It's the same thing that happens to all "free"/ad-sponsored/VC-backed services. Unless you're FB or Twitter or YouTube, your ads aren't profitable enough to run your business. The business model is unviable unless you get that big. So you lose a bunch of money until you find a way to monetize or close. This always takes the form of user-hostile anti-features. Currently that's forcing users into your special apps, where they can't install an ad-blocker. Historically it's been stuff like increasingly scummy ad behavior, and/or requiring paid accounts to access features that used to be free. Your platform gets less useful and gets replaced by the next "free"/ad-sponsored/VC-backed money loser and the cycle repeats.
It's happening to imgur and Reddit now. Time to find the next big thing.
I call this the dismal equilibrium. Anything free that provides value is, in brute economic terms, mis-priced. Thus, it tends to degrade due to attempts at monetization until a balance is reached between its inherent value and the pain one must endure to use/access it.
This is more a case of non-open-source software trying to force physical-world business models into a world where physicality has no meaning. Most open source development is paid for by paying for the work to be done. In other words, much open source software is not free; rather, it's already been paid for.
Well, not really saying it's bad in a moral sense or making a value judgement (though it does tend to be "bad" from a usability perspective), just noting what I've observed. And it applies even to things that aren't free, but which you pay for via some fixed initial cost.
For example, I bought Words with Friends a long long time ago, and for a while it was great. But now they've added tons of gamification features like powerups that bypass game rules, social, awards, etc... to try to get you to engage more and pay more money. Now, various awards screens pop up and waste seconds of my life after every move.
I just want to play standard Words with Friends with my wife like I have for the last 10 years. But one can see that folks like me aren't making Zynga any (new) money, hence the other inducements.
In your example, it seems the app was not mis-priced for you. In fact, it was the perfect price, until the company decided it was mis-priced for them.
So now they add all these unfriendly features, which now makes the app mis-priced for you.
My point is that mis-pricing can be different depending on who's perspective we look at. So in an economic sense, when we say something is mis-priced, from who's perspective is it?
What if the thing provides maximum value only when it's free? Monetizing via advertising implies losing the speech the advertisers don't approve of. If we had discussion forums that didn't allow free accounts to post, we'd lose the speech of people who can't or won't pay.
Would be interesting if some rich benefactor randomly decided to run such a community.
I just fail to see how old Reddit could not have been a sustainable standalone business. Conde Nast had a huge opportunity once they acquired it as it no longer needed "VC growth" but they failed. I wish I had the opportunity to acquire it for 10-20 million[1].
I'd caveat this very slightly, as sometimes a business model turns out to be existentially viable, but lacks the kind of scale, revenue, or exponential growth that VCs want to see.
If your business model doesn't include paying back your investors, it's not viable. If your business model does pay back investors, or doesn't require them, then congrats! You've avoided the dismal equilibrium and have a successful business that serves its users instead of abuses them :)
It's happening to imgur and Reddit now. Time to find the next big thing.