Red Herring and VentureBeat are reporting that Digg closed an $8.5 million Series B round of financing from previous investors Greylock Partners and the Omidyar Network, bringing the the total of capital they’ve raised to just over $10 million. They previously raised $2.8 million in October 2005 from Greylock, Omidyar and several angel investors.
In a recent interview with the Digg executive team, they said that they are not yet cash flow positive but should be in the near future, and currently have 18 employees.
Digg competitor Reddit was acquired by Condé Nast in October. We mentioned the likelihood of an upcoming Series B round when we wrote about rumors that Digg was also in acquisition discussions with News Corp. back in October. While Digg disputes this, a few sources indicated that they tested the waters to see if they could sell for $150 million or more. When no offers came in, they raised additional capital instead.
If they aren’t cashflow positive yet, that’s definitely not a good sign. A significant number of flaws are being pointed out in their model and my own personal observation is that they seem to be losing some momentum. They’re not the untouchable rising star they seemed to be even as recently as the BusinessWeek article/joke. If nobody is willing to pay $150 million for them (however they decided on that number given their lack of profits, I have no idea), I just don’t see them building to that sort of acquisition anytime soon (or ever). Not entirely surprising. For a site that claims so many visitors, a potential buyer would have to ask, based on their lack of profits, “Where the hell is the money in this?” At the end of the day, it’s all about money, and not only is Kevin Rose not a $60 million kid, he’s got a fairly popular property that he and the company seem inept at monetizing in any significant way.
Geeks don’t click ads. Bottom line.
It did get me thinking about their target audience when I saw big server-related ad about some high-end AMD servers.
Infact, I just paid a visit few seconds ago and voila: “Google Search Appliance” reads the ad in a fat font.
Step one to remedying the stereotype -or truth, they know best– that Digg is just a geek hangout might be to put more “sexy” and consumer-friendly ads.
Seems interesting/odd that there would be such a big round when – if as you say – they couldn’t get acquisition interest for $150MM. By taking more VC money now, they will have to try to aim even higher to get a comparable ROI.
I’m curious as to what their valuation was on this round.
Digg has got a few problems, but once they tie video into their model (with a better product) it should help boost traffic and ad revenue. Plus Revision3 which will hopefully offer prgramming that is beyond the current offering will tie in with Digg nicely. Interesting Post http://techstar...iregiftcom.html
congrats to Digg on the next round of funding! Good comment (#2) about geeks not clicking ads, which is pretty relevant for many web 2.0 sites that are basing revenue models on ad dollars.
Not sure what is better in terms of maintaining control and independence: selling to VC’s or selling to a megacorp but at least they maintain the overall feel of an independent site, which is pretty important for their viral group of users.
As soon as the stink of FOX crept onto MySpace my interest begin to wane.
LOL Jimmy… so true
It takes EIGHTEEN people to run Digg? Let me guess: Wales, his “personal assistant” Svetlana, six IT guys, and ten marketing idiots flailing around trying to find some corporate types dumb enough to cough up $150,000,000 plus for the site.
Jimmy, you’re absolutely right. Geeks will never click ads. Will digg get more mainstream? I think so, I really do. If they can snap their voting on mainstream media outlet sites like NBC/CBS/WSJ, it would catch on. They need to spread out and get some partnerships.
I estimate Digg may be bringing in about $200K-$300K per month in advertising revenue (based on an estimated 200M to 300M page views per month at $1 CPM). With 18 employees, plus data center costs, that puts them pretty close to break even. This is all just speculation, looking at Alexa data and trying and making some reasonable assumptions on revenue; but I could be off by a factor of 2 or more in either direction.
This ad-supported model is tough – if Digg can’t make it work, it doesn’t hold out much hope for smaller web 2.0 startups.
ginchy – are you referring to Digg, or wikipedia?
Jimmy is right on the money. Digg is branded as tech-only (niche) news site. To me, I think it would be difficult to change that mindset. Digg needs to rethink its revenue generation model – ad-supported model and “build and flip model” don’t seem to cut it. Digg is not the same as MySpace.
As for the pageviews, remember ComScore reported far lower figures than Alexa’s and Digg’s own stats. That report may cause some investors to rethink the decision of buying Digg.
If they will wait, they will get more
Digg needs to think on becoming the next cNet (err…Ziff Davis for those of you who remember those guys) the way Glam is thinking about becoming the next Conde Nast. Leverage the blogophere and web of content…its a big task but I agree, pure ads arent going to scale this puppy, think a diff model. That said, I’m sure the outcome will be a good one.
With post #2, very true… Geeks keep searching..!!
It is probably true that geeks don’t click ads. But for companies that want to advertise to geeks, places like digg gives the ads, and thus their brands/products, exposure. (Digg would do well to convey this to companies and push for impression charges rather than per-click billing.)
Why does digg need 18 employees? You need 2 IT guy, 3 programmers a designer and rest kevin can handle it.
Got my übernerds mixed up. That should have been Rose, not Wales. Haha, I suck
I like the Digg model… I hope this becomes a successful venture especially with the hard work they’ve been putting into it. Interesting about the News Corp aquisition talks, seems they are the go-to group once your site gets big enough.
I’m no expert, but Digg seems to be a fairly light website with a large audience that probably fits a relatively young, affluent and educated demographic.
If they can’t make money off advertising, who can?
It can’t be all geeks on Digg.
ginchy, here’s 15 of the 18 staff http://digg.com/about
“Geeks don’t click ads. Bottom line.” – Jimmy
Geeks don’t even SEE ads, thanks to FF + Adblock. Take Techcrunch as an example… totally ad free as it’s always been.
