The Google/Digg acquisition negotiations were in full swing as of last Tuesday, had passed the term sheet stage and the two companies were in final negotiations in the $200 million range. But sometime this last week Google decided to walk from the deal. Digg was notified on late Thursday or Friday.
Google was in the due diligence stage of the deal, where they peer deep into Digg’s technology and financial statements. Most term sheets are non binding, so anything that gives the buyer pause can be used as an excuse to walk away - but generally the buyer already has a very good idea what they are getting well before the term sheet stage.
Two sources close to the companies suggested that some issue that came up during technical due diligence was to blame. One source said that the issue was more personality driven, and that Google decided after spending more time with Digg’s top team that there just wasn’t a fit.
Either way the deal appears to dead and can be added to the long list of failed Digg acquisition deals. And when a company is “left at the altar” other buyers are usually hesitant to step in.
So what will Digg do now? We’re hearing they’ll just push through with a new round of financing. Digg hired Allen & Co. to represent them in the sale, but the investment bank is just as good at closing massive venture financings, too (they represented both Slide and Ning in their recent a half billion dollar valuation financings).
I’ve seen that story before. =)
There are few big problems with digg.
A) Lack of Innovations for years now (dumb features added regularly)
B) Bad Management / CEO / Team
C) Absence of Killer Applications (Competitive Edge)
D) Revenue model
Digg is web2’s biggest hype, without substance or real value. Digg will be bought buy a dumb desperate company only.
so Microsoft is going to buy Digg, how much did they offer?
As Calacanis had mentioned: “Our entire industry is based on evolution” talking about the accusation that Netscape was basically a ripoff Digg. Google had already developed the technology and it has the community already - why spend 200MM? use 100MM in marketing for the new product and that’s it.
One problem might be that Digg’s technology is really not all that impressive, especially from Google’s perspective. At the same time, they seem to see themselves as a tech company, when they really are more of a community. Google doesn’t get community, Digg doesn’t get tech– not a good fit.
Who are the main tech leads at Digg, anyway?
the technology isn’t relevant beyond keeping the servers live. The value in Digg is the network effect.
Agreed, the technology isn’t relevant, but if Google doesn’t trust their tech team, or can’t work with them, then the tech does become relevant.
While you’re right Mike in that keeping the servers live is the main goal, Google is very very picky when it comes to integration.
That’s one reason they probably chose Jaiku over Twitter. Jaiku was a much cleaner code base and had a longer term viability (still remains to be seen).
A friend of mine working at Google during the YouTube acquisition stated that it was well known around Google that they told the YouTube developers, “Listen you have X amount of time to get your code up to these standards”.
Its very likely that after looking at the spaghetti code that comprises a good deal of diggs base code, Google probably realized that :
1.) Digg would not be able to bring the code up to standards in a reasonable amount of time.
2.) Diggs team was very reluctant to do so and was probably very resistant.
Google’s acquistion of Digg would kill Digg. The growth and success of Digg has been that it was and still gives the appearance of a small very focused group of people, while Google is very much thought of as a large corporation (which it is, and to some degree Digg is aswell).
The thing is that Google ruined YouTube, not necessarily ruin in the sense of killing it - but the growth of YouTube pre-Google was faster and larger then in post-Google. YouTube is still doing well, but people are moving away from it and towards other video hosts like break and vimeo, which has seen a large increase lately.
If Google bought Digg, Digg would definitely lose a lot of it’s members, who would flee to other competitors like Reddit or Mixx.
The deal probably broke down because of certain members of the Digg team’s ego. It’s well known that Andersen has been one of the problems behind selling Digg, at least according to 3 previous deals that were on the table.
Google walked away because they realized how dumb it was to acquire Digg. The value of Digg’s demographic is very low. What can you advertise on Digg?
1. Dating services? Not gonna fly. Who wants to date 25 year old iPhone freaks who live in their mom’s basement.
2. Apple products? Nope. These people are already fanatics.
3. Anything else? Nope. These people don’t really buy stuff.
Exactally my point that I have made, most web guys do not understand what a massive serverload Digg incurrs. The fact that the code does not break the servers is the best thing about Digg.
The fact that the code is stable, scalable, upscalable and the whole Digg show is only a small group of people in incredible in itself.
Some idiot the other day tried to tell me “oh there code sucks, they have javascript errors and the advertising fails to load.” That is not what we are talking about, the core code that runs Digg. Easy to write, not easy to write for 6 million profiles.
This is the third time you’ve written this story.
In another few months it’ll pop up again and we will go for round four.
I lose faith in you every time.
BTW: You seriously posting stories still at 4:30AM PST Mike? Do your sources sleep? =)
is it 4:30? Yeah, i’m going to bed. I’ll write the thank you post for our techcrunch party in the morning.
Great party. Great cause. Heather & Co did a great job. Glad to have “sponsored” a table. Was worth every penny of the list price. You guys need to do them more often.
I’ve gotta head to bed myself. Jesus. Its 5:00AM. We might as well switch over to Asia times zones….
Hey,
Citi actually sleeps. Mike doesn’t
lol, i wondered if that was going to really go down..
and i think yahoo will remain independent too..
What’s up with digg, for real? It’s a nice application, with tons of devoted users. From the outside $200m sure looks like a fair deal. But something appears to be rotten in the state of digg.
