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Comment by tgriesser | Hacker News Reader

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.

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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.

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?

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 :)

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.

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.

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.

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