If anybody from Digg will be reading this:
Why don’t you guys sell one news story on top of the homepage to a sponsor for a period of 24 hours? Sort of like YouTube has this one video on the homepage for one whole day… I read somewhere that they make like $175,000 from that ad alone per day… You can easily make $10,000 or more just with this ad alone per day, which at the end of the month makes you an additional (and cool) $300,000. Give users the ability to comment on any particular sponsored story as well as rate it (in Diggs of course) and that way it is a win, win situation for everybody involved!! The sponsors will love it, because it will make the users interact with their brand and/or offering and see what they like and don’t like and make the necessary adjustments and of course the users will appreciate it because their voice counts and it plays right into the Digg’s philosophy.
If you are afraid that they will not like it, you can always present this idea to your users and have them vote on it (Digg it up or down) and if the majority gives the thumbs up, you do it if not you look for other opportunities. But I am almost certain that the Digg community will give you a green light because just the fact that you are asking them about it and making them feel as a real part of your ideas and philosophy, will make them want to reward you and they will, plus Diggers are not stupid, they understand that this is a business and there are bills to pay…
You can also target the sponsored news to the different news sections on your website, in other words placing a sponsored news in a relevant category on your website! That way you have a different ad for a different section (plus it is targeted) making you even more $$$!! I think you can easily make an additional $1M or more with this idea monthly!
TechCrunchers what do you think? Mike?
Stan
P.S. I have a lot of other interesting ideas for Digg, if anybody from Digg will be reading this, drop me an email at: stan.oleynick (at) gmail.com and I will gladly share them with you!
Stan – I think it’s a great idea as long as they point out that it is a sponsored story. Google strugged with putting sponsored results above search result for a long time before they pulled the trigger, and of course now users are fine with it.
What a sh*t place to work. 14 geeky guys and 1 suspected woman. Take some of that $8.5 million and hire a few hot sexretaries from Eastern Europe. Goddamned rookies. Doesn’t anybody know how to spend VC money anymore?
Mike, exactly, plus this idea will at least to some extent discourage Digg gaming and spamming, because people and marketers will know that there is a legal (not to mention much more beneficial) way to get your news on the Digg homepage in front of millions of Diggers.
I think there are definitely more pluses than minuses in this approach and like you said, users will be fine with it.
P.S. Mike, thanks for interacting with your audience and checking the comments, to me it speaks volumes!!
Mr. Rose’s “personal assistant” is named Nicole, actually, not Svetlana.
Stan, good idea. Rather than google ads, they can mix in Ads like what Techcrunch has, on their Technology news section. 6 of them at 10K a month.. That will be 60K for just one news section of their site.
I’m sure Web 2.0 companies will be queuing up for those slots…
regarding the mix/look of the digg personnel…
no wonder the bay area looks like it does. guess the idea of diversity is the odd older guy. and people wonder why there’s screaming going on for the way these companies are formed (regarding the vc funding)
guess the saying hire and fund those who look like you is really true…
peace..
series B is always the beginning of the end.
150 mil. seems cheap for Digg, though I guess there is the uncertainty factor that something better could come along.
Dave Mackey: seems cheap? They haven’t made a cent of profit despite the fact that they claim 20 million monthly visitors and have been around for a fairly long time as far as Web 2.0 startups go. According to the BusinessWeek article, they were at $3 million in annual revenues. For argument’s sake, let’s assume that’s doubled to $6 million. You’d pay 25 times annual revenues for something that has significant flaws and no defensible technology? I’ve got a job for you. How would you like to be a venture capitalist?
digg is slashdot 2.0. how much did slashdot go for? twenty grand or something like that? digg is gonna be be the big web 2.0 “whoops we shoulda took that offer” story, followed shortly by facebook.
what they need to do is expand their digging to stuff like products, people, films, etc. How many diggs does Perfume have, what digital camera has the most diggs, etc. They need to leverage the strengths of their existing audience, which has a lot to offer, rather then trying to get my dad to use Digg. The videos is an OK step in that direction but they need to go broader, sooner, and make the digg this button appear on everything from ecommerce sites to myspace profiles.
>> I estimate Digg may be bringing in about $200K-$300K per month in advertising revenue.
There was a blog post which said that digg makes approximately 200k monthly with adsense…
Digg’s a good site, but what’s the revenue model? Text ads, are you kidding me? http://www.CavengerNews.com is much better
Thats right, the same post that says that plentyoffish.com gets $1.000.000 a month from adsense
why is being profitable even an issue? youtube was about 20 years away from being profitable and they sold for 1.6. myspace was not profitable.
it’s all about eyeballs and momentum. digg kids should not have taken on so much vc money. now they are stuck w/ the sharks. should have sold to yahoo for 50 mill early on.
I really do not like digg. Geeks do not click on ads.
I will not expect any serious web 2.0 to startup to build a company with build-to-flip in mind. Think about it for a moment, of about 1400 web 2.0 companies, how many of them got acquired? Maybe 1%
The built-to-flip mind-set doesn’t seem to work. So, the fact that YouTube, Myspace and the likes struck gold after 18 or 12 or 6 months of work with their built-to-flip sites does not mean investors will buy digg at $150M. I hope what happened to facebook will not happen to Digg.
pretty interesting article on the topic, many speculative reasons given in support of the these of why nobody buys digg, so far…
http://nextnetn...ys-diggcom.html
series B is always the beginning of the end.