ELI5: "If something is free, you are the product."

I assume you got this off of the gilded comment about Digg's downfall? What it means is that if a website is spending its time and resources to deliver content to you without asking for anything in return, then they are probably selling information about you to others to make money. Take Facebook, for example. The site is free to use and the company has poured millions of dollars into developing the site and keeping it running. However, they make money by selling your personal information to advertisers and by allowing advertisers to target specific users with ads. Therefore, you are Facebook's "product" because they sell you to advertisers although it would be more accurate to say that information about you is Facebook's product.

This applies to most internet sites, but not all of them. Wikipedia, for example, is non-profit and relies on donations.

Edit: Facebook does not sell your information to third parties. They work directly with advertisers and use your information to target ads. They probably do not sell your information because it's more profitable for them to keep their wealth of information on their users to themselves (for now). There are companies that do sell your information to third parties, though. The phrase applies in either case since a company is using information about you to make money from companies that are interested in utilizing that information.

See: http://consumerist.com/2012/02/17/target-figures-out-teen-girl-is-pregnant-before-her-father-does-sends-helpful-coupons/

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