In announcing the launch of wp.me, a new URL shortening service for wordpress.com hosted sites, Matt Mullenweg stated the much-need obvious about the increasingly competitive market.

“While URL shorteners have had some incredible usage tied to the growth (and constraints) of Twitter, I question their sustainability as a business. This point was underscored a few days ago when a popular one, tr.im, announced they were going to shut down at the end of the year.”

As I mentioned in a recent post, the URL-shortening business doesn’t have a business model yet. Sure, there’s lots of talk about analytics and a news service but no one has shown they can make money from offering a URL-shortening service.

To date, all the URL-shortening business has demonstrated is that the barriers to entry must be fairly low given the number of players – tinyurl.com, bit.ly, cli.gs, tr.im, et al.

To date, the only viable service is tinyurl.com, a one-man operation (Kevin Gilbertson).

Among the new players, bit.ly has the most potential to be worth anything given it has raised some venture capital, and it was selected by Twitter to be its default URL-shortener, which makes you think that one day Twitter might use some of its VC dough to acquire bit.ly.

In the meantime, the biggest risk – and one that few people talk about – is what happens to all those shortened links when many of theses URL-shortening services go out of business.

Are we talking about a world with millions of dead links? Perhaps that’s an opportunity someone should consider, offering a premium service to revive dead links. (I’m being half-serious!)

More: Search Engine Land has a great overview of the URL-shortening services out there.