How $2.8M Cost Kevin Rose His $60M
Near the end of TWiT 77 Leo made a few candid comments about the failed Digg acquisition by News Corp. I know Jay Adelson has said that Digg is not for sale on forbes.com but...
Leo: The thing about digg, which is really sad, is that uh, you know Murdoch offered well over a hundred million dollars for Digg and it wasn't Kevin, it wasn't Owen, I don't think it was even Jay. None of the principals there, they all wanted to take it believe me, they wanted to take it and that's what happens when you take investors. The investors said, "no, we're worth 150 or nothing!"
Dvorak: you know, I can't believe for a minute that the two founders couldn't push that one through
Leo: boy you'd think so, but I've heard from, I haven't talked to Kevin about it, but I've heard from very good sources that Kevin wanted to take it, he wanted to take it. Well he's worth, I think he really would, if they'd gotten the 100 million he would have been worth the sixty million that Business week said he was worth, It's kind of sad...
Dvorak: ... The investors would have taken a big piece... I'll tell you this much, he'd be buying!
The above is my best attempt to transcribe part of TWiT 77 1:16:24 -> 1:17:15
If the above statements from Leo are accurate, and I have no reason to doubt them, it would seem to indicate that the initial $2.8M round of investing has cost Kevin his shot at being the Sixty-Million-Dollar-Man!
Now, Jay Adelson has come out on forbes.com saying that Digg is not for sale.
Is Digg for sale?
No. Digg is not for sale. Our focus is entirely on execution. The only way that Digg would ever be for sale is if someone came to me and could help me achieve my goal ten times better than what we can do alone. There's been a lot of rumors out there, and it's mostly stirred up because of the YouTube acquisition. Basically if you're a Web 2.0 company right now, somebody's going to come up with a rumor.
In an earlier blog post I talked about a few of the issues with the possible acquisition of Digg by News Corp. I'm going to take a look at some of those same issues a month later:
Alexa is currently too busy to provide comparison graphics so I will have to go with some basic data:
Alexa Ranking as of October 25, 2006 for Digg: 89
Alexa Ranking as of November 21, 2006 for Digg: 85
Alexa three month rolling Ranking for Digg: 99
In the last month they have gained 4 spots.
This is not bad as getting into the top 100 sites is hard enough. Making headway while in the top 100 is certainly very tough as the difference between sites is a margin of millions rather then thousands. This is why you will often see a site with a meteoric rise of +70,000% in Alexa rankings because they got Dugg, or Slashdoted, or what-ever.
I still feel they should have sold to Murdoch when they had the chance.
The scary thing is that their initial round of investing was only for $2.8M! How much power did Jay and Kevin give up to the VC funders for that $2.8M?
Kevin may not have become the sixty-million-dollar-man with a $100M+ buyout by News Corp but he would certainly be well on his way to a life of extreme comfort!
I'm sorry to have to say this Kevin but, you got screwed by your VC funders. I agree with Dvorak, there must have been something you could do to push this thing through. I'm sure the nightmare of what happened to friendster is going through your head right now, as well as a line from an old movie... "I could have been a contender..."
The real problem with a site like digg is that the page views are high, but the advertising value is lower than a normal page because the advertisers have to compete with REALLY, REALLY, REALLY GREAT CONTENT.
The stories on on the home page are so great that very view advertisers will be able to compete with them for a click. Also, the tech audience tunes out (and in some cases blocks) advertising more than others… so, I’d expect half the amount of clickthroughs (or less) from that audience on average.
That’s the real issue in all of this… making this amazing products into an advertising business. The person who cracks that first will be the real winner.
Jason,
You raise a very interesting point.
Because sites such as Digg are a “transport system” to get people to websites rather than being a destination in and of itself how can you profit off of it?
A dedicated news site or blog *is* a destination. Once the person is done reading the news item or blog entry where do they go? If the advertising on the site is in line with what the reader has just read then you have a good chance they will leave via an advertising link.
Unlike Digg, where a user is far more likely to leave via a story link than an advertising link.
You may be able to make good money with a site such as Digg using a CPI formula but what advertiser is willing to spend money on adv impressions that never get clicked on? CPI is good for web publishers but CPC is best for web advertisers.
The anchors on Netscape is a move in the right direction. It’s good to know there is someone you can talk to if you feel wronged. With Digg, a story can be buried and you will never know why.
A Social News site may have to go the route of partnerships with other major media web companies to make money. This could be done by offering a special “three entry” box at the top of each section for “sponsor news stories.” I know there was some discussion about this when Netscape brought up the idea of editorial anchors being involved, but that was more conspiratorial in nature.
I hesitate to talk too much about this as it could quickly lead to a user backlash as many who use such sites have unrealistic dreams of democracy in their heads in regards to story promotions.
You have raised some very interesting points. It would have been great to see the reaction of the Digg community (which is the reason for whatever speculative monetary value we associate with Digg today) as well as the founders of Digg.
Too bad Digg buried the story.
$60M?? Lot to be said for going some things alone and not having investors calling shots or holding you back.