Digg: A Cautionary Tale | Hacker News Reader

Digg: A Cautionary Tale

newsweek.com

70 pointsDevX10160 comments

With all due respect to Mr. Lyons this paragraph insulted me - as a hacker/entrepreneur:

Can anyone create an enduring business on the Web, where it’s easy to build new companies, and when survival depends on the whims of fickle users? The big lesson of Digg may be simply this: if someone offers you a ridiculous amount of money for a company that wasn’t that hard to build, don’t think twice. Take the money and run.

where it's easy to build new companies?

A company that wasn't that hard to build?

How does he know that? Has he ever built a company?

I think that's quite contemptuous. This sentiment is exactly what Steve Jobs was referring to when he told that Gizmodo/Engadget blogger (can't remember which it was) that they should stop criticizing other people's work and create something of their own.

Goddammit this pissed me off.

Consider the possibility that business writers might have some insight into the operation of telecoms, financial companies, manufacturing companies, accounting companies, law firms, consumer product companies, restaurants, etc, etc, and not just tech companies, which is where the expertise around here lies.

I could make a passable Digg clone in a weeknend. A weekend. I couldn't run a single McDonalds franchise if you put a revolver to my head. That's what he's talking about.

You could run a McDonald's franchise. You would attend the classes where they teach you how. You would find it remarkably simple. They would give you a big handbook that explains how to do everything. You could not fail except through a lack of effort.

Now if someone had said to you in 2004: "Create a new fantastically popular way to consume news" you would likely not have an idea as good as Digg. Even if you did you would likely fail to market it effectively.

And by that same token, you lack the insight of what's really behind Digg. I doubt with the years of work they've put into it, tweaking algorithms, etc, that you'd be able to duplicate it in one weekend.

I'm sure I could find a way to alienate Digg's users in a weekend and that's apparently what they've been up to for the past few years.

That's the same mindset that AOL/Netscape & Jason Calacanis had...so much so that they even tried buying Digg's top users. Look how that turned out.

Seeing something built, or being built and building something are two completely different things.

It's the same thing with games. Watching someone playing a game and seeing how effortlessly they make it look, is completely different than playing it.

You could make a passable Digg clone, but it would not be successful. Hence my point. It's NOT easy to build a web company, otherwise everybody would be doing it.

If it were that easy, and assuming that Mr. Lyons is a rational individual, why does he not build one himself? He could easily make a few million dollars by listening to his own advice.

if you've ever launched a website...you know building is a very insignificant portion of the equation...the value of digg isn't the website or the technology, it's the users...and getting those is a lot harder than most people think

Digg will generate about $15 million in revenue this year and still operates at a loss

Maybe my perception of the costs associated with running a high traffic such as this are way off, but doesn't it seem like $15m in revenues should be able to sustain the company... at least to the point where it doesn't operate at a loss?

Anyone that has any experiences running a site on the scale of this might be able to advise, I'm just curious where all of that $15m goes in a year - unless the operating loss accounts for other costs that I'm not considering.

A big cost is employees. Last time I checked (months ago) there were about 70 employees at Digg. Each employee will cost about $100,000 when you put employee taxes and benefits into play. That's $7M, half the budget. The execs and top-shot coders will likely push that number up a bit.

They have about 70 employees for some reason

to compare, Reddit has like, 5. Digg is overfunded.

But to be fair, Reddit is able to leverage the infrastructure of Conde Nast. The 5 employees doesn't count HR, accounting, administration, etc. Of course, that probably doesn't necessitate 65 extra employees either...

Come on, you don't need any of those (as departments) when you're 5 people. What 5 person firm has any need for HR, accounting, admin, etc. that they can't get covered by outsourcing for less than the cost of a 6th person, let alone another 65 people?

Reddit employees receive Conde benefits such as health insurance. Real estate is also taken care of.

They've also admitted that they might be able to pull a higher salary at a different company, but they're passionate about reddit.

I'm with you on HR, but I can very much imagine a 5 person company needing someone in accounting, a lot of staying solvent is keeping the money flowing.

So, that brings us up to... 6 :)

A lot is personnel costs, I think. They had at least 70 people in May [1]. Estimating $200,000 per employee per year, that's 14 million. I'm not really sure how accurate $200,000 is, but between benefits, events, office space (in SF), and other associated expenses, employees cost a lot more than just their salary.

Is there any reason digg should have that many employees? Probably not.

[1] http://techcrunch.com/2010/05/06/digg-cuts-10-of-staff/

edit: Oops, kind of slow on the trigger--other people said the same thing.

When you're a VC-funded company, you're expected to operate at a loss. Otherwise you're not making use of the funds you've been given to grow.

You're expected to grow, though. Sounds like Digg has been shrinking.

