Digg is boned. Product is at a dead end and users are losing interest in the community.
Meanwhile, they're funded up their ears. $40 million? For what? It's a bunch of user-submitted links and discussions. You need a couple of developers, a sysadmin, a designer, some sales guys. Am I missing any other roles?
100 employees for such a simple product is insane to me. I couldn't believe they topped out at that number. I am biased – I prefer small, lean teams over bloat, but come on, anyone can see this.
And now, yeah, they're boned. You're not going to get any significant multiple of $40 million out of that business. Boy, the investors would have been fortunate to get their money back period.
Complexity is often a mask for bullshit. Value from simplicity is huge – easy to pitch to anyone from investors to press to new hires to your family. It also makes the success conditions clear – "Am I accomplishing the simple thing I set out to do? No? Let's fix that."
The ultimate merit of simplicity means that roles are very, very clear and you don't need many people to make magic happen. The more people you add to a system, the larger the chance for complexity to creep in and ruin everything.
Which, incidentally, is what seems to have struck Digg.
If they'd stayed small and nimble, the size Kevin liked, they'd not be stuck in quicksand right now.
reddit has more daily pageviews than digg by a few tens of millions, reportedly. So, their 6(?) person team is outperforming 100+ digg employees in the most important metric (revenue might be more important, but I'm not so sure...if I could pick a site to own, I'd choose the one that is bigger, growing faster, and has dramatically lower expenses).
As for reddit's size compared to digg here's the infographic: http://i.imgur.com/jiHka.png
you can google around and find other sites that go into greater detail on this.
This once again demonstrates that the Wired folks have moments of sheer brilliance, and then they fail to follow it through to its most logical conclusion. Acquiring reddit (for a rumored few millions) was a stroke of amazing luck for Wired/Conde Nast. But, now that everyone can look at the situation and do apples to apples comparisons with Digg and see that it's a far superior community and technology in pretty much every measurable metric, and worth at least as much as Digg, the reddit guys are struggling to pay for enough engineers and machines to keep the thing running smoothly and fast. Part of that problem is I think that the guys best equipped to grow it (Steve and Alexis) have both moved on; the remaining guys are very smart, but I think they were hired for their engineering abilities rather than entrepreneurial strengths. And, I imagine they left partly because they were dissatisfied with their ability to grow and lead from within the Conde Nast organization.
Another way to think of it is that neither digg nor reddit are actually worth that much -- lots of traffic, yes, but no way to monetize it. Conde Nast might just be doing things right, financially, with regards to reddit.
I can't wrap my head around the idea that 300 million deeply interested eyeballs every day is not "worth that much".
It's at least worth more than a staff of six.
Though, I do think Digg has been pretty much valued out of any reasonable exit by raising too much money, and the lack of vision on the part of leadership as exhibited by the tepid new version of Digg (which caters to marketers and major media to the point of absurdity for a "social" site) pretty much insures there's no way to build to something dramatically more valuable. Even if they were to learn from their mistakes, with a staff and infrastructure that big, they'll run out of money before they find their way.
In the case of reddit, it's userbase is very difficult to monetize -- they've said as much themselves. I think the less you can monetize something the more likely you'll have a lot of users; once you start doing things to monetize your userbase they get annoyed and simply move on.
I think any one of these sites is bad investment because those 300 million users can come and go in an instant. Digg could simply be over now and just takes a few people a few months to throw out the next big thing.
I agree with you, somewhat, but I will play devil's advocate and point out that for the first half of the Internet age, search was considered "very difficult to monetize". So much so, that all the major players started building portals and other BS to make their search more monetizable. This shift left a huge gaping hole for Google to fill, because there were almost no pure search engines left! Digg has gone down a similar path...building up and out to try to send tentacles out into more monetizable spaces, rather than having a focus on their value to their users. reddit remains extremely valuable to its users.
I don't know how they'll monetize it, but I can't help but think that whenever someone does figure out how to monetize a community of that size, it will be pretty serious cash.
Reddit also has a non-technical community manager (though I wouldn't be surprised if they got him programming by now). http://www.reddit.com/user/hueypriest
Hacker News could actually really benefit from one of those.
User engagement. A visitor that spends hours on the site each day, producing content in the form of discussion, is worth a lot more than a visitor that drops in for two minutes in order to spew some spam into the queue, and then leave. I don't think there's any question that the reddit community is more engaged than the digg community...a brief perusal of the comments at both sites will quickly eliminate any doubt.
As for revenue, I said that more pageviews and much faster growth from a much leaner organization was better. There were several variables in my statements.
Besides, it is not a small difference in pageviews. It's ~40%! Which pretty much certainly equates to more visits and more unique visitors than digg.
No matter how you slice it, though, digg is a 100+ person operation that is generating less value to consumers than a 6 person operation. Value to consumers is a reasonable proxy for the kind of revenue you can generate from a site. They just haven't found the formula for monetizing it yet. It doesn't mean the value isn't there.
I'd bet money that a Digg user is far more monetizable than a Reddit user.
So I'd say Revenue is the best metric to compare, but I'm skeptical Reddit will ever make much money - their users are spending all their cash on weed.
Just a friendly reminder, you referred to pageviews as "the most important metric", thus my question.
User engagement...
While pageviews can be used as a mediocre proxy for user engagement, I don't think it proves your thesis at all. Which is more valuable, 5x the uniques, or a smaller group who loads more pages? Depend on additional variables, no?
Which pretty much certainly equates to more visits and more unique visitors than digg.
As far as I can tell (using compete pro), pageviews is the only metric where reddit wins, with digg winning handily in the others. Digg seems to have 5x the uniques, and 50% more visits. This strikes me as accurate, since reddit is focused on comments, and digg seems to focus more on links.
that is generating less value to consumers
How are you measuring that?
Are you asserting that reddit creates more value than digg, but they fail to effectively monetize and capture it? Or are you asserting that reddit's value is non-monetary, but still worth paying for?
At what valuation were these VC's putting $40M into Digg? If it was around $100M, then they would only have 40% of the company and 40% of an $80M buyout is $32M. And I can surely see why they wouldn't want to do that.
Liquidity preferences give investors first dig at any cash with a multiple (ie. we get 2 or 3x what we put in before you get your first dollar).
Digg had raised a little over $10M at the time of the acquisition offer - which would have been a decent return. The $30M round was raised in lieu of the acquisition.
They placated Kevin by partly cashing him out as part of the $30M round.
With that additional investment, the de facto decision by the board and management was that Digg is a billion dollar business, not a hundred-million dollar business.
Maybe that is a lesson learned for investors if the founder wants to be bought out early. I bet things would have turned out better if he had all his eggs in the basket still.
It's not uncommon to partially cash out the founder in funding rounds. If the founder gets some cash, ey is less likely to push for an earlier exit. Eir goals are more aligned with the VCs, looking for a larger exit.
If you want your founder to swing for a long ball, you have to free him to do so. A partial payout means his utility curve looks a lot more like yours, which is a good thing.
I don't think you can draw that conclusion. The Reddit guys (IMHO) have made some bad decisions (Using Amazon for a start), but that doesn't necessarily mean there are too few of them.
I curse pretty freely on HN. Boned is just such a great word.
Say it out loud. That deep "own" sound. It's rich, like a chocolate bar. You use "fuck" when your pacing places you in a real hurry, like a using an unstable old log for balance while you cross a brook.
So if you say "Digg is fucked" you end on this gaspy note, waiting for more, which sucks. The quick "kt" sound at the end is most suitable for connection, maybe to say "up its own ass." But that's just crass, and not what I was going for.
On the other hand, if you say "Digg is boned" you can just let it sit there for a moment, sinking in. You've planted the sound of the word firmly. Fuck is for urgency. I wished to convey finality.
It's a Twain thing - "The difference between the right word and almost the right word is the difference between lightning and a lightning bug."
Amber MacArthur and Sarah Lane interviewed Kevin Rose during net@night for August 11, and he said he misses the days when Digg was small and they could come up with an idea, and have it live by that night. Now Digg has 40-50 full-time engineers, two data centers, and hundreds of servers.
Rose: "It's a big operation. To be honest it's bigger than I'm comfortable with... and I'm very excited to hire a new CEO very soon ... I'm not cut out to be a CEO of this size of company."
Inspired by 37signals, he wants his next company to be a small group of 10-15 people "based out of Portland or something... Chillin' in the woods, drinking tea, chopping wood..."
Sarah Lane: "Are you still on that Portland thing? ... I've been hearing about that for 10 years."
Not to mention all of the bicycling stuff that goes on. Being a vegan, there is an awesome vegan community here, with a potluck almost every weekend.
For example:
1. Portland Vegan Iron Chef, for example, went from an idea to an event with a venue that was too small for the number of people that wanted to attend within a matter of a couple of months. SupremeMasterTV even showed up to film it -- not that they are 'mainstream' or anything, but it wasn't just a couple of random people in their garage either.
2. Vegan Convergence went from just an idea that someone was kicking around (the idea that there were a ton of vegans in Portland that he didn't even know -- 'convergence' as in bringing all of the different groups together to expand social circles) to an event in the part w/ 150+ people responding as attending on Facebook (dunno how many actually showed up; there were a lot of people, but people tend to come and go at various times at these types of events).
I guess it just depends on the circles that you are in... I'm sure there are some people that describe <insert name of city> as 'sitting in the garage, drinkin some beer' because that's all they do.
I am a big cyclist (it's my business), and I don't know what other large cities are like, but Portland's bike scene is a disaster. I can't believe the animosity that's been fostered between drivers and bikers, but I went from easily doing 100 miles a week to not wanting to ever get on my bike in about two months. At least a quarter the rides I do involve pretty frightening/stressful situations like being swerved/swore/honked at. Call me thin skinned, but damn these people are nuts.
Can't attest to the vegan thing - I am a reformed vegetarian who enjoys a tasty 5th quadrant burger here and there :) Oh, there we go, the beer! I knew I was forgetting my favorite thing about Portland.
That may be, but coming from Toronto, Ontario, there are a lot of cycling events/rides/etc. It's totally awesome once a year, they shut down the bridges for cyclists (even the I-5 bridge).
Last summer (2009), I was biking a 15 mile round-trip to work, and I wasn't really running into issues, but I was also riding very defensively.
[I will admit that I wasn't a cyclist in Toronto, but -- as I understand it -- it is very bike-hostile (though there are bike couriers). If you think that the west-coast drivers in Portland are crazy, don't move to the east-coast...]
Hey fellow Portlander, I agree I don't think Rose has seriously been to here if that is what he thinks this place is like. There are certainly places in Oregon like that and you can get to them within an hours drive from Portland. That is one of the things that makes this place so awesome.
I'm shocked that the Digg board turned down $80 Million. Unless it was an overly complicated deal, that sounds like a lot more then it was / is worth.
The real value in Digg was always the unpaid community that powered it. Programming, I.P. and tangible assets are worth a fraction of what Digg is worth. In essence, someone offered $80m for the opportunity to put their hands on the steering wheel of the once powerful group of people who contributed, dugg and evangelized everything Kevin and crew did.
As Digg has proven, communities are fickle and without proper management, motivation and reward, they fail. In retrospect, neither the Digg community nor the assets it has are worth that much money. However, with a carefully crafted goal, properly motivated community and importantly a plan that includes a way to monetize the community, community based services could very well be worth $80 Million or more.
I don't see why you would be shocked. The digg board is made up of VCs playing with other people's money. Their compensation is based on hitting home runs.
It would have been roughly $3.5 million dollars for me (without the earnout).
That makes a lot of sense. However, a home run would be the highest value possible.
With an aging service so deeply rooted in an online community (which are inherently fickle), a 2x value price would seem reasonable if not generous. I have to think that investing in community centered services is a fast game where smart investors get in early and out while the community is still engaged.
Then again, everyone needs more yachts to water ski behind.
According to crunchbase digg has taken $40M in funding. A multiple of less then 2 on the investment doesn't seem to be the kind of deals to get VC's excited.
At the time there was really no reason to not try to hold out for an extra $40M or so.
Of course Kevin wanted to take it he's walking away with a significant amount of that $80M in his pocket.
