You may think you know what customers want, but until you build it and you get it out to them you'll never know. Cary Rosenzweig, IMVU CEOBlue Mars announced that it is suspending work on their PC client and shifting their efforts to to the iOS platform (iPhone/iPad/etc.) Although the announcement puts a positive spin on the new direction, the bottom line is that their multi-million dollar investment in a high-end virtual world never caught on. They're taking their remaining money and hoping to survive by creating a new application that can be developed quickly and cheaply for the huge mobile market. I wish them luck.
Tateru Nino did a fine job analyzing what went wrong on the technology side. But I think the underlying problem was that they directed their efforts based on what the management team thought was compelling rather than on what users really cared about. The stream of beta versions they released was used just to debug, rather than to enlist the users help in shaping the emerging platform.
Contrast this with IMVU, a company that has grown to fifty million registered users and a profitable $40 million annual revenue run rate. They've shaped their product through an Agile development methodology focused on continuous releases directed by user feedback. I love the spirit expressed in their engineering blog and the video below: