Report: Digg still mining for profits

This post initially misstated Digg's 2007 loss as reported by 'BusinessWeek.' The company reported lost $2.8 million in 2007.

There are some stunning numbers in BusinessWeek about social news site Digg: In 2007, the company reportedly pulled in only $4.8 million in revenue and lost $2.8 million. In the first three quarters of 2008, it lost $4 million on $6.4 million in revenue.

Digg declined to comment on the numbers.

This is a little bit disconcerting, if true. Digg has been one of the hottest start-ups in Silicon Valley's hype machine for the past few years, due ironically in part to an August 2006 BusinessWeek cover story depicting boyish founder Kevin Rose giving a grin and a thumbs-up. (What innocent days those were!) It's also been vocally committed to growth, and has said that it's still hiring in the midst of the current recession.

(Credit: BusinessWeek)

When Digg raised its last round of funding--a $28.7 million Series C in September--rumors pegged its valuation at around $164 million. That's significantly lower than the $200 to $300 million that was occasionally talked about in those pesky acquisition reports.

Which, by the way, we haven't heard many of recently. It used to be, per the gossip mill, that either Google or News Corp. or Microsoft or somebody else was trying to nab it; Al Gore's Current Media reportedly offered $100 million in 2006 and was snubbed.

Digg has a wild cult following, and Rose's background as a TV anchor and popular "Diggnation" podcast have turned him into one of the Web's biggest celebrities. And its traffic, by all accounts, continues to grow steadily as Digg makes strides to expand its base beyond the geeky young newshounds who made its community famous.

CEO Jay Adelson says he's cracking down and now aims to make the company profitable in one year rather than two. Considering what BusinessWeek has dug up this time (pun completely intended), that could be a tough task.

[techgeekdude]

The problem with many of these companies is they haven't figured out how to make money especially to justify these lofty valuations. Facebook is another such company that seems to talk a good game but doesn't have any business model beyond advertising. The other problem is that no one who uses Digg or Facebook would ever pay to use the service. Social networks/Web 2.0 companies have no idea how to make money and it shows when you hear comments such as "we're planning to make the company profitable next year." If only making a profit were that easy even for companies that are actually viable...

[alpha_computer]

Best of luck to Kevin Rose in getting the company running on track in one year. I hope he does. It's nice to see a business leader aspiring to do something significant. I did not see any request for a bailout. Go get 'em Kevin. Prove it can be done and it will encourage others to do the same.

[humanssssss]

Traffic != money. The bigger you are and bigger you grow, the harder you will fall.

[limefan913]

Shame about Kevin's other company Pownce (started with Leah Culver). They were bought and either closed or are closing the site soon.

[kevsmail]

Seems like this "reporting" was just regurgitating the Businessweek article. Why no reporting of the recent round of LAYOFFS at Digg/Revision3? :\

I truly hope these guys survive, they really blazed the path for video podcasts and I'm a fan of several shows (Diggnation, Tekzilla, Totally Rad Show). Their shows are both informative and highly entertaining!

[codynews]

How the heck did they lose $4m on $6.4m in rev in just three months?

WHAT THE F*** are their costs? They spent over $10M in three months? On what? Sure they have servers/bandwidth and a few people but...

Surly I'm missing something. I've been to the site a few times. It's pretty cheese ball. Just a collection of news links with comments from 95% dbag 15 year olds. Not sure what the $3.5M/month is spent on...

[globalist_agenda]

It's really hard for a business to net even $100K a month. Anyone who has ever run a successful small business will tell you that. Most Internet startup guys have never even run a profitable lemonaide stand. Give me $6.4 million and if I work really hard I too can lose $4 million. Eyeballs. Ads. Eyeballs. Ads.

[UITD]

There is a second internet bubble getting ready to burst: the social network bubble. Social NOTwork is more like it. When people finally get sick and tired of wasting their precious time updating, twotting or twitting or whatever the hell they call it today, or facebooking or arguing which is better or why its better or reading all the stuff everyone is doing at any given moment............. there will be a burst and these things will go away. Thankfully go away.

[sanenazok]

I agree with you, but a good deal of people have little to nothing worthwhile to do. With the growth of the government bureaucracy under Obama, you should expect legions and legions of bored kids in their 20s and 30s spending working days on the social sites. I don't think this will ever go away, people will find the time to waste on this.

[n3td3v]

Digg is so 2006/7, its a flash in the pan the novelty factor has worn off.

[linkedout]

The thing with these companies is that they try to grow too quickly without thinking of an business model besides the usual advertising and they sink. Facebook has been lucky so far, but not for too long.

[darenet]

I think this is part of Digg's bad karma...just look at their frontpage! 99% of the stories are from pages like wired, mashable, cnn, bbc...no new sites there. Digg has simply became...well...not so democratic.

It was a good idea and all...but now they have much better competition waiting to take the lead eagerly.

[stigmattaman]

Your description of Digg is perfectly apt. The front page is hijacked by the "power users" who submit from Ars, Gizmod, Huffpo, and cracked. Even if someone else gets the big story and submits it first, it won't gain any traction until a power user submits it.

[BtmnHatesRbn]

I'm slowly growing, founded in 2005. I used Yahoo!'s GeoCities free service for a year, then upgraded after that, so forth and so on. Just slowly growing, and now some real buyers are taking a look, and just waiting to ride the bear. So I may own this little site for over a decade before something great comes from it, but it's worth wait.

I also agree with the Social Notworking comment by UTID. Also, Digg has a personal POV problem, like Windows users against Mac users, just more on a broader basis of people. In the end, like CNET, will most likely be bought by CBS.

[CrabkillaTX]

Jesus - how hard is it to make money on $6.4 million in revenue? They should be able to run this company with 20 people - max.