP to PHP and market wise, people were finding out how to use this early technology. Friendster had a lot of early issues which were not resolved well that ultimately lead to users leaving it for another network - issues such as privacy, removal of accounts, et al.
The Chasm - In getting tremendous adoption, there are some barriers where the value proposition of the service would become clear and word of mouth is very strong amongst its users. During this phase of the industry, MySpace managed to saturate an important youth segment - revolving mainly around music - and had some customization features that appealed that group - creating a very vibrant use case as new bands were being discovered on MySpace (Artic Monkeys). During this phase, other startups started popping up and Facebook, Bebo, Hi5, LinkedIn, Orkut, OpenBC, Zorpia, et al were learning from the plentiful of adoption lessons available. Digital cameras also started becoming more widely used, hence social sites had a very compelling feature over traditional community sites - photos of the participants.
Friendster at this phase wasn't scaling well - pages took too long to load during peak hours and users started looking for alternatives.
Early Majority - In this phase, Metcalfe's Law kicks in big time, Facebook had tremendous momentum by saturating the colleges market and even high school - This is the tornado phase - where new adopters are looking for a very compelling service - (1) Availability (2) Ease of use (3) Where their friends are at. Market leaders are made during this phase, while MySpace had initially gained the lead - their flexibility in allowing customizations, security & privacy issues - lead them to their exit to News Corp.
Exits by founders usually mean transition - and transition usually means the development roadmap gets stalled for a while - this is where Facebook started catching up. Facebook continually incorporated ideas (widgets), updated their interface based usage figures & A/B testing.
Facebook also implemented strong platform oriented initiatives such as an API mechanism to involve third party development in providing services to its users - allowing the growth of companies such as Zynga - while MySpace was busy inhibiting successful third party developers such as Slide and Photobucket.
The writing is already on the wall. Nobody wants to use a poor service.
Here's a story about friendster/myspace during this period.
Late majority - In this phase, consolidation would tend to occur as the market saturates out - hence creating a ripe opportunity for startups to occur again, in providing a different value proposition - as with all new industries, specific niche players would emerge and other similar outfits would combine.
In all four phases - the skillset of the company leadership are entirely different, Geoffrey Moore's books describes them in details - as what made them successful may become a hindrance.
In summary, when there is a new product or service that can allow for a new and/or better way of doing things not possible before - the new market created does not follow much of the general economy - and they go along their own paths - the most compelling example of such a phenomenon is non other than Moore's Law, which Craig Barrett mentioned that having lived through multiple recessions - nothing has stopped the doubling of computing power every two years.
Twitter IMHO is in the chasm crossing phase - Google bought their initial competitor, Jaiku - way too early before the technology reached much potential. If they do not get a strong competitor to challenge them, there is a chance that they might fall into the chasm. Might still be profitable - but they are quite lonely up there now. Sometimes you need a competitor to make you stronger.