Over the last year or so, I spent a great deal of time discussing in somewhat painful detail Facebook's relentless evilness; and how, despite the mega-hype surrounding Facebook as the next big thing, evil would ultimately come back to eat Facebook from within - because, today, evil itself is a profound strategic error.

Today, there's an interesting post from 20bits outlining some fairly strong evidence of exactly that: declining platform growth. In the dismal language of economics, "evil" means that Facebook's platform is deeply biased against both developers and consumers in favour of Facebook - and so, unsurprisingly, it has fallen prey to adverse selection. The apps that benefit most from joining Facebook's platform are the apps that create the least value.

As the post points out: "...the fact that Facebook continues to change the rules and selectively break them for their own benefit means the risk [for developers] is comparatively higher."

I think every boardroom should take a vital lesson away from this simple, sad story of profound strategic error - the Faceboook Effect.

What's the lesson?

Here's the simple version. Facebook wanted to rule the world; to dominate it; to be the next Microsoft. That's not revolution - it's just strategic fascism. And it should be intuitive that fascism cannot hold in a world where power is getting more and more radically liquid by the nanosecond. It's a delusion; a kind of deep corporate psychosis; the blind fetishization of power and coercion, with no concern for value creation.

Sarah Lacy offers a different perspective - that maybe declining developer numbers are good for Facebook, since they might point to maturity for the platform. It's a good argument - and I wish it were true. But that would imply competition sorting winners out from losers. Rather, the economics - Ponzi economics - point to a very different strategic truth. Given Facebook's relentless march of evil - every app is increasingly a loser.

And that brings us to the deeper lesson. Facebook is just a tiny, trivial example of a profound economic shock. Given business as usual's relentless march of evil, we are all increasingly losers - as consumers, producers, citizens, and people.

That's what the Facebook Effect really is: today, the price of evil is the very real loss of many different kinds of value. Put another way, advantage isn't in technology, resources, or industry forces: it begins, and often ends, with you - it's in your DNA.

No amount of gloss can repair rotten DNA - in fact, Facebook's recent poaching of Google's PR head is, if anything, a stark confirmation of Facebook's relentless evilness. Facebook's problem isn't that people perceive it to be evil: it's that it is evil.

The Facebook Effect is vital because business is way (way) behind the curve in thinking about the price of evil. For example, here's an essay that YCombinator's Paul Graham wrote about the value of good...last week.

But at least investors are belatedly getting a tiny bit clued in to the price of evil, even if it's probably far too little, way too late. Corporate boardrooms are, for the most part, are still oblivious to the value of good vs the price of evil.

I think that must change - and it will change - whether or not yesterday's industrial-era dinosaurs can evolve enough to survive the extinction event. What do you think?

I haven't been posting a lot lately. Why not? I've been talking to lots of people - about a topic that is perhaps worth discussing here.

There's growing awareness of a disturbing incrementalism gripping Silicon Valley. Here's a nice article by Jeff Nolan about it, with follow-on discussion by Tom Foremski;. in a strikingly similarity to my comments over the last few months, Tim O'Reilly recently opened the Web 2.0 conference by asking entrepreneurs to solve bigger problems.

What's really going on here? I think the malaise is deep and systemic. Many of you may disagree - but I'm vastly disappointed in the moral and strategic bankruptcy of today's crop of venture investors and so-called revolutionaries.

There are huge shocks rolling across the global economic landscape. Here are just a few. Food prices are skyrocketing. The financial system is melting down. Energy, of course, is more and more toxic, and costly. We are all, make no mistake, dancing on the precipice of economic cataclysm.

It is the obligation of radical innovators to create new value by solving these problems - or cede capital and resources to those who can.

But today's revolutionaries are sheep in wolves' clothing. They're lost in the economically meaningless, in the utterly trivial, in the strategically banal: mostly, they're cutting deals with one another to...try and sell more ads. That is, when they're not too busy partying. .

I hate to say it - but this abdication of responsibility is an act of moral bankruptcy and moral hazard. It's a betrayal as deep, perhaps, as that of Wall Street. Not just of those across the globe who are suffering - but also, in the sterile language of yesterday's economics, of their own limited partners and shareholders.

Why? Simple: given their magnitude, it's by solving exactly these problems that the most explosive amounts of new value can be created.

