Betaworks to Pay $500,000 for Fallen Social Media Star Digg | Hacker News Reader

Betaworks to Pay $500,000 for Fallen Social Media Star Digg

online.wsj.com

85 pointsuptown60 comments

This is a case of a company having delusions of grandeur. Instead of humming along with 10 or so employees raking in cash hand-over fist, they tried to grow as fast and as large as possible to try to revolutionize news. Instead, Reddit did the former and is stable and profitable; it never pretends to be something it's not.

Not all companies are going to change the world, nor should they. I see Facebook and Twitter making the same mistakes. Perhaps Facebook is a great place to keep in touch with friends but nothing more. Perhaps Twitter is simply a great replacement for blogging, nothing more. Instead of filling their niches and quietly making a small number of employees very wealthy, they try to become these massive institutions that are reliant on very fickle user bases. It's a house of cards.

> "Instead of filling their niches and quietly making a small number of employees very wealthy, they try to become these massive institutions that are reliant on very fickle user bases. It's a house of cards."

The problem is that Twitter, Digg, et al took a buttload of VC money, and quietly making a dozen employees rich is not an acceptable ROI.

To be fair, it's at least partly the VC's fault for not thinking rationally about what they were investing in.

Rest assured that they think very rationally about investments. They just have different priorities.

http://vimeo.com/928615 - I think this video from Digg sums it up well.

Why do you say that. This video shows the office environment which is fun. It's funny with a lot of nerds trying to dance and look cool without looking awkward.

In the hindsight, Digg might have made some wrong decisions but this doesn't say anything about the company one way of another.

In the context of the parent comment, it clearly shows the difference in approaches between them and Reddit.

Digg was at the top of their game when this video was shot. Digg v3 was a massive success. It's only when they introduced v4 and pandered to social media sites (a decision made by Kevin) that it took a nosedive.

This. I used to visit digg 20-30 times throughout the day on V3. At the time Reddit looked like a laughable comparison that I could never imagine being as good as Digg. Then V4 came out, Digg collapsed in on itself, a paris hilton news blog shot to #1. I decided to check out reddit again and I've never been back to Digg since. It's still remarkable how drastically the site turned from V3 to V4, I never could have seen that coming.

Instead of humming along with 10 or so employees raking in cash hand-over fist, they tried to grow as fast and as large as possible to try to revolutionize news

Digg required the network effect to sustain their user base -- it was where it was at. It is presumptive hindsight to assume that a slow and steady approach would have yielded long term success. As likely it would have lost its newness (as many other sites came and went. Remember when a Slashdotting was pinnacle of torrential request targeting?) Digg took a big risk to try to cement their position, and it failed to do so. People blaming the v4 miss that Digg had seriously already lost its lustre at that point, the redesign serving primarily as a convenient scapegoat.

It's easy to say this in hindsight, but the fact is that the VC model is grow big fast, and spend lots of money to do that.

I don't see you saying Google made the same mistakes and that they should of stuck to search. And Apple had no business making a phone.

Google still gets the VAST majority of their revenue from search. And they haven't done a whole lot of innovating in the search space since their initial success and are very busy trying to become dominate in every area, including social. They're probably the most premier example of a company having delusions of grandeur.

Perhaps true, but short of redefining everything about capital markets, and human nature, I don't see how their actions are anything other than rational.

When you have vast amounts of cash, and a dominant market position, you're probably obligated to make large bets to expand into complementary markets, just by fiduciary duty and especially now because of the low cost of capital (i.e. interest rates) - the alternatives available to your investors are very low return, meaning a low bar to investing money on company expansion.

Also for every company with "delusions of grandeur" there's another company who took the safe, conservative route you seem to be suggesting, only to watch their dominant position disappear because of market or technology shifts. Which is another reason why its sound management to reinvest your profits to try and expand.

Oh, WSJ, you never cease to make me giggle.

> outmaneuvered by rivals like Facebook Inc. FB -0.52% and Twitter Inc

Or, you know, Reddit, its direct competitor who mopped up much of Digg's userbase.

Reddit is mentioned later in the article.

I almost completely replaced Digg with Twitter

it is a competition for user attention

There is a lot more to this deal, it wasn't a simple $500k outright purchase. It sounds like the shareholding was restructured with old investors and shareholders carrying over and betaworks taking up a large part of the company. employee options were probably wiped out, a lot of the old investment terms were probably restructured as well, with more recent money gaining favor

i'd think that the $500k is a token cash amount to settle who is leftover of old stock and debt holders/accounts after you move all the other shareholders over. Digg is definitely worth more than $500k (didn't 37signals want $400k just for their job board thing?), Betworks didn't buy the entire co for $500k and we don't know what the 'value' of the new company is, so the headlines are misleading

I mean no lack of respect for Kevin Rose but I've got to sit and reflect on the differences between Digg and Reddit now that we know who won. I remember one of the Reddit founders saying once not to focus on your competitors but to just put your shoulder down and go.

