Digg's Miserable Business Model, Losing Millions of Dollars | Hacker News Reader

Digg's Miserable Business Model, Losing Millions of Dollars

alleyinsider.com

33 pointsutsmokingaces22 comments

Digg raised $40mm in VC. VCs don't give you money to put in the bank... they give you money to hire people and invest in things that might be profitable in the future.

Yes, Digg could probably have bootstrapped. But they didn't, they raised money, and once they did that, the money that the VCs gave them was meant to invest, which is guaranteed to mean that the company shows a loss.

If there was something useful for Digg to be spending that money on it's one thing, but using more people to do the same thing causes failure. IMO the goal should be to be profitable based on your income stream. With new capital you can setup some R&D or spend that money on new projects outside of your core company or advertising etc, but you need to avoid supporting the core of your company with new capital. That way you can cleanly dump everyone that's not part of making money and not kill the company.

PS: Every dollar you spend that's not supported by revenue should get the company more than one dollar in profit.

Digg raised $40mm in VC. VCs don't give you money to put in the bank... they give you money to hire people and invest in things that might be profitable in the future.

Which begs the question: why exactly did they need 40mm in funding?

As far as I see Digg has about 10 times the staff of Reddit. That seems a bit excessive to me. What are all these people doing?

seriously, Digg just spends too much money. I guess that's fine and all for expansion when the VC money is coming in, but they spent $10.4 million in the first three quarters of 2008? Doesn't that figure seem insane for a company like digg?

But to be fair, reddit was acquired by Conde Nast so it can probably leverage staff from its parent company.

On those numbers Digg has revenues of approx 3 US cents per unique visitor. Not too bad, surely? How much could they charge for advertising?

It costs Digg about 5 cents per visitor. Where is that going? Seems excessive for bandwith + servers. The content is user generated, I cannot believe that they are spending much of that $14m on development or administration.

It REALLY depends on page views. Unique visitors has nothing to do with revenue. 3 cents per visitor is very low if they have high pageviews per, which I'm guessing they do.

Yes, I was thinking unique visits, rather than visitors - my mistake. They probably have a lot of people who visit daily, so the number of visits is easily hundreds of millions, page views could be billions.

3c per visit sounds excessively high. How often do you click on advertisement?

It's 3c per visitor. If it were per visit, they'd be rich.

Where's it going? The 80 person staff is a good place to start.

http://digg.com/about/

There's no reason the site couldn't be run by five people.

they have too many employees, my guess its an inferiority complex....big site? means you need to have big company to back it up...meanwhile 1 person sites like plentyoffish are raking it in w/o huge costs

Exactly. Same can be said for Facebook. These sites only make economic sense if they can be run by small staffs.

1. Collect an audience of rabidly anti-commercial poor adolescents.

2. Put up banner advertising.

3. ???

4. Profit

The same reason why I don't believe Facebook will ever reach real profitability - their primary audience is a bunch of poor, broke college students, not to mention ones who are generally anti-corporate.

What about when they grow up?

That's when they realise they can't be wasting time on social networking websites thanks to the wife and kids.

One analyst put it best: "Who the hell thought it was a good idea to try to monetize the space where someone publicly breaks up with their fiance?"

The advice in the article seems good.. digg.com/movies ads related to movies/blockbusters digg.com/music music ads .... ads targeted according to categories...

If you're going to editorialize in the link title, at least spell properly. Or did you mean they're just taking the money to the park and setting it free?

Misleading title. The article actually compares digg to sites with a similar model and points out how much more profitable they are. Titles matter...

Also, digg's design is poor. It has too much space spent on borders. With a cleaner interface, it would have more add space to monetize.

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