Today's crop of investors and startups are perhaps even more economically autistic than megacorporations. Too many are willfully blind to today's deepest and most essential strategic truth: that the path to radical value creation isn't cutting more deals (dude, high-five!!) - but in rebuilding a flawed, false global economy: one which actively transfers wealth from the poor to the rich, from the sick to the healthy, from productivity to cronyism.

And that's why the failure to address these problems is a strategic bankruptcy as well. The self-indulgence of today's so-called revolutionaries in a darkening economic twilight is a recipe for strategic suicide.

So here's my challenge. If you're a revolutionary, then be one: put your money where your mouth is, and fix a big problem that changes the world for the better - if you really have the courage, the purpose, and the vision, that is.

In fact, I'll happily put my money where my mouth is. I think these problems are so important, I'll take a bit of time away from setting up my new lab, to advise five startups, funds, or companies that I think have the greatest insight into fixing them - you know how to get in touch with me.

I'll be posting more about how I think these problems can begin to be solved in coming days. For now, fire away in the comments and share your thoughts - it's a discussion that, perhaps, more of us should be having.

A few weeks ago, we discussed the decay of orthodox brands, and the deeper strategic principle the economics driving that decay reveal: listening beats talking.

Here's perhaps the most significant - and unexpected - example lately of a company striving to shift from talking to listening: Starbucks. Starbucks has launched a new website called Mystarbucksidea, where anyone can submit cool ideas - where others can talk, and Starbucks can listen.

Mystarbucks idea isn't a trivial, meaningless initiative driven by a wannabe-cool factor. In fact, it's one of only five planks of Starbucks' new strategy: listening beats talking is at the heart of rethinking a deeply troubled business that has lost its purpose, principles, and passion, and fallen into profound strategy decay.

That's a big deal: listening beats talking is one of the principles reshaping the strategy of one of the world's best-known and most significant companies. But it's not surprising that a bloated dinosaur like Starbucks is trying to get as radical as those at the bleeding edge - like Ideascale, who's building platform to let everyone listen: they're both trying to answer the new economic challenges of a world of cheap interaction.

I don't think Starbucks has got it quite right, for many reasons - it's not fully open, it doesn't have a meaningful organizational structure, radical ideas can't have much of an impact if McJobs have replaced love with zombification anyways - to name just three criticisms. But it is a powerful example of a company taking a small, fumbling step towards the discontinuity - so let's discuss it.

What strategic benefits can Starbucks realize, and what costs does Starbucks incur? How can Starbucks improve it, and where is Starbucks going wrong? Is it just a cynical attempt to manipulate consumers into giving Starbucks cool ideas for free - or is there a more complex fabric being woven here? Where does Ideascale fit into listening vs talking? Fire away.

I've been reading responses to my how to fix venture capital post with interest. Let me take a few minutes to speak to some of the themes that have surfaced.

In a very interesting response well worth reading, Paul Graham says: Google did very much want to sell out, it just didn’t get a high enough offer. Yes, Google did shop what was essentially PageRank around in 1998/99, for terms in the low millions.

But we’re concerned with Google’s strategic behaviour after it had done something economically revolutionary – not just simply technologically interesting. When there was a meaningful, potentially revolutionary business on the line, what happened? Did Google sell out its new value chain design, built around AdWords – or not?

Let’s look at some numbers. Google was offered between $3-$5bn in 2002, if the press was accurate. That’s a (very) generous valuation, given Google's 2002 revenues – and Google didn’t take it.

Paul, perhaps, misses the strategic richness of the story: Google didn’t sell out even when it did get a much higher offer.

Perhaps no one could have offered Google enough to compel it to sell out. Conversely: Google had greater expectations for itself than others did – the beginnings of a purpose.

Let’s summarize some more of the themes.

The real problem is that very little seed stage capital is available – again, by Paul, who reiterates many of the themes we discussed previously. Yes, of course, there’s an equity gap; because of the way funds are organized and managed, it's hard to put small sums to productive use. But why have venture guys not been able to renew their DNA for more than half a decade? Because venture is ridden by structural inertia and risk aversion: exactly the point of my first post. Think about that: absurdly, it takes behemoths like Wal-Mart less time to respond to sweeping new market needs than it does for lean, mean venture investors.

Google was due to a perfect storm of exogenous factors – growing interaction, etc, by Ashkan. That's a good point. But it doesn't help us explain why there aren’t more successful venture companies, for two reasons. First, the economy is undergoing even more severe shocks today than in 2001. Second, it assumes that the firm is simply a victim of its environment – a perspective I think is limiting, and ignores the reality that firms influence and shape their environments.