So I have to contrast this Business Week cover:

http://valleywag.com/assets/resources/2006/08/kevin-cover-bu...

To this early 2005 interview with the founders of Reddit. They were so humble (it wasn't even our idea) and how they lived and breathed the site, even waking up every two hours to check it:

http://www.youtube.com/watch?v=5rZ8f3Bx6Po

Kudos to the Reddit founders but the real lesson is that their sacrifice built a better, stronger community.

* http://valleywag.com/assets/resources/2006/08/kevin-cover-bu... *

Let it also be a lesson in the difference between valuation and money. Valuation is meaningless until it turns into liquid cash.

The reddit founders did the damn thing. I remember looking at the site after pg announced them in the 1st yc class, and thinking "this site looks like shit compared to digg. Bad fonts, low budget icon, they'll never compete". But they focused on what mattered and buried digg. Pun unintended but apropos nonetheless.

That seems somewhat unfair. First of all, 2006 was different than 2005 in the web 2.0 world, and the breathless tone adopted by a business magazine isn't really Kevin's fault.

That strikes me as shockingly low.

For context, KillerStartups bought the domain "startups.com" 4 years ago for $500,000. No IP, no brand recognition. The domain.

Its a great deal for sure, but I would imagine betaworks is going to have some other expenses associated with Digg and factored that into the negotiations.

True. At the very least $500,000 will cover some of the costs associating with tying up loose ends when legally doing something like this instead of winding it down. May be employment contracts, leases, colo costs etc.

Either way it is a good deal by smell test standard.

Sortfolio comes to mind as a recent example.

the valuation may be low but possibly Kevin took the offer with shares, so the new owned could allow Kevin to take more off the table in the future.

I loved Digg when it was v1 and just a technology news site. They always had great content that kept me up to date on the newest tech articles. Then they started adding other news categories and the front page became a bunch of random news articles that mostly didn't interest me.

Even if you went to the "Technology" page, it would only show those articles that had made it to the front page, meaning there'd be less than 10 new articles on that page per day.

Then it just started become spam with spammers using huge groups of users to upvote bad content like infographs.

I've visited it a few times in the past few months just to see what was going on and it's a really, really bad user experience right now. Really just awful.

If I was to speculate, I'd say that the early Digg audience may have been what ultimately led them down the path to failure. The ranking algorithm on Digg was blatantly rigged to produce a front page with mass-market appeal. Overly nerdy or political submissions rarely made the cut. I suspect that, early on, Digg's leadership decided that allowing users too much control over content would keep Digg in a nerd/leftist niche that couldn't be monetized. A lack of respect for democratic control over the front page ultimately led them to ignore voting rings, gaming, and spammers; and eventually justified handing over control to the marketeers and content farms in Digg v4.

maybe check out the social news site http://sourcecanvas.com/

I'd make a vague guess that the reason the price is so low is that betaworks assumed some debts.

TechCrunch is now disputing the $500,000 price in their coverage[1]

One source close to the negotiations tells us that the price was indeed not $500k, but we haven’t been able to pinpoint an exact price yet.

[1] http://techcrunch.com/2012/07/12/betaworks-acquires-digg/

Color (.com) paid $350,000 for the domain name alone. Silicon Valley is funny like that.

Remember when Digg raised $45 million and at one point Google was going to buy them for $200 million?

I guess sometimes you should just take the money and run.

Well the people who made the decisions "took money off the table" and (eventually) left the company. Seems to fit your phrase well.

Don't worry, Kevin took plenty of money. It's just the regular employees that don't get shit.

edit: nobody knows the number for sure, but he had enough to do angel investments in foursquare and twitter. See also crunchbase [1]. There was a $28mm series C and the speculation seems to be a bunch went into his pockets.

edit2: after thinking for a couple minutes, there's something just really unseemly about founders getting millions and employees plus investors getting zilch, particularly in the context of a failed business. I think the idea of founders cashing out a bit to free the company to swing for the fences is probably good, but still. There's something about this result that just doesn't sit well.

[1] http://www.crunchbase.com/person/kevin-rose

Nothing unseemly about it at all. He created the damn company. The whole thing was his project. He could have sold the it away for far more than he cashed out. Instead he found investors that would let him hedge a bit while shooting for the stars. They shot and missed, but he got to keep his relatively small hedge.

He always seems a bit sleezy though, you seen that episode of screensavers where he is telling about this website that he found (not founded) on the internet called Digg.