Heh it makes the Reddit deal ($100k in and sold for $20M) look effing brilliant - and with the uptick in traffic its getting from digg v4 its making that look like the much smarter play.
1. Find a startup in a new area that is over funded (digg)
2. Copy it, on the cheap.
3. Get bought for a "cheap" price compared with what the
over funded startup would request.
Over half of that $40 million is Series C. I'm pretty sure the offer he is talking about actually came before the series B, so there was around $5 million invested.
With $40 million in funding a $80 million exit would barely repay the investors (they would break even if they owned 50% of the company, right? notwithstanding >1x liquidation preference, of course)
with good investors, entrepreneurs usually have a lot of leverage in sitautions like this as long as the board sees them as crucial to the company's success going forward. so i wonder how much kevin pushed it.
my 1990s startup got an early acquisition offer for $30M when their was only $400K in; the VC left it up to us, and we decided we wanted to build a company. a few years later we hit the wall and the board could have forced us to take a lowball offer but we decided to see it through and managed to turn things around. in the end with $16M invested, we sold to Microsoft for around $60M ... the investors were split, but the executive staff (including me) wanted to do the deal so after some discussion we did. we had great investors, of course; not sure what digg's board is like.
> Zuckerberg turned down $1Billion from Yahoo, and at least on paper is worth an order of magnitude more now.
Just because you won the lottery doesn't mean it wasn't stupid to not take the cash. Zuck should have took the billion as a first time entrepreneur. It was the better bet. Playing against the odds might be exciting, and you might even win, but it's still not smart.
Depends whether or not you believe Zuckerberg genuinely wanted to build a world-changing business. If that's his main goal (and the more I hear him talk, the more I start to believe it), and he genuinely believes he can do it, then taking the money isn't necessarily what's most important to him. I read a lot about entrepreneurs getting shit on for not swinging for the fences, but then they get shit if they turn down a billion dollar offer when they only see that as a triple.
It remains to see how this all plays out, but when you turn down a billion dollars, I think there's a good chance you're doing it for more than the money.
Still doesn't matter. Your first shot out of the gate, you take the money because it enables you get money out of the way. Everyone needs money. You swing for the fences the second time out, after you've got cash in the bank and don't need the money. That's the smart thing to do, play the odds. Zuck went against the odds, that wasn't smart, it was immature; he seems to have beat the odds so it worked out, but it was much more likely to go the other way, and it still could. Something could wipe out Facebook just like Facebook wiped out MySpace.
I have a feeling Zuckerberg is not going to have to worry about money no matter what happens. Even in 2007 he was clearly headed for multimillionaire status.
I don't know him personally but at the time he reputedly lived on a mattress in an empty room in Palo Alto. Maybe he's the kind of guy that values winning more than the accoutrements of success.
If facebook hadn't taken off, I doubt anyone here would know who Zuckerberg was. He rode a fad to fame and capitalized on it and made many a blunder along the way. He's no different than Kevin Rose and Digg. Facebook's popularity will wane, people will abandon it; many people already are in the sense that they don't check it much anymore. Something else will come along and the crowd will have a new toy.
Platform, lol. The site was better before the platform enabled apps. The entire platform is faddish, it's popular because it's popular and everyone else is doing it; until they aren't, then you stop. There are billion dollar industries that are entirely based on fads, movies, music, games, or fashion for example. The amount of money has no bearing on whether something is faddish. For most, facebook is entertainment, the entertainment industry in all its forms is all about fads and popularity.
Every company is around until it isn't. Blockbuster just declared bankruptcy -- does that make Blockbuster a fad?
Facebook is six years old. 500MM people use it every month. They are profitable and do over $1Bn in revenue. They have a platform, on top of which there is at least one $1Bn company (Zynga).
Groupon, also a $1Bn company, owes its success in large part to Facebook's ad platform.
Facebook is now moving into location and online payments. They will compete with PayPal, another $1Bn company (before being acquired by eBay).
Zynga is PayPal's second largest merchant, after eBay itself. Through Facebook credits, Facebook will be taking 30% of each of those transactions. They are building a database of credit card numbers to do it.