Ever hear of once your lucky, twice youre good?
Digg was very lucky, but never innovated beyond that and held out too long. Their management team as mentioned is unimpressive.
Basically they overvalued themselves and believed everything Business Week told them.
Now they can only pray for a fire sale while they burn through year 4 of investment cap in a crumbling economy.
dude, how many hours do you sleep in a day?
Is it really about a “tech” issue or did Google just want to have a look at how well the MS ads are doing on a social site?
Great response.
Microsoft is not an option, they are after Delicious thru Yahoo.
Google already knows everything that Internet users do, uummmm, how’s that? Googletoolbar, javascript and cookies from Google, Google cookies from signing in to your Google account, Google Analytics. To get the numbers they need, they just multiply their user base.
Sorry my comment above should have gone elsewhere.
in this case, if it wasn’t a good fit, then it wasn’t a good fit.
pierre far, that’s interesting. probably— both. lol.
Google Walks- Surprising or Not? Vote here: http://snurl.com/35dps [www_thriveorfail_com]
With 22 votes so far, this is evenly split as of right now, 50% Surprised, 50% not. Interesting.
Voting is starting to break in a pretty clear trend.
Is it possible that Digg has reached an inflection point in their network effect?
Maybe, you can see it in alexa:
http://www.alexa.com/data/deta.....s/digg.com
mmmmm … maybe caused by summer holidays !
IF you could see a year long trend, you could see that this is the summer slow down period on the internet. Happens every year.
Google never wanted to buy Digg, they just wanted to take a look at Digg’s infrastructure, from technical point of view, before they will launch (soon-ish) various direct competitors to Digg!
Precisely my thoughts- people don’t seem to remember that this was a typical habit of the “old-microsoft”… talk about a deal, get a good look at how the competition works, release a competitor that is improved- and we all know that Google is working on such a product in it’s search… yet very few people seem to suspect.
Is there such a thing as a google-reality-distortion-field?
I agree - Google was just sneaking up on Digg to see “how” they work (their infrastructure). They knew that Digg was more “community-based” and anyway Google had the resources to build a 2nd DIGG! BUt I love Google more than I love Digg. lol
Digg’s value is purely the community, the brand and the ‘good will’ value.
The tech is Microsoft based so it would need replacing in order to be scalable to Google’s level. Especially to clood proportions.
Digg is a great idea. It’s just limited by it’s tech base.
“The tech is Microsoft based”
Wrong.
No, they are just using Microsoft’s ad network. I don’t think there is any Microsoft in their stack.
“The tech is Microsoft based”
Wrong. Very wrong. LAMP anyone?
Kevin Rose wrote the Digg application himself originally in PHP and that only runs on Linux etc.
Actually ASP.NET is a vastly better web app language and it does run only on MS servers.
you’re an idiot.
I also believe the single source of revenue, Microsoft, doesn’t help either, especially when you are asking for much more than $100m.
True, if it’s revenue that you’re going after. Of course, Google would’ve probably replaced all alien ads with their own; what other revenue sources could Digg have had that Google would have wanted to keep?
Digg lost money until this last year, or thereabouts. The MS deal is their only income. Google just released it’s FriendRank patent to place advertising on social sites, http://www.keywebdata.com/?p=128
thank goodness. it would have been a disaster for Google’s already hurtin’ rep.
Digg’s community is a bunch of Mactards and Linux fanbois. Why would Google need it.
Highly targeted advertising delivered to social networks is just about the best ad idea ever, better than AdSense. You tell the site exactly what you are interested in and what you don’t like, then they deliver highly targeted ads, priceless.
Google knows there are already enough Digg Sites out there. Now they’ve had a look they know where not to go wrong.
Yeah I agree. Google dont need it.
Google came to their senses just in time that Digg is overrated.
That’s an understatement.
200 $ million dollars is a serious money. Guys from Google should’ve predicted that Digg would become so famous and they could’ve bough Digg earlier, not spending crazy 200$ million dollars on it!
wow! 200 $ million dollars?
exactly, 200 dollar million dollars…
I think Google can do it by themself, so easy for them to integrate the “digg-style” service into current Google platform.
What about StumbleUpon? Also a very popular social bookmarking site. Perhaps Google may consider integrating some “Digg-style” functions there.
Google doesn’t own StumbleUpon…Ebay does.
It’s a shame that they blew over 200 million on a technical flame war similar to that seen on newsgroups, but that’s what Digg is all about.
I think that in this case, they should have put technical differences aside and just done the deal.
There’s a limit on technical selfishness and 200M is that limit.
TL - http://www.offur.com/BetterThanTechCrunch
What I don’t get is Bebo went for what? $800M… I know Digg is a sewer with bury brigades the top 100, but $200M is cheap compared to prior acquisitions elsewhere, remember MySpace? FeedBurner? $381M for an RSS app.
Amazing that something as wildly popular as digg STILL is not even breaking even?
Agreed. This is an amazing factoid that should instill fear and shivering in the many VCs who have invested $Ms in social-based sites.
Realize too that the social bookmarking explosion in the last year is from dumbass bloggers that think that submitting every blog post they ever wrote is going to bring them better search rankings and traffic. They don’t realize you have to participate not just endlessly submit your own posts.