The True Value of Digg
I’m sure everyone remembers clearly the mini-fiasco behind BusinessWeek’s cover of Kevin Rose proclaiming him to be the $60 million boy (at age 30) (9rules’ take on things). For one reason or another it seems people want to see Digg make it big and succeed, but don’t seem to look at what it would take for it to do so. Now, I can’t claim to know the future plans of Mr. Rose, but it’s hard to see Digg having the impact on the web that everyone is proclaiming it has in its current iteration.
In one form or another, Social News sites have been around for a very long time so it is almost silly to consider the Digg model as revolutionary. Mix Fark with a little bit of MetaFilter and essentially you have Digg. What Digg does well is give the users a sense of participation on the site by allowing them to Digg stories to the frontpage. Throw in some Slashdot commenting functionality and you have the Social News sweetheart of the web.
Valued by “many” VCs at around $200 million I have to wonder where the value is. I love Digg and use it often, but what does that $200 million really provide me with? I get to go to a site and then leave the site. Many times I can find the links in other places so what’s the real value that I am getting from here?
I can only guess that the reason so many of us want to see Digg succeed is because we are capable of creating something similar (doesn’t mean it will gain traction) and we become first-hand witnesses of the next big thing. Compare Digg to Flickr and the valuations that get pushed around become even more baffling. Flickr is a site that caters to millions of registered users (more than Digg) and actually provides value that you can see right away. The site allows you to capture your life with photos and archive them for the world to see. Throw in a bit of advertising along with a Pro version and it seems Flickr deserves the $200MM valuation more than Digg.
Flickr also provides a sense of community compared to other photo-sharing sites, which in turn only creates more value. Digg’s community might be unique to the people that participate, but the same kind of community can be found on Fark, Metafilter, Slashdot and many other sites.
None of this means that Digg isn’t important to the web, I just have to question how important it is to the web versus how important we are making it seem. I know there is a problem when Netscape can offer to pay the top Digg contributors money if they move to Netscape and it causes a major uproar. If the service is truly valuable there shouldn’t be any concern, right? However, look how quickly Netscape was able to emulate the Digg model. Login -> Submit -> Digg/Vote.
If Digg is able to sell for millions and millions of dollars then more power to them, but for the ones who decide to buy it you have to wonder what’s the true value that they see in it. Tons of sites on the web receive millions of pageviews a month and keep readers on the site longer than Digg can. The value in Digg is that it has become a great model for the next breed of portals if they ever decide to make a comeback. Other than that, it still looks to be just another large site to me.
Related reading:
“I get to go to a site and then leave the site. Many times I can find the links in other places so what’s the real value that I am getting from here?” - Is that your summary of digg or the internet in general?
By alex on September 18, 2006 4:17 am
VERY good points. I think $200 million is way off, seeing as how it makes ~3million a year on its current model. I wonder what other potential revenue models venture capitalists see in it.
By Jason on September 18, 2006 4:30 am
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By RetortaBlog » Web -The True Value of Digg on September 18, 2006 7:06 am
I think if Digg could figure out how to be of more value to those it sends traffic to, they’d have something on their hands and could actually setup a small “staff” of power diggers. Then, it would make being on the frontpage valuable.
For instance, Wikipedia is completely open for anyone to use. But after a user builds up a rep, they get more privileges and their changes seem to stick more than those that just jump in and make an edit. Even when wikipedia locks a page due to spam, those power editors can edit the page. If Digg did something like this, where certain reputable diggers had more say (or even the complete say) of when a story hits the front page - that might add more value to the traffic that you get from digg and people may even be willing to pay for such a review.
TUG recently got dugg, and we had a spike of about 15,000 hits that dwindled to about 5,000 the second day, 2,000 the next. I’ve yet to tally the actual numbers for how many subscribers we picked up during that period, but I’m willing to say it was very little. So the traffic may have cost us hosting money, but earned us very little money or any value because the traffic was pretty much just kids that are willing to click on the links on the front page.
By Colin D. Devroe on September 18, 2006 8:05 am
(Off topic…) As someone who expressed extreme annoyance at the 1-post nature of this site’s redesign, let me extend thanks for the fact you’ve now ‘fixed’ it.
