Digg competitor Mixx raises $2M in funding. This title could be called why social bookmarking sites are bad investments. Let me explain:
Yes, social bookmarking tools like Digg, Reddit, etc., have revolutionized news, publishing and media. Kevin Rose - and Joshua Schachter (founder of Del.icio.us) before him - deserve a lot of credit. But as businesses for investors to invest in, they all fall short.
Valleywag is reporting that Yahoo!’s Digg is launching tomorrow, and its lease on life is an eternal 3 months. Why?
“After [the launch], a tipster tells us, Yahoo VP Tapan Bhat and his Front Page/Front Doors group will have three months to prove the project’s worth. If it’s not driving siginificant traffic to publishers in Yahoo’s ad network by then, EVP Jeff Weiner will shut it down.”
So why does this make them bad investments?
Social bookmarking sites have abysmal click-through rates, so performance-based marketers don’t get any decent returns.
Social bookmarking sites have fickle audiences that are anti-establishment (whatever that means); so any attempt to go beyond the banner for branded advertisers will be greeted by mutiny. Digg’s audience has in the past proven to go berzerk when they want to.
As such combining #1 and 2, this means that the revenue potential of such sites is limited, at best…
Of course, no self-respecting online media company is valued as a function of earning potential alone, right? They are usually valued as a growth play and a function of a potential one-time capital gain sale payoff.
But the problem is that any buyer would want the social bookmark to drive traffic not to any random sites but to the sites that benefit the parent, or acquirer. Much the same way that Yahoo! wants the Digg clone to drive traffic to websites in Yahoo!’s publishing network, a would-be buyer for Digg would want the service to drive traffic back to them.
Have the NYT, News Corp., etc. considered buying Digg?
Of course. But once they realize they cannot force users to link back to proprietary sites, they lose interest.
This is why - I think - Kevin Rose was allowed and encouraged to launch Pownce and Revision 3 (with the same investors as Digg, largely) because Digg is a very challenging case to flip.
I would be very interested to know how Reddit is doing within Conde Nast’s empire. Reddit was acquired on October 31 2006. What happened to traffic since then? Let’s see:
Hmm… no comment.
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