Thankfully I’m not the only one who still believes a measure of health and profitability is derived from actual revenue streams…

They were able to grow that in less than 5 years. I think they are easily worth $150m or more.

Eyeballs / uniques do not equal big paydays in real revenues. Inflated acquisitions, maybe. But not when it comes to making serious cash.

It’s interesting how there’s been a lot of Digg press coverage lately. Feels like strategy.

I think they need to hurry and make their move, some kind of move. I’m probably wrong, but it feels short lived and relatively easy to duplicate their solution.

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.

Personally, I don’t really care too much about traffic numbers. Alexa, comScore, etc. A perfect solution to the problem of tracking “success” already exists and it’s called revenues and profits. Acquirers should look less at eyeballs and more at how those eyeballs are being monetized. A lot of these popular Web 2.0 properties have been around long enough to at the very least provide some initial validation that their audience can be leveraged to generate revenue in an effective manner.

And for what it’s worth, an Internet property does not determine its own valuation. If you want to sell, your property is worth whatever somebody’s willing to pay for it. Sometimes that number aligns with your valuation; a lot of times it doesn’t. In the case of Digg, it appears that News Corp. didn’t agree with $150 million. But there are plenty of fools out there chasing fools gold so Digg should keep digging for its $150 million. It just might strike the motherload.

“One of the big problems in Web 2.0 is the numbers” — Absolutely! This is a point I was trying to make, by referencing again, tools & stats tools, (one of which came from CNN Money site where I was able to analyze some numbers.

And “I” don’t assume anything. I’m “again” basing this on tools & information that is out there for the masses: (see the links to the websites).
But if you could see the point I was making, I stated that we need a standard system to not only track but also give accurate information. Because the information out there now is bogus.

And it should be time that we all stopped being “fooled”. These are the points I’m trying to make. Given this open-source community we will take & accept & report on these numbers. But the question is, why are we accepting these numbers?

So, Drama 2.0, at the end of the day, of course there’s a lot more to determining valuation. But every Internet property out there decides to determine there own, regardless of what any other person says. Just as in real estate, websites can be speculative.

One of the biggest problems is Web 2.0 is numbers. Traffic and usage statistics are unreliable and always being debated. But this is really less important than revenues and profits, since I don’t care how many eyeballs you have if you can’t monetize them. And when it comes to revenue projections, I think Bubble 2.0 rivals Bubble 1.0 in the lack of common sense. There are incredibly intelligent people out there who, for some reason, seem incapable of distinguishing reality from fantasy when it comes to revenue and market projections.

In the case of your projections, Darrin, Google reportedly made $2.7 billion from AdSense in 2005, and according to USA Today, may pay up to 79 cents of every dollar back to the AdSense publishers. This means that the annual payout for AdSense to advertisers was about $2.1 billion. You assume a relatively high CTR of 1% and CPC of $1.00 to “project” that Digg earns $73 million per year. This would have Digg accounting for nearly 3.5% of all of Google’s AdSense payouts. Very high and would beg the question why Google hasn’t bought them out. So even assuming that we didn’t know for a fact that you were off by about $70 million, logic should tell you that there’s something problematic with your estimates simply by looking at the revenue projections you’ve come up with and comparing them to the size of the market (in the case Google AdSense payouts).

Note to investors and entrepreneurs: if your revenue projections have you making more money than the total size of the market, or you’re accounting for a noticable size of a very large market, your projections are likely flawed. Guy Kawasaki’s November 2 blog entry, “The Art of Projections in a Dotcom 2.0 World”, and some of the blogger responses around the web, have some very timely points about how revenue projections should be done versus how they are typically done.

Moving on to Digg’s valuation, valuations are not as simple as plugging your profits or revenues into a form on a website and getting a number. There are lots of considerations, including overall market projections, comparable transactions, the value of hard assets, debt, etc. I’ve had the pleasure of lunching with a valuations expert who has worked on billion dollar M&A deals and was really blown away to learn some of the nitty gritty details of the complicated analysis and computer modeling that gets done on some of these. In Digg’s case, there has to be a significant risk premium. You have a business that doesn’t have a significant amount of revenues, and it’s unclear how monetizable the eyeballs are (let alone how many eyeballs there are in the first place). Then you have the fact that it has no defensible technology and can easily be imitated, as it has been. Throw in the fact that you have a fairly small number of users that account for a significant portion of the activity, and there’s a track record of some of them leaving or threatening to leave when they don’t get what they want, and I think it’s pretty clear that this is an insanely risky business to acquire, and I’m not entirely surprised that News Corp. has apparently passed on the “opportunity” to buy it for $150 million.

