I’ve been watching the death spiral MySpace is in for a while. Back in December I interviewed CEO Mike Jones onstage at LeWeb. Back then I thought maybe MySpace could pull it out, but since then I’ve learned the MySpace “plane” that’s in a death spiral has increased its velocity — in the wrong direction.

Since talking with Mike in December I’ve been asking people involved what went wrong and two common themes have evolved:

1. Their bet on Microsoft technology doomed them for a variety of reasons.
2. Their bet on Los Angeles accentuated the problems with betting on Microsoft.

Let me explain.

The problem was, as Myspace started losing to Facebook, they knew they needed to make major changes. But they didn’t have the programming talent to really make huge changes and the infrastructure they bet on made it both tougher to change, because it isn’t set up to do the scale of 100 million users it needed to, and tougher to hire really great entrepreneurial programmers who could rebuild the site to do interesting stuff.

Here, let’s go back and watch the video with YFrog’s CEO, Jack Levin. He was one of Google’s first infrastructure employees. Now, consider that Silicon Valley has lots of talent like him. Think about the technology he knows. Hint, it isn’t Microsoft. Microsoft’s technology just isn’t used by many serious web companies that I know. Stack Exchange and PlentyOfFish are two notable exceptions and neither is located in Silicon Valley and they hardly are companies with the scale of MySpace used to have (more than 50 million users).

Workers inside MySpace tell me that this infrastructure, which they say has “hundreds of hacks to make it scale that no one wants to touch” is hamstringing their ability to really compete.

For instance, I asked why MySpace didn’t really do anything great with all the Facebook likes I’ve put into that system (that’s a new feature MySpace added late last year, but it doesn’t seem to work very well). Or, when I asked Mike about how he was going to do something like Aweditorium did, he didn’t have a good answer. They answered with the cameras off: they can’t change their technology to really make new features work or make dramatically new experiences like the one that Aweditorium brought to the iPad. And now that they have laid off a lot of people morale is down and hiring is very tough for them, they tell me.

Which gets me to the Los Angeles issue. There just aren’t “web scale” companies down in Los Angeles, and because Los Angeles is such a large place — it can take hours to drive across the city — there isn’t a single neighborhood that has built up a good talent base, the way Palo Alto or South of Market in San Francisco has.

This bet on Los Angeles doomed MySpace when Facebook came along. Facebook has hired tons of talent from Google and other companies. This expertise helped Facebook not only keep up with scale, but add new features. Just today the QA team at Facebook shipped a cool new feature.

In Silicon Valley company managers, investors, and others have noticed these two things and are actively betting against both. This will make it tough for Microsoft to get its cloud computing strategy to work and will be tough for tech companies (and money) to locate in Los Angeles. It wasn’t lost on me that yesterday when I was at Y Combinator several of the folks involved there bragged that Ashton Kutcher visited the headquarters a few weeks ago.

I remember back when I worked at Microsoft that folks in the evangelism department bragged that they got MySpace to switch to Microsoft technologies like ASP.NET (MySpace used to be on ColdFusion which was an even worse technology bet and was creaking all over the place). Facebook, meanwhile, had made bets on LAMP (Linux, Apache, MySQL, PHP) and that let them hire quicker and find people who knew how to scale that stuff up big time.

Interesting lessons to watch. What decisions has your company made to accelerate innovation or doom it?

http://www.cinchcast.com/cinchplayerext.swf

Like with the earlier Path, first experiences matter and are mattering more every day. Why?

Because most of the startups in the mobile space are NOT getting most of their users from a great post in Techcrunch, or a tweet or a video from me. And with 500,000 apps to choose from we won’t go back and give folks another chance. There are too many five-star apps to consider for us to go back to trying two-star ones.

Where are the droves of new users coming from? The featured lists in app stores. iTunes has become a DOMINANT way for apps to get more users. Why do you think Angry Birds keeps releasing all those updates? (So they are able to get another “featured” spot on the iTunes store and gather another few million users).

So that brings us to yesterday’s release and hype fest of Color. Where did the hype come from? Well, they got funded for $41 million. Really? Wow.

When I started up the app I had a horrible first experience. So did many other people. The reviews on iTunes are scathing and are averaging two stars. That’s the kiss of obscurity right there. In fact, the company knows this and has put a warning right on their home page “don’t use Color alone!” That’s not enough, cause most of us don’t live in San Francisco or New York.

Last night this pissed me off so much that I opened up my iPhone and gave a rant about Color that’s going around the Internet.

In it I explain why I had a bad first experience (I don’t live in a big city with tons of early adopters, so when I started it up there aren’t any other pictures in the system) and what I would have done about it (copy Foursquare, who only released in San Francisco and New York — I couldn’t even use Foursquare for the first year of its life because I didn’t live in a big city). Foursquare’s “bad first experience” was much better than Color’s, because I could at least understand the use case. Here I’m left wondering.

This is also the problem with taking so much money, I note in my audio rant. They felt they had to “go big, or go home.” Compare this to how Foursquare launched. Controlled, small, and focused on making sure that the first real experience was good.

To the VCs: you’re gonna get burned if you keep pouring in so much money on new companies. $41 million? For a new company that hasn’t proven themselves? Really? Just because you have superstars on board? Really?

I wanna see that pitch deck. It must have had some magic unicorn dust sprinkled on it or something. In fact, someone posted this Color pitch to the Internet which is very funny.

But, seriously, I hope Color has a secret plan we’re not all seeing. Just the promise of building a new social graph isn’t enough.

Speaking of which, look at the reviews it’s getting on iTunes. Average is two stars. Compare to Instagram. Average is five stars. How much money did Instagram have when they started? Not $41 million.

Users care about great experiences, they don’t care how much money you collected on Sand Hill Road.

One last thought. This is the kind of app that would have been a lot of fun to use at SXSW. It should have launched there. Whoever slipped the release date to after SXSW should be fired. They missed the market window and will never get it back.

Next!