I'm not so sure SO will lead to a smaller pie. The walled nature of EE limited its appeal to the largest part of the audience (the people looking for answers). So although their business model was more direct, they were basing it on a smaller corpus, with fewer viewers. An indirect (advertising-based) model over a much larger number of eyeballs could well make for a larger pie.
The challenge for SO is to see if they can maintain a high quality corpus as they scale, so people will keep producing and consuming their answers.
I'm not sure experts exchange were making that much of a killing selling access subscriptions? There's clearly a lot of ill will towards them, but I would imagine they are still in a pretty good place if they want to move to a more usable ad supported model they would hardly be starting from scratch.
Reading through the comments on Meta StackOverflow to the question, two things become really obvious to me.
1. I'm so used to the hyper-insightful Hacker News business users that the many of the SO responses seem very idealistic. In other words, I get the impression that a lot of them are coders who think the world 'should work a certain way' but have no real business experience.
2. SO isn't making much money and isn't too keen on telling what their business model, if there is one, actually is.
I think there is a real mistake in all of this discussion in conflating StackOverflow and StackExchange.
What StackOverflow did to Experts-exchange, StackExchange is trying to do to Demand Media/eHow, and they seem to be trying to do it the same way by building a better product and providing better answers.
You know, just last night I just looked up "how to flip an egg" and ended up reading a Wikihow article. I can flip pancakes great sans spatula, you see, but doing a decent egg over easy continues to elude me.
I could see someone trying to look up tricks to pouring water without spilling it, maybe. Never thought I'd say that, though.
I do wonder whether Stack Overflow will become a victim of their own success. By providing a place to get answers from experts to technical questions, actually employing an expert is worth much less than before. In other words, Stack Overflow is turning knowledge into a commodity. This makes experts less valuable in the marketplace. It therefore makes running a job-listings page (or "elite CV service") less profitable.
Furthermore, since SO profiles are public, other job-listing companies in the market can easily leach off the reputation mechanism just by adding a "Stack Overflow profile" field.
Stack Overflow is a wonderful site, but I think their free services are a long-term threat to the profitability of their premium services. When knowledge is free, there's no reason to employ an expert.
Take 10 master wood workers and put them in a room, give a low-skill wood worker all the tools they need and the ability to ask any of the masters any question they like at any time and get the answer.
Do you think this will result in the same quality of work as if a master wood worker had done it?
Why would you imagine software to be so different?
Being able to get past any particular technical speed bump is a tiny part of what makes a more experienced developer valuable.
I think this goes back to the "bigger piece of a smaller pie" mentality. There's a huge difference between someone capable of looking up answers to things that have been done before (SO) and someone capable of generating novel solutions to problems (an expert.) What will diminish will be the demand for people excellent at memorization while demand for problem solvers will go up. Only time will tell if it's net-0 but I think this is a healthy direction for professionals and businesses.
I think their business model is to be a trusted source of information. My problems with Google and Bing are that for some topics the top results are mostly spam. I get eHow sites or other spam sites. What I want are trusted sources of information. Their business model is vertical search.
That's not a business model. A business model would be monetizing being a trusted source of information. How do you do that? Google use adverts, Experts Exchange charge admittance, are there other options?
I didn't look up the technical definition of "business model" but it's pretty clear to me that their goal is to dominate vertical search and be a trusted source of information.
They are following the same path Google did. When Google started the didn't know how exactly they'd make their money. Their goal was to be the best (and least intrusive) search and monetize later. Being the primary, trusted source of information in a bunch of vertical search areas has obvious value.
One potential avenue is to become a sort of university. They know the areas that people are asking lots of questions about and could setup a course to cover the topic. They don't actually have to be the ones to setup the course. They have the information to sell to someone who would setup the course.
The preceding is just an example of how being the leader, that is having the information, is the business model (or goal if you will). Trusted information has value.