Thanks. :)
By John Handelaar on September 18, 2006 8:53 am
I think you almost answered your own question in the last sentence. Digg is large. And to VC’s evaluating the company as an acquisition target this usually translates to advertising dollars. It’s a shallow-portal model with relatively hit-n-run traffic, but this could be a benefit in some cases. Any truly community driven sites require a lot of resources, caring, and feedback-driven enhancements in order to sustain growth. It creates more value but also costs more to operate.
By soxiam on September 18, 2006 9:12 am
Colin: I think Digg already has something like this in place for its topp contributors where there submissions have a higher chance of reaching the homepage. However, the top submitters are usually casual readers and not people who point to their own sites so the benefits gained by them aren’t very much.
soxiam: Agreed, I know the value of having a large site (trust me), but valuing it at $200MM simply based on advertising for a site that pushes users away still doesn’t make much sense. Myspace can reach a $500MM valuation simply because it keeps its users active on the site and there are other methods to monetization besides advertising along with the power that Fox gets by advertising its own line of products, movies and shows on the site.
By Scrivs on September 18, 2006 10:46 am
Alex: That isn’t my summary of the web at all. Yahoo keeps people on its site as does Myspace. I could continue on with the list so to think the web is all about bouncing from site-to-site would be a great fallacy in my mind.
John: You’re welcome.
By Scrivs on September 18, 2006 10:59 am
I’ll give you the exact value of Digg in my eyes. $0.00
By Kyle Korleski on September 18, 2006 5:57 pm
If and when Digg becomes more personalized (ie Reddit), it will have a good opportunity to cash in on advertising. The visualization tools coming out of “Digg Labs” show that the Digg team will be interested in creating a more personal UI that’s not just a long list of links.
By Michael Mahemoff on September 19, 2006 3:27 am
The value is that millions of people make millions and millions of visits. The nature of the site is that you click on a link and leave the site…but you end up coming back. My guess is that although the length per visit may not be long the volume of visits compensates.
I see these “I’d never pay this much for that” posts regarding web sites all the time, and frankly I find them a little ridiculous. VC’s buy sites for a living. It’s what they do. If they make a decision you don’t understand they most likely have information you don’t or a depth of experience you don’t. They make decisions based on metrics that aren’t at the public’s disposal, not idle speculation (like this post).
Then you go on to say that Flickr is more deserving of the valuation. Has Flickr been even been evaluated? My guess is that it would be valued much higher than Digg…not sure how comparing the two sites adds any value to your argument.
If you’re still not convinced, the fact that they’ve got $200MM to spend should be a pretty good indication that they know what they’re doing, and they’ve been successful at it.
By Adam Thody on September 19, 2006 1:17 pm
Adam: Wow, how many times can you be wrong in one comment? First Flickr was bought by Yahoo and from what I remember the number was less than $30MM so obviously it was valued at something.
It was mentioned that the revenue (not profit) of Digg was $3MM. How you can extrapolate that to $200MM is beyond me.
Finally, who has $200MM to spend? Certainly not Digg.
Finally, finally, VCs don’t “buy sites for a living”, they invest in companies.
By Scrivs on September 19, 2006 7:12 pm
Well, the evaluation of a webistes truly depend upon the amount of traffic that particular website is recieving.
By web hosting company on September 20, 2006 5:40 am
I can surely declare that I like Digg. It’s great website and people enjoy the work they create. I think there is one little “secret” which allows Digg to be the best one. Visitors take part in the Digg’s function and they believe that they have a real choice.
By Irene Brawn on September 20, 2006 11:34 am
Scrivs, it’s apples and oranges. What a completely different site sold for, under completely different circumstances, over a year and a half ago bears no relevance.
Revenue is one metric. Amazon.com barely turned a profit for many years, then in the course of one year their net went up 16 fold. You can not value a company based solely on revenue, and if their revenue isn’t great then VCs must be seeing the value elsewhere.
…Why would Digg buy themselves? We’ve been talking about VCs the whole time, they’re the ones valuing the site, they’re the ones with the money.
Please, you know what I meant, and in this case the company is a site essentially (the infrastructure behind Digg is likely very minimal).
My underlying point is not that Digg is worth $200MM, but that none of us have the information or expertise to say the site is worth this, or isn’t worth that so we should go no like we’re experts on the subject.
By Adam Thody on September 21, 2006 10:13 am