I am a big fan of Digg; well I used to be anyways. I admit that I am drawn to the instant information that the site produces, it’s like having a news reader that only produces the best news stories. That was 6 months ago. Now the site only seems capable of producing content from unreliable blogs rather than actual credible sources. And out of the blog stories that make it to the front page it primarily consists of top ways to make money, Nintendo Wii and Apple news. The Digg community has taken over and unfortunately for Digg this is a bad thing because the stories that make it to the front page are biased, and that’s very bad for a news site.
TechCrunch has a post about Jay Adelson’s visit with Forbes, an interesting video to watch. Jay claims that the Comscore report of 1.4mm monthly uniques is way off and that the site really produces about 20mm per month. That’s a huge discrepancy. According to Jay, 70% of their readers use FireFox or RSS readers while browsing Digg content, and that is not taken into account. I have to question whether they really have 70% of their readers using FireFox though. Ultimately, if Jay cannot clear the fog, anyone really interested in acquiring the site will lose interest - and quickly. Would you spend $150mm dollars on a site that cannot produce clear accurate traffic data? Especially when that’s your only real asset.
The folks on the TechCrunch article got into a good debate about the value of Digg, and I decided to throw in my .02 cents. My response is below:
Drama 2.0 is right on the money. A real valuation takes days to perform and cannot simply be plugged into a form-field. There are multiple ways to valuate a company as well; DCF and EPITDA being the most common (look them up). There is a complex formula to all of this, revenue, growth rate, debt, projections, industry are only a few of the factors.
Let’s look at the facts though: $3MM in revenue off of 20mm monthly unique visitors is ridiculous. Digg claims they have the same traffic as some of the top news sites on the web. Do you think CNN.com, or FoxNews.com could operate their web businesses off of $3mm in revenue? Let’s get real.
And for the record, the industry average CTR for banner ads is .30, not 1%. And I can bet you that Digg is well below the industry average CTR due to a high pageviews per visitor ratio - and that is a bad thing.
Regarding technology, the only asset which Digg seems to own; it’s easy to emulate unfortunately. The real advantage they have is their traffic since they own no content, and because their stories are voted to the front page by the readers, that takes the control away from the Digg management. And that looks very bad to someone that might be interested in purchasing the site.
1) Low click-through-rate
2) Traffic you cannot control
3) Technology that is easy to duplicate
4) No actual content that you own
This does not look good for Digg. They are in a real bad situation. And of course they have investors and 20+ employees to take care of, so they need to sell the site for a large number in order to make any profit. They should have sold it once they were on the front page of Business Week.