In 2008 Digg was valued at $164 million.  At its height it was one of the most popular social media sites on the web.  Last week it was announced that Digg was acquired by Betaworks, a New York technology-investment company, for a mere $500,000.

What lessons can be learned from Digg’s meteoric crash?  Forbes has an interesting article exploring the causes, which every company would be wise to learn from.  Here are two lessons I found particularly compelling.

Lip service doesn’t cut it – don’t ignore your users!   The Forbes article discusses how Digg brought many of its “power users” in to participate in a beta program to test its new “Version 4” makeover.  They apparently hated it.  But instead of listening to its users, they reportedly ignored  the negative feedback and made no changes from the private beta to launching V4 publicly.

This very detailed 2010 blog post entitled “7 Reasons Why The New Digg Version 4 May Lead To the Company’s Demise” seems incredibly prophetic today (even ignoring the use of the word “demise” in both articles).

Removing the recommendation engine in Digg v4 is mistake #5 in this article from 2010, which predicted Digg’s demise.

User experience has to be paramount.   The 2010 makeover allowed publishers to auto-submit articles to Digg via their RSS feed.  The result of this change, the Forbes article contends, transformed the site from a quirky forum filled with user-submitted stories to one overflowing with generic content.  It began to feel like MySpace – a spammy and cluttered mess, and we all know how that turned out.

“When you put the need to become profitable over the core purpose of the site, you’re going to lose your community,” says former power Digger Andrew Scorcini.

Certainly other factors played a part in Digg’s demise (like Facebook and Twitter to name two), but not listening to its users seems to have been a critical mistake.  What if Digg had simulated multiple versions of the 2010 makeover, and worked with their “power Diggers” to iterate and innovate until they landed on a version their users loved?   I guess we’ll never know…

Read the entire Forbes article here.