Digg’s founders and investors are looking for an exit, or, put more aptly, they’re looking for liquidity.
The company continues to grow, revenue is adding up, as are partnerships. In fact, the company’s founders are even focusing on other products and projects, namely Pownce and Revision 3 (disclaimer: like Revision3, WatchMojo.com produces video content, though we focus on lifestyle).
Apparently, Digg has hired venerable M&A investment bank Allen & Co. for a sale. Who should buy Digg? Let’s see.
Digg’s challenge in the M&A shuffle is that the companies which value the social news bookmarking site most would most deflate value out of it.
INTERESTED PARTY #1: NEWS ORGANIZATIONS
In other words, as less and less 12-35 year olds pick up newspapers or turn to news sites (in favor of sites like Digg), news organizations would love to own Digg, but they risk turning off the user base because they will push their own sites instead of the thousands - lest millions - of underlying websites that make up the links that make up Digg.
INTERESTED PARTY #2: MARKETERS
Ah yes, the outbound links. Indeed Digg is insanely successful at sending out links. Before Digg came Fark, and both sites are made to drive out traffic, or clicks. In fact, for lack of a better word, the sites are link dumps, with no proprietary content. College Humor’s hotlinks too was a link dump, but CH wisely embraced proprietary content, Digg has not (mind you, Digg’s founders did embrace proprietary content, in video format to boot, but not on Digg, but rather, Revision3, but I digress).
There are countless of marketing oriented firms who would love to have Digg (or Fark) because such sites’ structures and raison d’etre is to send out clicks… but that would overnight kill Digg. The higher the propensity to sell links, the higher the likelihood that Diggers would head for the hills.
ENTER INTERESTED PARTY #3: NEWS CORP.
News Corp.’s WSJ recently struck a deal with Digg. It was a pretty impressive one, props to Kevin Rose’s team to secure that. I think News Corp. will look at Digg considerably but ultimately it will want to push MySpace News. Yes, I know, MySpace News has yet to take off etc., and Rupert Murdoch could very well buy Digg and rebrand it MySpace News (I doubt that) or leverage Digg within News Corp.’s MySpace, but any deal with Digg is tricky for the following reason:
News Corp.’s Fox Interactive Media has a deal with Google for $900M over 45 months. Problem is that if News Corp. buys Digg, it will have to lose the MSFT guaranteed revenue and let Google take over the inventory. Will the loss of MSFT’s revenue be made up by Google’s revenue? YES. But in fact, Mr. Murdoch will be asked to pay a multiple of Sales (from MSFT) even though he won’t be able to necessarily make it up incrementally via its Google deal.
In other words, it’s not as if Murdoch can buy Digg then pitch or sell Digg’s inventory to Google (or anyone else). As part of the deal, he will probably have to give it to Google and not necessarily make it up because the $900M deal implies that News Corp. has to deliver given parameters with regards to impressions and pageviews.
Frankly, I need to read the terms of the Goog/FIM deal to ensure my theory is correct here… but ultimately, it does not make sense for Murdoch to really do this… because he has more than enough inventory on FIM as it is…
The only case where my theory would /could be blown to smithereens, frankly, is if the monetization via Google ads is so strong that it would create a net gain on the $300M or so it would cost Murdoch to buy the asset. But, I doubt it, because Digg’s inventory is probably not that monetizable…
So if not News Corp., then who? Glad you asked.
ENTER INTERESTED PARTY #4: PORTALS
Yahoo!, MSN and Google then become (gee, once again, what a shock) the most likely buyers in the sweepstakes. Similarly to its arrangement with Facebook, MSFT already has a deal in place with Digg… so this is in some ways MSFT’s deal to lose. MSNBC.com - owned half by MSFT - already owns Newsvine, whom it bought earlier this year, so I do not think it makes sense for MSFT to plunk down $300M for Digg. It did, after all, just pay $240M for 1.6% of Facebook.
Enter Yahoo! - Yahoo! is moving away from its own properties and scooping up assets around the Web and the addition of Digg would make sense, but the flip side is that Digg’s source of growth was those Digg This buttons, which in turn compete with Delicious Tags… I would presume. So a bit like MSFT, buying Digg is akin to shorting Delicious. As such, YHOO is out of the races.
The winners, then, I think, is Google. Google has already been extending its reach and moving away from a web search only player.
Let’s examine the facts:
- by buying YouTube, Google got into organic results for video.
- by buying Feedburner, Google further encroached into organic results.
Let’s face it, Digg’s pages for dugg pages/articles will probably shoot up organic results page if and when Google buys them, and the fact is, even without Google’s acquisition, oftentimes those pages outrank the underlying source web page.
But the key here is that Digg would hit back MSFT - who technically “won” the Facebook derby and further increase Google’s lead over YHOO, who as of today is worth 1/7th of Google (Disclaimer: I own shares in Yahoo!).
Ultimately, to justify its $200B market cap, increasingly Google must look yonder and find new ways of owning web pages and adding to pageviews… and given Digg’s size and reach, it only makes sense for Google to digg this deal.
But while the business argument for a Google/Digg hook up is obvious, I am not sure Digg will fetch its price tag for the reasons we’ve outlined above.
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December 17th, 2007 at 8:42 pm
[…] WatchMojo suggests the leading contenders for Digg are Microsoft, Yahoo and Google. However, he discounts Microsoft because it already has a deal with Digg and a relationship with Newsvine through MSNBC.com. For Yahoo, WatchMojo suggests Digg’s Digg This competes with del.icio.us. As a result, he thinks Google could be a logical buyer. […]
December 18th, 2007 at 4:16 pm
I can’t help but think they missed the peak for the selling craze. I guess the volume’s enough to justify it, but knowing what I know about the Digg userbase from firsthand experience, I just don’t see the worth being too much. As an advertiser it’s akin to flushing your money down the toilet - slight dramatization of course . . . but not by much.
The inbound links are usually more valuable (and those are free.)
As Google (and FINALLY Yahoo; hopefully MS soon) start to push towards more easy/automated access for site-targeted advertisements on their networks I personally hope it falls to one of those two parties. If they can streamline the process for making targeted buys on Digg I could see it being of greater worth from an advertiser’s end. As it is right now, it’s just one more account rep you have to deal rather than just being able to login and quickly target/control a campaign via an AdSense-like interface.
January 2nd, 2008 at 7:00 pm
Well, we should all watch, however, I would prefer it to be as it is at the moment