Yeah, how dare he try to promote his website and become a future millionaire. If by sleazy you mean smart and willing to do what it takes to carve out a comfortable life for yourself, then yeah, he's sleazy.

Apparently implicitly lying to your viewers and directing them to a site that benefits you without mentioning that is ethical to you. In contrast, I view it as unethical.

Ethical: check out this cool site I built.

Unethical: here's a cool site I found.

Admittedly, this is pretty small potatoes, but it's still sleazy.

The reason the investor wants to give the founder an early earn-out is that they don't want the founder to be defensive. If you've invested $45M and you're looking to make ten times that, the site needs to make it really big. And you don't want to have a founder looking for the quick win. You pay him/her an amount in the ballpark of what is often colloquially phrased "fuck you-money", and it increases the chances that he's willing to risk everything to give you that 10x. For the investors, it's a calculated risk.

I understand what it is. I understand why investors do it.

I reiterate my point: it's unseemly when founders earn millions and everyone else, particularly the employees, goes home with nothing.

It's not as if Digg was a fly-by-your-pants startup. They paid their employees competitive salaries.

That's why it is important for employees to demand market salary, startup or no.

You make it sound as if the employees were all unpaid interns. So long as nothing extra is negotiated at the time of the job offer, then those employees knew (and were probably delighted by) exactly what they were getting. I don't expect my employer to back up the Brinks truck if they get bought out or have a successful run. This sense of entitlement is crippling. The employees were paid, presumably learned plenty, and are better people because of their experience at Digg.

Are you unaware that digg was a startup and that employees were given options / equity as compensation? It doesn't bother you that someone in particular got a return on that (supposedly equal) equity while regular employees didn't? Charactering expecting your employer to fairly pay out equity in the event of an acquisition as, "backing up a Brinks truck" is stupid. What part of expecting your employer to treat the boss' equity and the employees' equity equally, where one only earns if the other does, is "entitlement"?

I don't work for employers to become a better person; maybe you do. I work for them for my salary plus the options we negotiated.

And frankly, it would appear that the leadership at digg was crippling, not the employees.

Wikipedia (and my memory) say that the Google offer fell through, and that it happened before the bulk of their funding rounds. There was no money to run with, basically.

Right. It was Google that backed off after seeing its books and watching how the company operates. Digg would have been pretty happy to sell if it could. I was spending my time at Digg during that period. That news was over at Digg.

Friendster comes to mind.

This valuation is way, way, way off. I mean, add a zero to the end and I still don't think you're close to a fair value.

Nice domain, tons of traffic, and a load of real users who you could keep around if you wanted to. Even if you wanted to strip-mine the domain out and dump the company, I can't imagine your costs are going to be anything significant.

Whoever's managing this deal at Digg's end is screwing it right up.

OK say you bought it. It is yours. What do you do tomorrow and this week to turn Digg around and have it do something interesting?

> and a load of real users who you could keep around if you wanted to

Not sure, currently the top story has 70 upvotes and 3 comments...

Digg, for all of its issues, still has 4M monthly uniques and an Alexa Rank of 191.

Compare this to 37signal's Sortfolio, which sold for $480,000 a few weeks back.

> "still has 4M monthly uniques and an Alexa Rank of 191"

4M monthly uniques that have been downright hostile to any attempt to monetize their traffic. Alexa Rank of 191 with no avenue for actual money.

It's not all about the users.

There's a difference between monetizing traffic and bastardizing content (though I'll be the first to admit I'm not readily familiar with Digg's community.)

I think there's still a pretty big niche to be filled with genuine high-quality news aggregation. Even if they were to nuke Digg and start anew, having that existing userbase is a big advantage.

Sortfolio has established itself as a market leader with a solid revenue model. Digg's revenue model is unclear and it is nowadays dwarfed by competition. That said, Betaworks knows what they're doing, so it's certainly got potential.

The buyer is New York technology development firm Betaworks, which is attempting to revive a news-sharing site that was outmaneuvered by Facebook Inc. FB -0.52% and Twitter Inc.

"outmaneuvered by Facebook and Twitter"? No. Digg's wounds were all self-inflicted. Between the "power users" and efforts to monetize the site it took on the look and feel of one of those fake news sites created to snare Googlers.

This article mentions that digg was "outmaneuvered" by Facebook and Twiiter. But I don't think they are even really related, I was a Digg user in the early days and it's Reddit that killed Digg in my opinion.

"The price was only about $500,000, three people familiar with the matter said"

Shouldn't the headline have added the word, "rumored"? Or maybe a Betteridges law version "Digg to sell for only $500,000?"

There's only one appropriate comment that sums up both this news item and the state of Digg in general:

Who cares.

I'm not sure anyone laughed harder than me upon hearing the news.

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