Most businesses narrow down the focus of their product to a specific set of people, and they plan and design with those customers in mind. Livejournal was sold to the Russians, who needed a site that was simple and secure, so they cut a lot of features that weren't being used by their intended customer base, and it left those outside that small group going "what the fuuuuck" all the while. But at the end of the day, livejournal didn't want to be a haven for RPers. It wanted to be a haven for Russian writers who opposed their government. That was who they pandered to.

Did it blow up in their faces? Sure. They lost a huge number of paying customers, and they tried to backpedal about a year after the fact, but the damage was done and most users had moved on.

The problem is I think most website changes cause people to bitch - any time Facebook or Twitter change the slightest thing people have a meltdown - but in MOST cases, the changes are for the better and can be learned. You don't see a lot of immediate backpedaling because 1) people will complain about any change, 2) the change probably cost them a significant amount of money and 3) most users don't follow through with "change it back or I'm LEAVING" threats. So you have maybe 1 or 2 months of bitching before the new has become the status quo.

At least, that's my understanding.