Dude, the IPO window’s been closed, by Smoothspan. The IPO window’s been closed…during the biggest financial boom in recent memory? Every security under the sun (even ninja loans) could find a market – but not venture equity? Perhaps the causality goes the other way: the IPO window remained closed because venture guys weren’t investing seriously in meaningful new business models and markets – just in features and add-ons.

The public markets have criteria that 2.0 players can’t (ever) fulfill, again by Smoothspan. These are things like stable earnings, and a floor of >$100m in revenues. Let me point out that there’s an existence proof that’s not the case. Perhaps my two of my favourite revolutionaries, Mixi and Megastudy, are publicly traded 2.0 plays – just not in the States. The deeper point is, again, causality: it takes revolutionary new business models to fulfill those criteria: new business models which Mixi and Megastudy are pioneering, but their American and European counterparts aren’t.

Dude, it was obvious that Google was, well, special - a general refrain. I think it was far from obvious: in 2002, Yahoo’s revenues were more than double those of Google. Google’s hypergrowth was dependent on the continuing success of AdWords, etc – and though it seems certain to us today, the very real story is that Google took massive risks to make AdWords truly revolutionary – while Yahoo evaded risk, and continued to buy and sell media exactly as it been bought and sold for the last century.

Finally, the deeper point: uhh…what’s with this purpose stuff? We’re here to do business, not have a love-in. Purpose might sound soft. But it’s a razor sharp way to think strategically in a world where coercing others in the name of near-term shareholder returns is becoming as obsolete as a gas-guzzling SUV. Yes, purpose is difficult – because we have to question our assumptions about why and how we manage firms the way we do.

Thanks to everyone for the comments and posts - I wish I had time to respond to all of them.

Fred Wilson just wrote a great post about how venture capital needs new exit options, since right now public offerings are tough, and acquisitions end up trapping innovative startups in corporate bureaucracy.

I agree with Fred that the venture industry is broken. In fact, quite a few eminent investors have said so in recent years. But I think many of them miss a crucial point. Let me take a minute to discuss it (and while I do, you might note that I think Fred is one of the few investors to whom this stuff doesn’t apply)

Yes, we do need a better path to liquidity than the broken one we've got today. But, paradoxically, it's the same old path – which we must somehow rediscover.

That path is simple: true, durable radical innovation, backed up by something today's venture industry is missing in spades: a deeply felt sense of purpose; the courage, hunger, and commitment to stay the course.

Let's revisit the spectre haunting venture capital. Why aren't there more Googles?

The answer's very simple. Because every company that had the potential to be economically revolutionary over the last five years sold out long before it ever had the chance to revolutionize anything economically.

Think about that for a second. Every single one: Myspace, Skype, Last.fm, del.icio.us, Right Media, the works. All sold out to behemoths who are destroying, with Kafkaesque precision, every ounce of radical innovation within them.

Let's replay the Google story. Google, despite serious interest from Microsoft and Yahoo - what must have seemed like lucrative interest at the time - didn't sell out. Google might simply have been nothing but Yahoo’s or MSN’s search box.

Why isn’t it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better. Because it did, it held on and revolutionized the advertising value chain – and, in turn, capital markets gave Google an exuberant welcome.

See the point? If all Larry, Sergey, and Google's investors had wanted to do was to sell out fast to the highest bidder, they could have done so at any time. But they didn't: they chose to revolutionize something that sucked - and so a tsunami of new value was unlocked. That's how Google was made.

Now, I agree with Fred. Equity capital markets are myopic, beancounterly, and soulless. But it’s not venture’s job to fix those problems. The real problem is internal: structural inertia and risk-aversion.

Why? There’s little turnover in the actual pool of venture investors or venture funds, especially relative to the pace of innovation. And, that, in turn, means that the venture industry is fast becoming an old boys club: one big boardroom mostly full of guys with the same perspectives, beliefs, and incentives.

And so what's happening isn't surprising. The dynamics of old boys clubs are almost deterministically predictable: they fight tooth and nail against risk, against the radical, against any kind of change to the status quo. They're great at "monetization" - cutting deals - but the last thing old boy's clubs are good at, unfortunately, is sticking up, come hell or high water, for innovation. From music, to publishing, to food, to autos, the outcome of locked-down boardrooms has been innovation stifled and suffocated.