"Crossing the Chasm" (http://en.wikipedia.org/wiki/Crossing_the_Chasm) is part of the conventional wisdom in Silicon Valley. You're expected to have some struggles as you try and go from the early adopter to the mainstream market.

Our take on the infamous cover in 2006: http://37signals.com/svn/archives2/dont_believe_businessweek...

Sounds a bit like what you guys have been saying about Facebook recently ;)

It's good to know, in the midst of an unending hype machine around tech startups, that there are people out there who act as a solid reality-based counter-balance.

My first programming job was in '97 in southern California, at the height of the dot-com bubble, and it's amazing that the industry and the associated media reports still give me déjà vu thirteen years later.

They are rumored to have turned down 130M acquisition. Assuming that was true, then sure he wasn't worth 60M but he would have gotten 15-30M, no? I like how you guys think and am def. more excited by revenue than the other path to riches(getting acquired due to the potential in your company as seen by the acquirer).

And yet, while you may have been "right" in this case, you could have easily been "wrong". What if Digg had been acquired for 130M or 200M? What do you have to say about YouTube which was bleeding dollars until recently but seems like it will go down as one of the better acquisitions of the decade? They had very little rev; lots of investment riding; and far from profitability. And yet Google acquired them for a buncha money.

May be it is not as clear cut as simply taking the revenue just as it isn't as clear cut as taking the valuation from the last round?

Their recipe is simple. Claim every new major web company is bullshit. If they fail say "I told you so". If they succeed say "They were just lucky."

That wasn't their claim, read the post.

You know, that's a pretty good strategy. YOu'll be right a lot more than 50% of the time....

Yeah, but you'll be right on all the stories nobody remembers and wrong on the big stories. That's why most people do it the other way around. "Never heard of these guys? You will soon!" "The world is never going to be the same!"

That's a big assumption to make, considering plenty of deals break down at the last minute for one reason or another. There's a large gap between a term sheet and a final, signed contract.

Has there been a better example than Digg of how detrimental it is to alienate your users on the social web?

I'm surprised the article doesn't mention Reddit, which seems to have been the main reason why Digg's numbers haven't bounced back, despite changing some of the aspects which made users leave.

> Has there been a better example than Digg of how detrimental it is to alienate your users on the social web?

Facebook. It changed the day anybody (ie. parents) was allowed on. Now most people I know either refuse to use the service due to employer paranoia or just play Farmville all day, but it's not the same.

At least Facebook rolls with it, I suspect their new features (new Groups, new Photos) seem to cater towards their current audience instead of "getting the old spark back".

Unlike Digg, Facebook lacks a viable alternative and is deeply reliant on the network effect, meaning you need critical mass to migrate for the alternative to be useful. Because of this Facebook's growth, in the face of customer dissatisfaction in some cases, has been a hockey stick.

Facebook is a good tool. I can put my photos on it, and all my friends, my aunt, my uncle, my cousins, will all be able to see it. (Not my grandparents, they don't have computer. :( ) Facebook "implicitly" notifies all those people so I don't have to send a lame spam email "Hey I've posted some photos, check it out". It is similarly good for organizing outings. Just create an event and invite people, no need to send an email with 20 recipients; An forum-like thing in the event lets people asks questions, which stays up and acts like an FAQ.

Uhm, the key difference being that between that time and now Facebook has grown 5-6x. By what metric was that a bad decision, exactly?

I think you missed the "alienate your users" bit.

People whined when Facebook opened to non-students. People whined for each of the dozen or so major redesigns. Essentially zero of those users left the site as a result.

Facebook always remained a social network of sorts though. Digg changed the functionality of their site.

The second page of that article was really disappointing. It's as if the guy never heard of Reddit. Calling Twitter digg's true nemesis is so far out of it is not even funny. Twitter and Digg could coexist for ever. how can I get a real discussion of a link of twitter? It would be really hard for me to see the diverse amount of links that digg and reddit give me just by amassing a ton of friends. Most of the best links I've found on digg/reddit aren't even from people I would have know. They are not usually famous or popular outside those sites. Digg's error was shifting away from this and trying to go towards twitter's way of following a select group of people. That obviously is not what people want. Reddit does it by subjects, that seems to be working great.

So Digg is officially a cautionary tale now..

Newsweek is wrong though. Digg wasn't beaten by Twitter, or even by its own redesign. It was beaten because instead of building a great community they focused on being the best place to share links. And over time those links started to suck.

Digg was really beaten by itself, and by Reddit.

Competitors don't kill companies, companies kill companies.

Editor's note: By companies kill companies, I mean the company kills itself :)

And sometimes companies are killed by the Libyan government. Just ask diggly.

