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Digg In Acquisition Talks

written by John Chow on October 24, 2006

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Well, well, well. The day after Google purchased YouTube for $1.65 billion I made a post asking is Digg next? The story made it to the front page of Digg but then got buried because some diggers thought I was just making things up. Looks like I’ll be getting the last laugh.

Tech Crunch is reporting that Digg is in acquisition discussions with a number of companies, including News Corp. The asking price: $150 million. In my original post, I stated.

While Digg will never publicly state that they are for sale, I got even money that says they are open to offers. Back in January there was a rumor that Yahoo offer $40 million for Digg. According to this Business article, Digg is worth at least $200 million, even though they are only breaking even right now. Is a company with just $3 million a year income worth $200 million? I doubt it, but we are in the middle of Dot Com Bubble 2.0, where pricing a website makes absolutely no sense. With these kinds of crazy valuations, the question isn’t whether Digg is for sale, the question is when Digg will be sold.

Looks like the question is about to be answered real soon.

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{ 12 comments }

Shane October 25, 2006 at 1:05 am

It’s hard to believe that YouTube was worth $1.6B, but when you factor in that users spend an average of 18 minutes on YouTube (I think that’s correct), that is a lot of face time – which is part of what Google was buying.

Not sure what the average face time on Digg is, but this has to be factored into the price.

Beyond that, yeah, it’s bubble-dollars

HMTKSteve October 25, 2006 at 4:24 am

I predict that if Digg is sold much of it’s luster will be gone.

The culture of Digg is clearly centered around Diggnation.

Jerry October 25, 2006 at 4:26 am

I wonder if slashdot is for sale…

Ian October 25, 2006 at 4:47 am

Why is that when a site is run by one or two guys, everyone is all gung-ho about it, but as soon as it gets sold to a bigger company, all the old-timers are all “Bah, they sold us out, I’m outta here”

HMTKSteve October 25, 2006 at 5:37 am

Ian,

The best answer I can give you is that when a site is created by “two guys” it becomes so deeply associated with those “two guys” that they become inseperable to the user base.

In the case of Digg (and Diggnation) The faces of Alex and Kevin ARE Digg.

Remember Bartles and James? What about Ben and Jerry? Did you notice how tightly ingrained those duo’s were with their products? It was a long time before those products could stand on their own with the marketing duo behind them.

Digg is not ready to stand on it’s own two feet.

Derrich October 25, 2006 at 6:12 am

Google already runs the search game…so why not? It might make sense for NewsCorp. Since I’ve been introduced to Digg.com, I’ve read countless stories from various newspapers, although I can’t recall one I read from the New York Post…but still. Anything to stay on top of the story. Next thing you know, I’ll have a Digg channel on my DirecTV menu…all hosted by Bill O’Reilly. Yikes.

Robert McIntosh October 25, 2006 at 8:28 am

I would have to agree with HMTKSteve. While this is especially true in the tech world (Bill Gates, Steve Jobs, Alex and Kevin, Marc Fleury, etc.) the identity of a company being associated with an individual happens in other areas as well.

Just last night I was having dinner with my dad and uncle and my dad, recently retired, asked my uncle if he thought about retiring as well. Well, my uncle owns his own business and he said that, other than enjoying what he is doing, when an organization of any sort is built on the principles of its founder and that founder leaves, the organization tends to fall eventually unless the new owner has the same principles. Naturally this doesn’t always apply, but in most cases it does.

vik October 25, 2006 at 10:13 am

You called it John and I never doubted you! Here is my prediction, before Digg, Facebook will get acquired by Yahoo.

Matt October 25, 2006 at 11:10 am

Digg would be a MUCH smarter buy than YouTube. Digg is already huge in the tech savvy demographic, but imagine the explosion in users if Digg news made worldwide headlines as the result of oh I don’t know a ~$1 billion sale? Digg won’t die as the result of a sale, it will skyrocket.

Not to mention the extra perks for Google (if they were the ones to buy it) since they already have good Adsense monetization going on, all of that money would basically just circle around Google’s bank account. I’m calling we’ll see Facebook and Digg sold within the year!

HMTKSteve October 25, 2006 at 1:29 pm

I have no doubt Digg can be sold. I just think the people who gave the money to Digg want more then a 10-1 return on their investment.

I think their “minimum” was $150M and from listening to Kevin Rose it sounds like he did not accept that much in VC funding. Probably less then $15M.

Web 2.0 is not about “the next big thing” Web 2.0 is all about “the next big price tag.”

John Chow October 25, 2006 at 3:46 pm

Their first round of funding (they haven’t done any since then) was only for $2.5 million or so. Selling the site for $150 million would be a pretty a good return for the VCs. If Digg doesn’t sell, they will have to do 2nd funding round. That tells me Digg is not breaking even as was first suggested. If they were breaking even, they wouldn’t need a 2nd round.

HMTKSteve October 26, 2006 at 9:32 am

John,

I forgot it was only $2.8M.

Didn’t Kevin Rose also keep a 30% stake in the company? I’m sure Jay’s stake is close to Kevin’s.

This begs the question, “Who is setting the price?”

Could it be the VC fundraisers, who only have a $2.8M stake (and probably a small percentage of ownership,) who are demanding a minimum $150M?

I do not think Digg is worth $150M. I wrote about this extensively on my blog and though Digg is good, it’s no YouTube or MySpace.