Letting readers call all the shots is great for community but bad for business.

Facebook, the world's largest social network, suffered under the tyranny of its own users in early February after the company rewrote its long-standing terms of service. Many members interpreted the revised rules to mean that the company would own every bit of uploaded ephemera, resulting in closed accounts and a rash of anti-Facebook groups—on Facebook. Founder and CEO Mark Zuckerberg clarified the company's position, but users wouldn't budge, many commenting with the same four words: "Delete my account, please." After three days, Facebook reinstated the original terms.

What does this signify other than the usual digital shriek so often found on Web sites everywhere? Just this: Social networks are doomed to fail. At least Facebook is, so long as it continues on its current path. By heeding to the objections of its grumbling users, Facebook has essentially painted itself into a revenue corner.

This latest incident underscores the company's biggest mistake to date: Facebook has yet to cement its relationship with its members, a fatal flaw for any social network and the root of Facebook's inchoate business model. As soon as a community adopts a certain dynamic, a certain mode of operating, it is near impossible to change that dynamic. And it is especially true of Facebook simply because it has so many citizens—175 million globally. While the company often boasts of its massive size (it constitutes the world's sixth-largest country), that may, in fact, be its precise problem. As the ToS debacle makes clear, power has tipped the other way. It's the users who run the site now.

This is dangerous for any business. By current community standards, business strategies like traditional brand advertising or target-messaged campaigns are generally unwelcome by Facebook members. The company's easy susceptibility to its user base has effectively shut down these known ways of monetizing a Web site, and thus far the company has offered up nothing to take their place.

The Facebook group "People Against the new Terms of Service" crystallizes this fact in its opening description: "VICTORY! YOU SPOKE, and FACEBOOK LISTENED." The statement isn't pithy sarcasm or sardonic screed; it's earnest hope. And as heartening and democratic as this may seem, the company's capitulation on this point (for now) sets a dangerous precedent—even if Facebook somehow finds new methods of monetizing its product, its users will still expect to vet any such significant alterations to the site, and therein lies the company's potential doom.

As social movements go, Facebook is a significant one. It has cultivated membership at a virulent rate: Active users in the United States increased 69 percent in 2008. The media, likewise, have frequently focused on the Facebook phenomenon, its disruptive effect on the Way We Live. But what makes this tricky for social networks in general, and for Facebook in particular, is that it's not a movement; it's a business. Facebook's potential value will not be defined by how many servers it maintains, or how many sales reps it employs, or even how many users it populates, but in how it handles its users. It is this relationship that will ultimately determine whether Facebook can sustain profit. And the fact that the company is continually tinkering with that relationship shows it doesn't truly understand its own product.