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What Digg.com Can Teach Us about Entrepreneurship on the Web

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The world of business has always been somewhat of a gamble. And much like the stock market, knowing when to invest and when to cash out is all part of the art. A few days ago, social news website Digg.com was sold to three independent buyers. While aspects of the company – including the team running the site and a few patents it held – were sold for around $15 million, the actual domain and its traffic were sold for a measly $500,000. But isn’t half a million still respectable? Maybe for a start-up, but we’re talking about Digg – a website that was valued at $164 million back in 2008. So what exactly happened to Digg, and what lessons can we learn from its demise?

Always listen to your user base

The ‘last nail in the coffin’ for Digg was arguably the launch of its fourth iteration – Digg v4 – back in 2010. Up until that point, the site had been slowly gaining users and views, and was the foremost social news site in the world. The site worked by allowing users to submit content they found interesting for the approval of the rest of the users. They would either ‘digg’ a story (vote it up) or ‘bury’ it (vote it down). The system worked well at least for a while, and there was a thriving community within the discussions and comments on each story. When v4 launched in August 2010, core functionality of the site changed. The ‘Upcoming’ section was removed and users were invited to ‘Follow’ their favourite news sources. In essence, Digg became a Twitter-like social network for news. Unfortunately, this isn’t what its users wanted – quite the opposite. They left in their droves and the traffic figures plummeted.

What if Digg had been acquired earlier?

The founder of Digg, Kevin Rose, was once the face of Business Week magazine with the headline ‘How This Kid Made $60 Million in 18 Months’. But that was 2006 – during the heyday of Digg.com. Around the same time, and likely due to the site’s success story (the sheer number of page views was staggering), there were many acquisition rumours. The biggest of these was 2008’s rumoured Google acquisition. The word was that Digg was to be sold to Google for approximately $200 million. That’s a serious amount of cash – especially when compared to the $500,000 that the site’s core assets have just sold for – and it’s living proof that sometimes waiting isn’t always the best idea. To be fair, it was allegedly Google that pulled out of these negotiations – so maybe they dodged a bullet, but it’s interesting to wonder how Digg would’ve fared with Google at the wheel.

The entrepreneurial lessons of Digg

As an entrepreneur, Kevin Rose must be more than a little disappointed with Digg’s performance. It’s likely that ‘the business’ is what eventually decided on the functionality changes for the site, so Kevin may not be to blame. Having said that, if he had stuck to his guns, listened to the user base, and actually responded to demand, Digg may be in a much better position today. Whether or not Kevin will be requesting any office insurance quotes in the near future remains to be seen – but the policy covering Digg headquarters is almost certainly about to be cancelled.

One door closes, another one opens

Another website that exemplifies what Digg should’ve been doing is Reddit.com. The site’s function is almost identical (pre-v4 at least), and when Digg changed, Reddit got a huge uplift in the traffic numbers. In fact, between 2010 and 2011, Reddit’s traffic increased by a whopping 86%, whereas Digg’s dropped by an equally shocking 73%. The numbers really do speak for themselves. Reddit was to ex-Digg users what they wanted Digg to be, and the deluge has set Reddit in good stead as it still enjoys record numbers to this day. The lesson here is that even if you have a competitor you think is unbeatable, don’t be so quick to assume – you never know what’s round the corner (of course, this works both ways).

Digg’s core assets selling for just $500,000 is a milestone in internet history – it’s proof that just because you can reach the heady heights, doesn’t mean you’ll stay there. Now you’ve just got to decide which is the bigger bust: Digg or Myspace?

Freya Taylor is a finance specialist and freelance writer who focuses on advising business start ups and sole traders on how best to begin in business and how to capitalize on initiatives that will help them.

  • http://www.vivalution.com Paul Bond

    I think this demonstrates how copying a winning formula might not always work. It seems that Digg looked at Twitter and wanted a piece of their pie. What they never bargained on was how much competition Twitter would become if they tried to emulate them. I guess the lesson here is to look at large companies and study what they are doing right, but try and retain your own niche or angle and grow your own readership rather than try to take others.