Learn the Most From Your Followers

March 27, 2009 — -- If you've been tracking the news from the tech world the past couple of weeks, chances are pretty good -- especially now that the company has more members than most nations have citizens -- that you've heard about the latest hot water that Facebook has found itself in.

In the newest "scandal," online social network goliath Facebook tried to redesign its home page to give it more "Twitter-like" features -- a not-unexpected move after the company was rebuffed in its attempt to buy the real company. But Facebook's 175 million users -- or at least the noisiest couple million of them -- would have none of it.

We know that because a couple months ago, in an effort to forestall a repeat of its two previous "scandals" -- the Beacon program that shared (sometimes embarrassing) user purchase records with its Facebook "friends," and a change in terms of usage that gave the company ownership of all information on user self-designed pages -- Facebook decided to let its users vote on all new changes to the site.

Now, in the first real test of this user plebiscite program, Facebook's latest information mining/money-making scheme has gone down in flames. The actual vote was 80,400 for the new design and more than 1.2 million against. Comments ranged from "This new look sucks big time" to "This is just about the worst thing ever."

I'd say that's a pretty decisive victory for the status quo.

In his blog, Facebook's director of product, Christopher Cox, tried to put a positive spin on the results, while still rationalizing similar moves in the future: "Redesigns are generally hard to manage, in part because change is always hard and in part because we may miss improvements that any individual user may like to see. We keep in mind that there are 175 million people on Facebook, and everyone uses the site differently."

In fact, Facebook did stick with a few minor changes to the page, and although it did get some negative comments, they were nothing like the avalanche following the big change.

As I predicted a couple weeks ago, this latest failure will not be enough to stop Facebook from continuing to try and implement new money-making features on its site. It has to: The original business models for most of the great Web 2.0, online community sites failed to elucidate a serious revenue model and, now, if those companies are to thrive, they are going to have to make real profits commensurate with their vast size.

But what interests me about the latest wrinkle in the Facebook story are the consequences for that company in trying to respond to the demand by the users for a say in future content decisions, doing just that and getting hammered in a different direction. My suspicion is that many companies right now are watching Facebook's problems and deciding that enlisting users in the strategic planning process is a terrible, terrible mistake.

Companies Don't Understand Products

I think they are drawing exactly the wrong conclusion.

I've never been much of a fan of Facebook and I thought the Beacon program was both spectacularly wrong-headed and a dangerous invasion of privacy. That said, I think this implementation of a user vote on key product changes was a brilliant idea and exactly the right thing to do. I also think that, ultimately, this trust in its customers will pay off handsomely for Facebook, and that this apparent failure will prove to be a great success.

Here's why: Experience has taught me that in business, especially high tech, companies have very little idea of who they are and what they do. Sure, they can come up with a one-line "elevator pitch" about their company to put at the end of a news release but even there, they usually confuse product with user experience.

I believe it was Peter Drucker who pointed out that Black & Decker didn't make drills, but accurate holes. And, by the same token, most tech companies think they make servers, application specific integrated circuits, iPhone apps or online games when, in fact, they make answers to important questions, give directions to that new restaurant and help fill a lonely Saturday night.

Some of the most notorious disasters in high-tech history have arisen from this disconnect between what the supplier sees and what the customer experiences.

Twenty years ago, Intel almost committed corporate suicide when it momentarily ignored the public outcry about a math bug in its Pentium microprocessor. Intel had failed to notice that when it kicked off its hugely successful "Intel Inside" marketing campaign in order to create "pull" from everyday consumers who bought PC's containing Intel chips, that it was also gaining a technologically unsophisticated audience that would be unable to put a comparatively minor, and common, programming bug in proper perspective. Intel thought it was still selling chips, when in fact it was now selling trust.

A decade later, the newest biz phenom in high tech, eBay made a similar, nearly fatal misstate. The company saw itself simply as a supercharged online auction site, but its whole presentation, from its funky logo to its funky "great Internet yard sale" marketing style, convinced its most dedicated users that it was one big family.

And, thus, when the con artists and crooks started targeting the site, eBay assumed that the users would police themselves, while the users wondered why the company wasn't guarding its family members. Then, in a double whammy, eBay unilaterally decided to change is pricing policy without consulting its most dedicated "power" users. The backlash -- a family doesn't do this to its members -- nearly wrecked the company.

Disconnect With Users

You would think tech companies would have learned by now.

But, in fact, the disconnect grows greater by the year and nowhere more so than in the world of Web 2.0. We've all watched in the past couple years as MySpace, which presented itself as a playground for young people, lost all its credibility by not putting security guards on that playground to protect its young charges from sexual predators.

Yahoo! lost the trust of its users when it became a dossier search engine for tyrants -- as did Google, whose crimes were lesser but their impact greater, thanks to the company's smug (and apparently insincere) "Do no Evil" dictum. And, meanwhile, Twitter is heading down the same path, building great edifices of trust and "family" that are already getting shaky as the firm has failed to defend its users against hackers, and will likely come crashing down once the company begins implementing its data-mining revenue strategy.

In light of all that, Facebook's troubles this week begin to look like a noble failure. Leaders -- in politics, business, the military and every other institution -- like to lead from the top, by fiat, because it's a lot easier that way. Most people become entrepreneurs and CEOs because they don't like to be told what to do.

But in the world of social networks -- and, increasingly, everywhere else -- the rules are changing fast. So are the expectations of customers and subordinates. In a world that grows more complex by the day, its problems more intractable, and the expertise needed to survive and succeed more fragmented and scattered than ever, the nature of leadership must change as well.

That doesn't mean there won't always be a place for boldness and decisiveness, but that place needs to move to a different position in the process -- after all the stakeholders, armed with rich, high-speed communications, have had their say and made their contribution.

And that's why Facebook, while it may have gotten the little idea wrong, got the big idea right after all this week.

A Final Thought

Cato the Elder famously included the phrase "Carthago delenda est" (Carthage must be destroyed) in every speech he made, every conversation he had at parties -- indeed everywhere he went -- until his words were heeded.

Well, here is my statement for our current troubles, and I plan to repeat it as often as I can:

You cannot spend your way out of a recession, you can only grow your way out.

Entrepreneurs provide much of the growth, most of the jobs and nearly all of the innovation in our economy. So you must unleash America's entrepreneurs. To do that will only take four simple things:

Suspend "mark-to-market" accounting;

Make Sarbanes-Oxley voluntary;

Abandon stock-options expensing;

Leave the capital gains tax alone.

That's it. Prosperity will follow.

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000.