What business are venture investors really in? You may disagree with me – but I think they’re in the business of creating new industries, markets, categories, and value chains. The problem with risk-aversion and cronyism is that investors end up creating exactly the opposite: low-value services and features. Is it any surprise that there's a lack of economic interest in those?

So what do venture guys do about it? In fact, though they’re interesting, only a tiny part of the answer is secondary markets for private and venture equity.

A much bigger part of the answer must come from within: rediscovering the purpose to put true, durable, meaningful conviction behind investments.

How about democratization? Why can't you invest in a venture fund if you want to? Direct investment would go a long way towards curing risk aversion - fast.

How about transparency? We talked last week about industries hiding in the shadows. Guess who's particularly adept at it? Venture investors: venture returns deliberately aren't publicized, and those who dare to publicize them are punished. Small wonder, then, that risk aversion is free to blossom.

How about looser, more open structures for venture funds, which can let fresh blood in, amplify competition, and fuel the passion and principle not to sell out to the highest bidder the fastest? After all, that's what used car salesmen are for - not investors whose job it is to build a better future.

The most profound irony is that it's exactly that new DNA - radically more open, transparent, democraticindustries, value chains, and organizations - that are at the heart of the movement venture investors are investing in. But they refuse to inject it into their own bloodstream.

There's a much simpler way to say that: advantage is in the DNA. It's doubly true for venture: because you can't revolutionize something if you're too busy selling out.

There's a theme that's surfaced in response to my strategy crisis post that I think is particularly toxic.

That's this: thinking differently about strategy is impossible - or, perhaps worse, that it's naïve.

Let’s take a second to explore.

Strategy isn’t written in stone. Rather strategy is built upon a given set of economics – at the simplest level, a set of payoffs.

Today’s economics are in shock – numerous shocks are rolling across the global economic landscape.

As economics changes, so must strategy. What was “strategic” yesterday is less and less strategic today.

And that requires us to have strategic imagination: to be able to imagine fundamentally new possibilities for truly strategic behaviour.

Now, that’s hard work. Very few companies are able to tap – let alone master – strategic imagination.

Why not? Strategic imagination is tremendously difficult because it requires us to put aside yesterday’s tired assumptions and orthodoxies, and begin to actively rethink from scratch the way value can be, should be, must be, will be created.

The surest, most lethal killer of strategic imagination is being reined in by orthodoxy: thinking that tomorrow must be like yesterday.

Here are a few examples of strategic imagination:

It was naïve for Apple to think that it could make a better mobile phone from scratch – and that a simple phone could redesign the rotting mobile value chain - or so Nokia and Sony Ericsson thought.

It was naïve for Tata to believe that a car affordable for the world’s poor could ever be designed, let alone produced - or so Detroit thought.

It was naïve for Google to focus on doing no evil before focusing on revenue and profitability - or so Big Media thought.

It was naïve for P&G to open up, and explore radical new modes of interaction, instead of pursuing orthodox advantage by staying closed - or so Wal-Mart thought.

It was naïve for H&M and Zara to imagine that cheap clothes could be hyperfashionable – more fashionable than couture - or so the Gap thought.

What do these examples have in common? They’re examples of strategic imagination that required firms to be naïve: to start from scratch, to see, in Technicolor, a better world not constrained by today’s stifling and suffocating status quo.

Ratan Tata, in the article above, talks about a "leap of faith". That's the next stage of strategic imagination: being able to see and then believe in a vastly different, radically better future – and not being limited to seeing and believing in a grainy, washed-out future that seems depressingly inevitable.

The edgeconomy demands firms explode their capacity for strategic imagination. But taking leaps of faith is exactly what orthodox firms are built not to do. That’s why only a single player on that list is an orthodox incumbent – P&G: the rest are new entrants, or lateral entrants.

Another example. I’ve been talking about artificial scarcity quite a bit. Here’s JP Rangaswami discussing responding to artificial scarcity with artificial abundance. Now that’s the beginnings of strategic imagination.

Edge strategy isn’t for incrementalists. Those who think games built for an industrial era are still the only ones worth playing need not apply.

Rather, it takes a profound appetite for revolution: a profound ability to let go of yesterday’s stale, tired, and thoroughly toxic orthodoxies - to explode the shrunken, stunted strategic imagination the industrial-era firm suffers from.