Anatomy of an Internet Death Spiral

Today I got an e-mail from Travelocity, begging me to return as a "valued customer," after I had unsubscribed about three months ago.

It wasn't always this way. I used to get Travelocity's e-mail alerts for the better part of a decade. I'd set up a bunch of cities where I like to travel and tell Travelocity to alert me if the fares changed by $25 or more. More than once, I used those alerts to snag truly impressive airfares -- like coast-to-coast flights for under $200.

At some point, that changed. I'd see an alert for a great fare, immediately go to the website to check it out, and find it was inevitably "sold out." Other, more expensive flights were available on those same dates, however -- a classic bait-and-switch. Lately Travelocity has been sending me emails about bogus price drops, like "New York to San Francisco $450 -- save $62 today," when I know damned well the price for NYC to SFO was $400 last week. The price went up, not down. How stupid does Travelocity think I am?

To be honest, I haven't used Travelocity to book travel for a few years. Why? Because I found a better alternative. Kayak.com is faster, easier to use, gives me way more search filters, and -- oh yeah -- alerts me to actual price drops, not fictional ones.

Why am I going on about my favorite travel sites? Because there's a bigger story here. It's about the perils of taking your customers for granted and trying to squeeze more revenue out of them, while at the same time degrading their experience.

I see this happening over and over again on the InterWebs. You know what happens then? As soon as there's a reasonable alternative within easy reach of their browsers, your customers leave.

Take Digg, for example. A few years ago, Digg was the king of the world when it came to driving Web traffic. The company was valued at an estimated $60 million (or $200 million, if you believed TechCrunch). It was hailed as the next great publishing model: Build a site and let your users contribute all the content. I know one editor who expected his writers to spend five to six hours a day on Digg, building up a posse of friends and followers to promote their posts. (As if.)

What happened? Digg became controlled by a cabal of adolescent power users who dictated which stories were popular and which got buried. Digg tried a redesign in part to remove some power from that cabal, and users fled en masse -- mostly to Reddit and StumbleUpon.

Earlier this month Digg was sold for $500,000 to Betaworks. Digg's tech team and patents were acquired separately by the Washington Post and LinkedIn, respectively. Buh-bye Digg, don't let the browser window hit you as it's closing.

Today's instructive example is Zynga. The social gaming giant was flying high a couple of years ago on the strength of its absurdly popular Facebook games: Farmville, Cityville, Mafia Wars -- so high, in fact, it went public last December, raising more than $1 billion in capital.

Now Zynga's stock is in the toilet, and the future for the social gaming king looks a lot dimmer than it did a year ago. I can't say I'm shedding any tears over this. I've loathed Zynga from the first moment I started getting pummeled by Facebook invites from friends who were playing these games and boasting about their achievements. Zynga wisely stopped sending these by default a few years ago, but it remained one of the spammiest Facebook app makers on the planet.

RELATED: 7 Tech IPOs that Flopped

If you've ever played a Zynga game, you'll know what I'm talking about; the pages are festooned with more ads than a stock car, and they're constantly trying to get you to download new games and spam your friends with invitations. I tried playing Words With Friends once for about five minutes, then realized if I continued, I'd be left with Words But No Friends.

Business Insider's Henry Blodget points out that back in April, when the company's share price was four times higher than it is today, Zynga insiders -- including CEO Marc Pincus -- issued a "secondary stock option" and cashed out. Pincus alone made more than $200 million on the deal; other executives and individual investors made from $4 million to $8 million apiece.

Blodget adds: "I know many of these folks personally ... and like and respect them. I think the last thing they would intentionally do is unload stock when they thought it was about to crash."

I don't know any of these folks personally, but to me that move says they could clearly read the writing on the wall, and it said, "Get out now, while you still can!"

Now Facebook appears to be tottering, just a bit. Wall Street is hammering it hard, in part because Facebook truly has screwed the pooch in mobile. Again, if you've ever used a Facebook mobile app, you'll know what I'm talking about: They suck. They're almost useless, compared to the website, and they crash routinely. (Your mileage may vary, but I doubt it.)

Now rumors have surfaced yet again about a "Facebook phone." Like that will solve anything -- if it can't make a decent mobile app, how will Facebook design an entire phone?

The lessons here are obvious: When you ignore your users and pay more attention to revenues and growth projections, you're going to be in for a world of pain -- but not for long. Because soon after that, you won't be around to feel any more pain.

What other once successful companies are blowing it big time? Post your harangues below or email me: cringe@infoworld.com.

This article, "Anatomy of an Internet death spiral," was originally published at InfoWorld.com. Follow the crazy twists and turns of the tech industry with Robert X. Cringely's Notes from the Field blog, and subscribe to Cringely's Notes from the Underground newsletter.

Subscribe to the Daily Downloads Newsletter

Comments