There is a double edged sword that exists within ‘online community as a business’. On one hand, you want to do the right thing by your members/users/participants and on the other hand, you have to keep in mind the interests of stakeholders, such as staff, management and invariably, shareholders.

The recent craziness which saw Digg, every geeks favourite social bookmarking community, about face on the whole HD DVD crack code issue because of audience outrage is a fine example of the thin line you can easily cross.

Recently, the HD DVD encryption key was cracked. I’m not posting the key here, there’s a million sites you can see it on. Digg users started to post stories about it, and Digg, in their wisdom, decided that these stories broke their Terms of Use, and therefore removed the posts without warning or explanation.

Then, once the community at large realised what was happening, they rallied together by flooding the site with links to, and stories of, the HD DVD key. It got so intense, it brought Digg to its knees – not an easy task, given the amount of stories about the Digg effect on the sites that get ‘Dugg’.

What were Digg to do? Well unlike Google*, WIRED, Reddit and countless other media, search engine and other online properties who decided it wasn’t worth the risk, and ensured they were ‘crack code free’, Digg has a very large and very vocal userbase who are the contributors to all of Diggs content. Kevin Rose, Digg founder, posted on the Digg Blog to say they are caving in, and “You’d rather see Digg go down fighting than bow down to a bigger company. We hear you, and effective immediately we won’t delete stories or comments containing the code and will deal with whatever the consequences might be.“.

So, now the users win. There is a good chance they could lose too. Their efforts in scaring Digg management into backing down from this issue means that a Copyright Infringement case may soon kick off, in which Digg could lose everything, and eventually the site, which the community hold so dear, and may end up another dot bomb casualty.

So what’s the answer? It’s a tough one. Digg is stuck between the wants of the community and the wants of their investors. I’m confident that more than one investor would now be looking at the Digg business and their lawsuit liabilities based around a bunch of random characters. It is certainly not an enviable position for anyone involved and know we’ll just have to sit back and see.

* It seems a number of people I have spoken to about this topic in the last day or two don’t know about the existence of the Chilling Effects Clearinghouse, a large database of Cease and Desist notices, many of which are directed at Google. It’s a fascinating read.

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