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Isn't Google's blogs web app something like a Geocities knock-off? I realize there are major differences, probably the most important that you don't have to actually know html to create and update a blog site. Also, I have no idea whether Blogger is actually profitable or not; I don't think that matters so much to Google if it helps their overall reputation and data collecting.
You would need a great server with lots of bandwidth, and probably the ability to create subdomains on the fly ( those are better than sub-folders ), probably a database server to deal with user accounts and URLs in real time, and if it's at all popular you'll need a load-balanced server farm. Then you'll need software, like a user interface.
It will take a great deal of work building the software, and a lot of server resources storage, and bandwidth. I'm not sure whether you'd support that with membership fees, donations, or ad revenue, but your market is people who don't have quite enough tech skill to get a hosting account and build their own site, but want to have one nonetheless.
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