On Digg

Another chapter was added to Digg’s unhappy history of aborted acquisitions when the proposed sale to Google for $200m fell through. To go back to the beginning there was the Calacanis deal which was a good bullet to dodge. Since then there have been various rumours surrounding News International, Yahoo and Microsoft. They are running out of buyers, maybe AOL or CBS but those two have their web 2.0 prizes in the shape of Bebo and Last.fm respectively.

I think the problem is that the founders have convinced themselves Digg is worth a lot of money by reference to deals that have already gone through. The bottom line is that if they wanted to sell they should have done it between YouTube getting bought in October 2006 and the Bebo acquisition in March 2008. That was the boom for web 2.0 acquisitions and they missed it. Things are heading south for a couple of years so Digg will have to raise more VC or live within its means but by then Digg will be old news. It’s possible that they could come up with a game changing technology, I think Kevin Rose has come closest to seeing what social search could be, but the question is whether they can execute it.

Timing is everything

The feeling I got when reading about Digg is that Rose and Adelson have this ‘let’s just dump it and take the cash’ air to them. Google have got burnt with this already on YouTube for which they foot large bills but are now realising that advertisers prefer the safe, clean, controlled environment of Hulu. Now Digg and YouTube are by no means similar but the experience could have made them more wary of buying startups with big audiences but no revenue model – ‘We bought YouTube and still haven’t worked out how to monetise that. Why repeat it with Digg?’

As CEO the buck for all this stops with Jay Adelson. His track record suggests that he does not know when to sell or at what price, at one point his Equinix stock was worth $55m at the peak of the boom but he clung on long enough to see it all rendered worthless. It’s going to be hard to climb down from the $200m valuation without sending buyers bad signals. He is already in the mire because everyone will be wondering what Google found in due diligence that made them go cold. The best acquisitions are the ones you hear about after the deal is done and the ones that aren’t done you should never hear about.

Pic: Laughing Squid

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