Tencent QQ, a Chinese social network with gaming elements -- most of the popular genres on Facebook were taken from popular Chinese social games, e.g., the farming genre -- is 15 years old and did over $1Bn in revenue last year.
Tencent's IM product has 610MM monthly active users and 63.2MM people with subscription accounts.
Sure, fine, there's some universe in which Facebook vanishes tomorrow. The demand is still there. Social networking is here to stay.
The only way Facebook will fall behind is if they slow down and let someone else pass them, but given their history of aggressive and forward-thinking innovation, that seems unlikely for at least the next 5 years and/or until Zuckerberg stops caring.
And "it's popular because everyone else is doing it" -- you just described every business built on top of network effects. Craigslist is popular because everyone is using it. Does that make Craigslist a fad? eBay? VRBO? Etsy? YouTube? HN?
Pet rocks were a fad. Slap bracelets were a fad. Snuggies are a fad. http://fmylife.com is a fad.
Do you really think Facebook is that? Really?
I also notice that you didn't cite a single piece of data. Do you have any to support your argument, or is it just your "intuition?"
I didn't say Facebook was going away, or that it wasn't big business, nor did I say Facebook is a fad. I said he rode a fad to fame, that means it was a fad and then it became something tons of people use as it fleshed itself out over the years. If you don't agree, then don't, I don't care; don't get all bent out of shape about it like I insulted your mother or something. I don't need to quote sources to state my opinion.
Facebook's as much as a fad as photo-sharing, sending people messages and joining a discussion forum. Zuck originally said he wanted the relationships on it to reflect real life. The only thing faddish about it, is people's willingness to share their lives on it, and that's what Zuck wants to change, he wants sharing and exposing oneself to be normal, after all, for him it's all lulz. It's the over-exposing that is a fad as people start to want privacy.
When it first came out, I thought this is just like a friggin Xoops installation customized for college students (but custom built, and carefully sold to the right people). Also, a lot of Web 2.0 ideas were just like Xoops CMS modules (or WP plugins) but scaled out and adapted for mass website usage. The Facebook platform is just like Xoops module deployment that users can customize for themselves rather than the webmaster.
Theoretically, the only thing that could take out Facebook or come close, would be some type of cross-language, cross-server middleware layer, that webmasters could use that would simplify and improve web development, and give broad social, ecommerce, presence and whatever other features are, or will start to be in common. FB is in the best position to do that, and that's what I expect to see going forward: it'll have to create standards and protocols (an open source FB server?) and release those into the community.
Of course it matters, and the only person it matters to is Zuckerberg. I don't understand why anyone should tell an entrepreneur when they should sell and where the threshold is. Off the top of my head, I can't think of any huge, super-successful companies that sold early and became huge after the fact. I'm sure there are, but I can only think of the Googles, Microsofts, IBMs, Apples, etc. I'm sure there are examples, but when I think of super-huge companies, the founders didn't sell out early.
We're not talking about super huge successful companies, we're talking about the rational thing for a first time entrepreneur to do, and that's take the billion dollars and run. Zuck followed his heart, not his head. That's perfectly fine to do, but he played against the odds. While it worked out, it's akin to winning the lottery.
No one's telling Zuck what to do, so I don't know what it is you don't understand. We're just analyzing the logic of what he did after the fact. You're too hung up on the winners like Google, Microsoft, and Apple, but you're forgetting about the thousands and thousands of never-weres who were sunk because of exactly this kind of rash decision making against the odds. What Zuck did was not good business, it was luck; that attitude is not something to emulate. Had any of his competitors delivered Facebook could have easily gone down in flames and they'd all have been wishing they took the billion.
Ask yourself this, would it be wise for the typical startup founder in his early 20's on his first startup to turn down a billion dollar acquisition? I submit the answer is a most definite no. If you disagree, please do explain your rationale.
I'm very skeptical when people tell me that their motivation is to 'change the world'. Even more so when they are very dead set to make sure that THEY are the ones who change it vs. their competitors. Facebook is a twist on existing services to share photos, text messages, emails and games. It's not like he's out fighting poverty, political corruption and disease or something.
