Digging For Digg's Revenue Model
You didn't expect I was going to end on an upbeat note, did you?
According to the story, in 2007 Digg made $4.8 million and a posted a loss of $2.8 million. Through 2008's first three quarters, it had $6.4 million in revenue (good news!), but lost $4 million (bad). In other words, it's not even close to being profitable. (I can report the numbers because BusinessWeek had the good fortune, or the reportorial chutzpah, to secure a copy of privately held Digg's most recent financial statement. )
It's very easy to see why. There is nothing special about Digg's ad model, despite how special its service is. There's nothing shocking about a social media site having trouble with the monetization thing, but I was surprised at just how uninspired Digg's ad model is. When I clicked on its "Advertise on Digg" link, I was only greeted with four different kinds of ad banners -- ad banners! (As you may know, advertising is outsourced to Microsoft. In fact, click on the "advertise" link and you'll be ported over to the Microsoft advertising site. )
Michael Arrington at TechCrunch says word on the street is that Digg is working on an ad product that would allow users to vote about the most popular ads -- which would affect their placement -- just the way users vote on news links now. Says Arrington, "The product would insert advertisements into the Digg news stream (presumably clearly marked). Where those ads end up, and how much an advertiser pays per click, would be based on user feedback." The more popular the ad, the lower the cost-per-click.
That actually sounds interesting, if somewhat obvious. But it's perplexing that any sign of an innovative ad model at Digg is but a rumor. Other than that, its ad model is just about trying to transform tens of millions of eyeballs into cash. At some point, revenue has to start mattering, and, even though Digg recently secured more financing, that time is now.
Perhaps it's unfair to single out Digg. The company, which was held up by BusinessWeek as the poster child of an allegedly pending Web 2.0 bust, was unfortunate enough to have a key financial document leaked. What would Facebook look like under the same scrutiny? Or Twitter?
On the other hand, Digg has been around for quite awhile, and, if I were to be completely honest, I'd say the signs point to the company not having as much a grip on its revenue model as it should -- and probably not as much as other prominent social media sites.
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Digg is just another Media outlet / provider of content. For them to have relied upon traditional online banner ads for so long as their only source of income can only lead you to believe that the goal was to get acquired and that they better step up that goal now and give up th ship for a financially solid parent.