It’s certainly quite amazing how quickly everybody has forgotten how easy it is to project massive fortunes when they just don’t exist. I suppose in Bubble 1.0 it was understandable. The Internet was new and we had a lot of qualified people talking about a “new economy.” In Bubble 2.0, however, we should know better. The old saying “Fool me once, shame on you. Fool me twice, shame on me.” comes to mind. Unfortunately we don’t live in the George W. Bush world of “There’s an old saying in Tennessee - I know it’s in Texas, probably in Tennessee - that says, fool me once, shame on - shame on you. Fool me - you can’t get fooled again.” Don’t get me wrong. There is always real revenue opportunity in any market, but for the most part, we’re in the process of getting fooled, again.

BTW check out http://www.yokster.com

I’m actually back to reading slashdot a lot more now (along with blogs such as techcrunch) … it’s consistent, and if I want to read a lot more I’ll switch over to the firehose (definitely worth the $5 subscription fee).

And do 70% of Diggs users really use FireFox? I highly doubt that Jay. Digg claims 20mm uniques, Comscore 1.4mm, thats a huge deficiency there.

Digg does a great job at this, but we definitely need a standardized way to analyze who are visitors are. 20 Mil unique visitors (A real visitor to a Website (versus a visit by a search engine robot) -counted by the unique IP address) per month is some great figures.

Based on the collective Wisdom out there right now, 20 million unique visitors per month, based on the US population alone is 6% of the US population. In 15 months, Digg will have capture the whole US population on Digg.

At 20 million unique visitors per month, according to Stuart Browns AdCalc, http://adcalc.co.uk/ that generates Digg aprox. $73 million per year at 1% CTR using adsense. A $150 million acquisition or sale would be ridiculous. They can make that in 2 years.

If Digg started in 2004, they should have at least 1 years worth of financial statements. Assume 40% in expenses for the ‘05 yr which translates to $43.8/yr given 20 million unique visitors per month, based on adsense revenues alone.

According to CNN’s Business Worth Calculator: (http://cgi.money.cnn.com/tools/bizworth/index.html), if you were to enter $43.8 Million into their calculator, the business is worth $130 - $280 million.

According to this site: Digg’s worth: $19,107,985.38 http://www.business-opportunit.....w.digg.com

All this is based on just the unique visitors coming to the site. So, how are we measuring regular visitors, subscribers, etc? We seriously need to come up with a standard base measurement system, as the unique visitors & the regular visitors are key, and now even more importantly RSS & other type of subscribers. If not, we will have the Wisdom in the Clouds, rather the Crowds. At the end of the day, without real & factual data, how can we improve our content & cater to our readers?

One trick pony? Steele needs to take a look at Metcalfe & Reed’s Law. These are two measures which I think are the foundation to having the collective wisdom to be tracked, categorized, organized & counted….

Digg it?

Digg does not exhibit several of the characteristics of a smart crowd:

- Diverse. Digg fails on this point, since it is well-known to be used primarily by “tech geeks” and a relatively small number of “power” users provide the most activity.

- Independence of the crowd members. Digg fails on this point, as the mechanism by which stories get promoted influence the voting (i.e. if you find a story already promoted to the homepage, you’re probably more likely to vote on it). Additionally, we already know that there is group coordination going on to promote certain stories, and this is threatening to turn Digg into a completely useless service.

Additionally, while it is not one of his four criteria, in a lecture Surowieki gave entited “Independent Individuals and Wise Crowds, or Is It Possible to Be Too Connected?”, he noted that the wisdom of the crowd model works best when there is an outcome or truth (i.e. “Lucky Charms will win the race” or “The hog weighs 302 pounds.”). In Digg’s case, this really doesn’t exist. It is a popularity contest for news, and while we can reasonably agree that some news is “better” than other news, there are so many potential “answers” and there is no concrete truth that it is even more difficult to apply the widsom of the crowds model to Digg, even if it didn’t fail two of the four criteria miserably in the first place.

Next time Jay gets interviewed, I’d love for somebody to ask him about these points, because it seems apparent to me that most of the people that reference the wisdom of the crowds in the context of Web 2.0 are not very familiar with the theory and have probably never even read the book.

Don’t get me wrong, I love Digg, but just don’t believe the numbers.