Zuckerberg had the Facebook platform in his pocket during all those negotiations. It seems like a great bet to me. If Facebook is worth a billion just for audience share of relatively traditional social networking, it should be a billion plus with the release of the platform and a marketplace.
I can't stand FB, but I have to say that was the right move.
I think the best move by FB was buying FriendFeed in Aug '09 a few years after knocking back Yahoo and making Bret Taylor CTO and having Paul Bucheit cultivate an engineering culture. I was surprised by this, because Taylor originally stated he wanted FF to grow into a self-sustaining company. If FB didn't have the pockets to do this, FB wouldn't be nearly as successful as it is today. Today FB is impressively fast, were Tornado + HipHop the keys for this to happen?
If Twitter fixed its UI and fail whales a few years ago, it'd be much bigger today. PG a year or two ago spoke of Twitter as a protocol: yet still I think this hasn't manifested as it's still only used at the presentation layer. It should have or should still look into this path.
Increasingly I'm seeing outcomes determined by the smarts of the CEO who end up having to think for themselves, because eventually they get surrounded by Yes-people. I see a deficit at Google with Eric Schmidt, although I can't say I've met him, Google needs a Jobs at this point. FB just need to put in a search engine (Bing?,) to stop losing users to Google.
If I may continue, the FF acquisition basically allowed FB to compete with Twitter (and not lose users to it.) It was Twitter that undermined Digg, because sharing with people you know is more fun than with sharing people you don't know.
The lessons in strategy here with Digg, Facebook, (and also Yahoo's non-acquisition by MS) is that if a potential acquirer comes to you having in mind that your business be acquired to spearhead or enable massive growth of their own, you say no. Or rather, if they're more (or even less) excited about your business than you are, sell unless you can obtain that excitement somehow, perhaps by acquiring yourself.
It would have been the right move for a more experienced entrepreneur who was gambling with play money; it's the wrong move for a first timer who'd have been wiped out had it failed. He rolled the dice and won, but the odds were not in his favor; it was not smart.
Starting a company is never a safe bet. Every step along the way as you build a successful company, you have opportunities to sell. By your logic, you would sell at the first opportunity in the low millions.
Clearly, that wouldn't have been the right move, but it would have been the safe move.
The right way to think about selling a company depends on what your goals are. People are motivated by different things. Some entrepreneurs are motivated mostly by money, some mostly by recognition, and others by being influential/changing the world.
If you go with the money because you're a first time entrepreneur, there's a great chance that Facebook would be your one significant company in life, and you would have bailed out without seeing it to its conclusion. At the end of the day, depending on your personal goals, that might be a failure for you, personally.
After clicking "Load More" a couple times until it says there are no more comments to load, $(".comment-body").length in the firebug console says there are 104 comments. Am I missing something here or are they lying about comment counts to make the site seem more active than it actually is?
Discussion about whether the board should have accepted the offer would benefit from knowing when it was made. In Digg's "heyday" is a bit vague. 80m is a biggish bird in the hand but 20m of that was earn out and given that Google were reportedly on the verge of a 200m offer in 2008, it's not clear that whoever thought 80m was lowball was altogether insane.
The board probably wasn't making any money with a $80M offer. It is a top 100 site... why not go for it? They could have built a ton of other revenue models... and they still can. They just need to start believing in it themselves.
This reminds me of Yahoo on one hand (should have taken the money before they started tanking!) and Etsy on the other hand (70 employees was already far too many, next they went on a VC fueled hiring spree and now have about 130). In another similar move, Etsy recently brought back their old CEO/founder, to the horror of many members who were around for the first three years.
Meanwhile, they're funded up their ears. $40 million? For what? It's a bunch of user-submitted links and discussions. You need a couple of developers, a sysadmin, a designer, some sales guys. Am I missing any other roles?
100 employees for such a simple product is insane to me. I couldn't believe they topped out at that number. I am biased – I prefer small, lean teams over bloat, but come on, anyone can see this.
And now, yeah, they're boned. You're not going to get any significant multiple of $40 million out of that business. Boy, the investors would have been fortunate to get their money back period.
I guess that's just how the VC game is played.