As an original Digg user, i.e. pre the HD-DVD crack code debacle, I don't think Twitter was the cause of the demise.

It was HN, for me.

At first, I went to digg for the wonderful tech/startup stories that would surface - then it evolved into meaningless crap.

I languished for a little, with no where to go, then found HN. People complain about how HN is getting so bad, but it's nothing as bad as when Digg started to get diluted by mainstream interests.

The truth is that Digg definitely had to cater to a broader audience to sustain growth, and I have always been a Rose fan, but it's kinda sad to see it go by the wayside like this.

At least Kevin tried something with v4, but it was too little too late.

For many people it seems Reddit's the post-Digg destination. Certainly Reddit has been growing by leaps and bounds and trying to keep up.

I know...it seems that they might be the antithesis, but Reddit just never struck a cord for me.

I like Reddit. It feels like a community, unlike Digg.

As far as I'm concerned it's been going downhill fast since Digg collapsed though.

I stopped visiting the main reddit page a few years ago and stuck to proggit since then, but that also seems to have suffered a lot recently.

Does anyone know if the ex-proggit folks just moved somewhere else?

/r/netsec remains a great community. /r/coding is low-traffic, but aggressively moderated and has good content/people. /r/web_design is a lot like a slightly more informal version of Hacker News. /r/webdev is very small, but hey, it might pick up.

Then there are lots of specific communities you can sign up for depending on your religious beliefs that have various values... /r/emacs /r/vim /r/haskell etc. most of the language specific subreddits have decent traffic.

Actually if you believe the reports of what Reddit says their traffic is greater than digg's traffic.

Ditto from me. I just got fed up with top x lists which seem to dominate the front page. I'm much happier on HN. I can't believe how fast these guys fell over such a short period of time. It's like they started asking people to pay money to view their content, rather than some pointless v4 upgrade.

Agreed, although I took the slightly longer Digg->Reddit->HN path.

The fail free fall the site has fallen victim too is a direct result of corporate media influence IMO. It wasn't too long after Kevin's Forbe's cover shot and the bigtime acquisition talk that suddenly the algorithms started to favor mainstream shit and those hard hitting bombshell articles that made the site so great were burried or non-existent.

I was Digging since the early days. Even had a page of mine hit the front page. It WAS a good site at one time. Before it got infected with mainstream fluff.

Lyons is looking through the lens of old media (as he often does). He sees the failure of Digg as being about the failure of hanging on to an audience.

But it's not an audience, it's a community - an involved community that felt betrayed.

<em>The basic problem is that these new-media companies don’t really have customers; they have audiences. Starting a company like Digg is less like building a traditional tech company (think Apple or HP) and more like launching a TV show. </em>

This is always the risk in creating community based platforms that don't monetize directly. One day you're the hot chick at the party, the next you're that creepy old guy who keeps coming back to said party.

--- The big lesson of Digg may be simply this: if someone offers you a ridiculous amount of money for a company that wasn’t that hard to build, don’t think twice. Take the money and run. ---

The problem with that "lesson" is that you never know what is "ridiculous amount of money for a company".

Google might sell itself for couple hundred million too, but it would obviously be a wrong decision.

I really detest his writing.

Daniel Lyons writes about technology as an expert explaining the tech world to a common non-techie. The problem is that he explains things in a way that don't make sense, are false, or in this case just a bunch of mumbo-jumbo.

Lyons is much more fun to read when he writes as his alter-ego, Fake Steve Jobs.

> if someone offers you a ridiculous amount of money for a company that wasn’t that hard to build, don’t think twice. Take the money and run.

You hear that, Google? You should have sold!

But Google was hard to build, it was revolutionary search technology that demonstrably better than the alternatives. Digg was more akin to a hot new bar. The value is mostly whoever else is hanging out, not the mechanics of running a bar. Like what haooens with bars, Digg is no longer the new hotness.

My issue with that quote is that, sometimes, it's worth holding on to what you have, even if people offer you a good deal at the time. Substitute "Google" with "Facebook", "Twitter", etc.

Sure, hindsight is 20/20 after all. But sometimes it's good to take the money and run when you can (Friendster, Digg, MySpace). Taking the money is especially tempting when dealing with value through audience and not technology. Your audience can leave you as quickly as it came to you. If you're real slick you can even sell at a crazy valuation and then buy it back for cheap like Skype or Stumble Upon.

Facebook is an example of it "working out", but I don't think Zuck would be feeling too terrible if he sold out and had hundreds of millions of real dollars to do whatever he wanted with instead of billions of on paper dollars to try and maintain. I'd be too busy sailing my boat to even know what Facebook was doing, but that's me.

Hmm, true, you may have a point.

and Kevin left money on the table. Hood Business Rule #1 get your money then get out

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