Deal Radar 2008: Digg – Packaging news

Digg is a social news book marking site containing user generated content. Ranging from science and technology to politics and entertainment, it covers a diverse spectrum of news posted and rated by users. The site was started in 2004 by Kevin Rose and Jay Adelson.

This site received its funding from two investors – Greylock Partners and the Omidyar Network – in two phases – $2.8 million in October 2005 and around $8.5 million in December 2006.

Digg has an Alexa rank of 146 and acc. to Quantcast, has about 24 Million global unique visitors.

Its popularity is on the rise mostly among the age group of 18 to 35. Reddit, Netscape, Newsvine are among others who offer a rather feeble competition to Digg in terms of people count in the social news segment. There are, however, critics of Digg who say that the service has too many ways that it gets manipulated.

Digg has been in news for renewed rumors of a sale. Allen & Co., a boutique investment bank specializing in media deals is said to have been hired to represent the company. Valuations sought by the company is said to be around $300 million. Given its over $30 million annual ad contract for the next 3 years with Microsoft, if we value the Company by applying a 10X revenue multiple, then $300 million is a justified expectation. However we may see valuations on the lower side given that social networking sites are not generating adequate ad revenue for the networks representing them.

MSN, IAC, Yahoo, Google, News Corp could all be appropriate acquirers. However, at least for a while, Microsoft and Yahoo are unlikely to acquire anything until they sort out their own deal. News Corp is also busy digesting Dow Jones / WSJ. IAC is busy breaking itself up. Google is busy trying to thwart the Microsoft-Yahoo marriage. The remaining players are in News Media – Gannett, McClatchy, NY Times, and others.

Unfortunately, timing is not great for Digg to get itself sold right now. Later in 2008, however, this is a deal to keep an eye on.

This segment is a part in the series : Deal Radar 2008

Comments

Have you read the “top stories” from Digg? It makes USA Today look like a staid scholarly journal. Digg is like the newspaper’s “News of the Weird” feature turned into a complete news site!

That said, I regularly submit stories to Digg. I just don’t get my own news from there. Does that make me a hypocrite?

I think slashdot’s model, with real editors, provides better signal/noise ratio.

John B Monday, February 4, 2008 at 2:07 PM PT

It is too easy to manipulate Digg.

A while back I would digg, amongst others, interesting posts from a blogger, Daniel Eran, whom I considered insightful (or at least often brutally honest) over at Roughly Drafted. Many others liked his writing, which usually meant he made it to the front page on Digg.

The problem is that his posts were sometimes spectacularly anti-Microsoft. The posts point out many Microsoft strategies over the years to beat competitors, to betray partners, and to scare off others from trying to compete at all. Other posts expose some tech journalists who seem to parrot Microsoft PR talking points. Instead of providing honest and earnest journalistic thought, these pseudo-journalists seem to be trying to spread rumors and fallacies about competing products, while also pretending that Microsoft is achieving success with any number of mediocre products that fail to compete. There are some folks who do not want anyone to know about Microsoft’s failure to get traction in businesses not directly related to its’ Windows/Office monopoly.

Not surprisingly on a site, like Digg, that has financial entanglements with Microsoft, those posts would get buried quickly. It seems that Digg treats those who have the courage to criticize Microsoft, differently than those who are apologists for the Redmond company.

Ironically, those posts that explore the strategies by which Microsoft was able to win against other large entrenched competitors, as well as against small nimble competitors were some of his best writing. How fascinating that Microsoft was able to use strategy to always win, even when the competitors had better product. Microsoft has not been able to have it way with 2 companies this decade: Google and Apple. Every win each of these two companies, and any others including Yahoo, is able to register against Microsoft creates more balance in the industry; and more openings for new ideas and new companies to bubble up in the incubators of innovation.

I find your posts thoughtful and insightful about the industry. To suggest that you make it easier for your readers to digg them seems obvious. At the same time, I don’t want you to attract the attention of the sensors. You call it as you see it; some people don’t seem to like that kind of honesty.

I’ll keep reading, and am glad that I happened to stumble across your blog, even if you’re not found on digg much yet.

Realtosh Monday, February 4, 2008 at 10:46 PM PT

We can judge the popularity of these sites by seeing their ranking in http://www.alexa.com/data/details/main?url=www.fortunehotels.in Alexa. Orkut has been steadily rising on the Alexa charts but MySpace is still significantly bigger than Orkut.com.

MySpace vs Orkut Thursday, February 21, 2008 at 4:31 AM PT