Desperate Days for Digg

Posted on December 18, 2007
Filed Under Web 2.0 Kool Aid |

Web 2.0 darling Digg has reportedly retained investment bank Allen & Company to find a buyer. Asking price? A cool $300 million. As noted at Mashable, nearly all of the obvious potential buyers have reportedly expressed little to no interest in Kevin Rose’s baby previously and despite the Christmas spirit, nobody seems generous enough to make Kevin a $60 million kid (idiot editors at BusinessWeek notwithstanding).

While the retention of an investment bank by a company is not necessarily a desperate sign in and of itself, this sort of thing does not bode well for a “hot” startup. After all, “hot” startups should have buyers knocking on their doors - not the other way around. Any investment bank involvement in the sale of a coveted startup should be to negotiate a better deal, explore interest from third parties who might be willing to offer more, etc. In the case of Digg, however, it appears that Allen & Company will be tasked with trying to generate interest in Digg’s sale altogether. As such, saying that Digg is desperate is not an exaggeration.

I think Digg’s difficulty in finding a buyer demonstrates several things:

All this said, I can’t predict that Digg won’t sell for an exorbitant amount. After all, a sucker is born every minute and if anybody can find one, it’s an investment banker in Manhattan.

In terms of what Digg’s desperate search for a buyer means for Web 2.0, I will reserve judgment. I do, however, think that Donna Bogatin when she notes just how much hype has surrounded a startup that was supposed to change the business of news and could, we were told, even put some of the news business out of business. Instead of disintermediating the New York Times, however, as some predicted, it appears that Allen & Company will probably be calling the New York Times asking if it has an extra $300 million lying around. Irony 2.0, anyone?

More than anything, I’d simply be interested in knowing how Kevin Rose and Jay Adelson react to this news. I’m assuming they haven’t heard any of it yet because they’re so busy with their other startups.

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10 Responses to “Desperate Days for Digg”

  1. Mike Rundle on December 18th, 2007 3:30 am

    Digg users are notoriously anti-establishment and are fiercely loyal to the open source and anti-copyright movements. When they don’t get their way or feel as though they’ve been wronged, they take over the site as is the case with the DVD unlocking code fiasco.

    They haven’t yet figured out how to monetize their hordes of traffic, mainly because it’s difficult to target ads to young, geeky, males who hate advertising on the web. They can’t even sell out a fraction of their current ad impressions, as on nearly every other pageview I’m greeted with shitty CPC text ads or generic Microsoft/MSN ads that are obviously fillers.

    The problem with having a venture-backed company (especially with high valuations from its investors) is that they’re in need of a big exit. Digg has nearly 40 full-time employees but there’s no way they actually need that many. If they were self-funded they could fire half their workforce (or more) and run lean, work with the ads they’ve got, and turn into a reasonably profitable company. Unfortunately the “make enough revenues to pay our bills” model doesn’t apply since their investors are looking for the big payout, so now they’re forced to shop around since the founders have moved on to new ventures.

    I’d say Digg is worth $50 million at best, and that’s only if the purchaser had some seriously good ideas about how to monetize their fickle and anarchist audience.

  2. Alex Linhares on December 18th, 2007 4:50 am

    “They haven’t yet figured out how to monetize their hordes of traffic, mainly because it’s difficult to target ads to young, geeky, males who hate advertising on the web.”

    Someone over there might want to give an ad discount to Playboy magazine!

  3. Why Digg Isn’t A Good Investment on December 20th, 2007 11:10 pm

    […] contributor to Mashable, Drama 2.0 posted on several issues with Digg, such as their over valuation (he doesn’t believe their revenue warrants a $300 Million […]

  4. Why Digg Isn’t A Good Investment — steht zum Verkauf on December 25th, 2007 1:47 am

    […] contributor to Mashable, Drama 2.0 posted on several issues with Digg, such as their over-valuation (he doesn’t believe their revenue warrants a $300 Million […]

  5. Drama 2.0 Predicts What Won’t Happen in 2008 on December 25th, 2007 7:28 am

    […] I’ve called Digg’s recent retention of investment banking firm Allen & Company desperate and suspect that other hot startups might face the same uphill battle in getting acquired that Digg is currently facing. […]

  6. on January 3rd, 2008 3:51 am

    […] and from all appearances, will probably never have to. Compare this to Plaxo, which has joined desperate startup Digg in hiring an investment bank to get itself sold: also around for 5 years, Plaxo has taken over $20 […]

  7. Web Tech Acquisitions in 2007 - Tadej Gregorcic on January 3rd, 2008 8:09 pm

    […] And according to The Drama 2.0 Show, […]

  8. Drama’s Roundup - January 23, 2008 : The Drama 2.0 Show on January 23rd, 2008 9:06 pm

    […] Ad Network Federated Media Hires Banker To Vet Why It’s Interesting: Federated Media joins Digg and Plaxo as it hires an investment bank to help it raise money or sell itself. The company claims […]

  9. Yelp Raises More Money for Business Stuff and Parties : The Drama 2.0 Show on February 27th, 2008 3:02 am

    […] looking for an acquisition. Unfortunately, given the poor economic landscape and the troubles other desperate startups with hefty valuations but minimal revenues are having finding their fools, Yelp’s investors […]

  10. Digg Has Bidders? : The Drama 2.0 Show on March 7th, 2008 4:34 am

    […] at Allen & Co. may be close to earning their fees. It’s rumored that Digg’s desperate search for a buyer has found two suckers: Google and […]

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Drama 2.0 spikes the Web 2.0 kool aid by providing critical analyses of Web 2.0, its people, its startups and its impact on the world of media. Other topics are explored when Drama 2.0 has been drinking too much 1975 Dom Perignon. Read more about the Internet's version of Keyser Söze here.