Digg Hits Rock Bottom

Once-prominent social news aggregator Digg has announced its sale to Betaworks, which will fold Digg into its News.me daily briefing service.

After Digg’s startup launch in 2004, it quickly became one of the most popular social sites on the Web by letting users collect their own assortment of digital news and content and vote on their favorites. But an unpopular redesign and competition from similar sites such as Facebook, Twitter and Reddit rendered the site less relevant in recent years.

John Borthwick, Betaworks’ CEO, will become Digg’s new chief. Outside of transitional roles, none of Digg’s team will follow the business to Betaworks. Betaworks has plans to turn Digg “back into a startup,” Borthwick said, with a small budget and team more suited to the 2012 social news climate.

Neither company responded to our request for further details.

Fall From Glory

Neither Digg nor Betaworks specified the financial details of the deal. Initial reports from The Wall Street Journal stated the company went for US$500,000, although later reports from AllThingsD indicated the figure was significantly higher. However high the price, though, it most likely didn’t touch what the company could have sold for around its peak in 2008. At that time, it had about 30 million visitors per month and raised about $30 million in venture capital.

At the time, Google was also reportedly in talks with Digg to pay $200 million for the site. That was possibly the beginning of the long decline for the company, Brent Csutoras, a social media consultant, told the E-Commerce Times.

“When Google walked away from the deal, especially the time period in the process when they walked away, it hurt Digg’s appeared value a lot,” he said. “Clearly through code and product, or through personality issues, Google felt the company was no longer worth buying.”

After the Google buyout fell through and general economic turmoil put more pressure on startups to become profitable sooner, the Digg leadership team lost focus, said Csutoras, leading to employee upheaval and a course that strayed from the startup attitude. After unpopular redesigns and a site relaunch in 2010 that drove many users to rivals like Reddit, Digg’s cofounder Kevin Rose left the company.

“Digg was forced to start looking at ways to become profitable, which lead to a focus shift within the company from growing and keeping the site popular, to making money,” he said. “This was announced by the company as they let go of a number of their team, while hiring new ad sales people.”

Overall, the leadership team at Digg made crucial decisions that forced their once-loyal user base to turn to its competitors, said Csutoras.

“It is very important to note that social aggregation sites did not die or decline, as Reddit and StumbleUpon have continued to grow substantially even through today,” he said. “But rather, Digg made poor decisions along the way which lead to them losing their core team and userbase.”

Heed Digg’s Warning

Current websites trying to compete in today’s constantly evolving social media scene can learn from Digg’s fall, said Csutoras, by remembering to listen to their most important constituents — their users.

“The reasons for the lowered valuation above really tell a lot about what they could have done to stay relevant longer,” said Csutoras. “They were the biggest social aggregation site, but they wanted to be more like a social profile site and got greedy.”

As the social aggregation scene grows, sites also need to stay relevant on the engineering side, said Stuart McHenry, social media expert and president of McKremie.

“If Digg wanted to compete and stay relevant they should have worked on better algorithms,” McHenry told the E-Commerce Times. “They should have found a way so that any old Joe that submitted a story actually had a chance the article would go popular. If you aren’t connected to an influencer on Digg, don’t even waste your time submitting because nobody will see your story.”

Even with its current troubles, though, Digg still has about 16 million users a month, a relatively strong user base that Betaworks will be happy to tap into, said Csutoras.

“I think the purchase was really more for the traffic and user base that already exists, to help jump start what Betaworks has for its own vision of a social aggregation site,” he said.