Everyone's happy.

Except probably your hosting company ..unless you have an unusual reseller account? It will no doubt be against their TOS ..and is likely to get you booted off the server.

FYI

People get free webspace in exchange for letting you run ad's on their pages.

People submit the content, update their own pages and you make the money.

In case you do manage to make it fly ..people invariably prefer to have accurate grammar in their advertising ..you will sell more IMO, if you offer this as a "freebie" in all advertising ..

I can make unlimited subdomains.mydomain.com

I'd be using Adsense not my own ad's.

I can make unlimited subdomains.mydomain.com

that is a fairly common package ..but it rarely means that you can resell space unless it was sold to you as reseller account.

I'd be using Adsense not my own ad's.

there are faster ways to get your adsense account terminated by the plex ..but as a business plan your idea is right up there with the fastest 10% of ways to get "the email" ..and then be posting here about "why was I banned from adsense"..

others will no doubt chime in to help you understand why ..

OK so i take this idea doesnt work, thanks

Its a model used my some major "free" hosting companies, but of course they are running it on their own machines. There are a number of issues to consider including:
1. Does your host permit reselling
2. Does your host permit separate FTP accounts for each sub domain
3. Does your advertising network permit this
4. Will anybody trust you enough to take up the offer. (If I couldn't afford my own hosting I wouldn't go with a reseller, only with the company running the servers)

Don't forget that your hosting service will probably hold YOU liable for any sites that breach their ToS. It only takes one idiot uploading an inappropriate photo and all your subdomains may be off line and your customers talking to their lawyers.

You are not a reseller. You are simply providing a service where folks can add content. It is the same as any site that offers users a profile page where they can load content, blogs, pictures, etc.

Now whether or not this is a good idea? I would say it has been done too many times before. Now a days if folks want to upload content and share it, they do it on Facebook, Youtube, Flickr, etc.

You have to give them something better to compete, which is not easy. Maybe a killer domain name would help, but it would be a tough sell.