Anatomy of an Internet death spiral

Be forewarned, Facebook: When tech companies screw customers, tech companies die. See Zynga and Digg for proof

Today I got an email 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 email 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.

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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.

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