Betaworks Tries Digging for Gold in Internet Brand Graveyard

Photographer: Jennifer S. Altman/Bloomberg

John Borthwick, CEO of Betaworks, speaks at the TechCrunch Disrupt NYC 2012 conference in New York. Betaworks bought Digg Inc. in July 2012. Close

John Borthwick, CEO of Betaworks, speaks at the TechCrunch Disrupt NYC 2012 conference... Read More

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Photographer: Jennifer S. Altman/Bloomberg

John Borthwick, CEO of Betaworks, speaks at the TechCrunch Disrupt NYC 2012 conference in New York. Betaworks bought Digg Inc. in July 2012.

John Borthwick, who runs Web- development studio Betaworks, didn’t want to let a good name die. So his company bought struggling news aggregator Digg Inc. last month, and he enlisted his staff to quickly design a new service under the old name.

With the debut of the retooled Digg.com last week, Borthwick became one of several executives trying to stage a second act for a once-popular Internet property that lost its luster. They will have to win over skeptics who have written off websites from a bygone era, a challenge not unlike the one facing Marissa Mayer at Yahoo Inc.

Betaworks saw a surge in Digg readership in the days after unveiling the new site. The challenge facing Borthwick’s team, and other buyers of dying Web brands such as Delicious and MySpace, is to keep those people coming back in an industry dominated by Facebook Inc. and Twitter Inc. To rejuvenate the brands, they’ll need to appease faithful visitors while wooing new users, even those with no memory of the original site.

“It’s very hard to go back and revive the past,” said Susan Etlinger, a social-media analyst at San Mateo, California- based research firm Altimeter Group. “The Internet is a moving stream. Some say you can’t drink from the same stream twice, and I think that’s true of the Internet, too.”

Internet Gravediggers

Other Internet gravediggers include members of the team that founded YouTube Inc. who purchased the link-sharing website Delicious from Yahoo, and Specific Media Inc., a digital- advertising company that brought in actor Justin Timberlake to help turn around MySpace after buying it from News Corp. These deals made headlines last year and attracted plenty of interest, partly because of the nostalgia induced by the familiar names.

Digg, founded in 2004, helped pioneer features that let Internet users share news stories with friends. Its popularity fizzled after a site overhaul -- meant to help it keep pace with social-media services such as Facebook and Twitter -- drove away users.

More than half a million people showed up to check out the new Digg in the first couple of days after the latest redesign, according to New York-based Betaworks. That’s about a fifth of what Digg’s audience was during the entire month of June, research firm ComScore Inc. (SCOR) said.

“Never before at Betaworks have we had a startup launch that has gotten so much attention,” Borthwick said in an interview. “It’s a really good brand. It sort of represents social news in Web 2.0.”

Reviving Brands

Still, Betaworks’ early success with the new Digg stands out because many other recent Internet ventures that have taken a similar approach haven’t been able to capitalize on the initial spike in traffic that came after the sale. MySpace’s audience declined 13 percent since it was acquired last year to 29.3 million in June, according to ComScore. Neda Azarfar, a spokeswoman for MySpace, said executives weren’t available to comment.

Chris DeWolfe, a MySpace co-founder who now runs SGN Games Inc., said it would be difficult to polish the tarnished MySpace brand, especially in the constantly changing Internet landscape. He said he would rather start from scratch because a name isn’t worth much on the Web. News Corp. (NWSA) unloaded MySpace for $35 million in addition to equity in the new venture.

“It’s really difficult to reinvigorate a brand name,” DeWolfe said. “It’s just been wilting on the vine for three and a half years. I think with every year that’s passed, the challenge has gotten greater and greater.”

‘Coolness Factor’

That’s partly because social networks may have more in common with nightclubs than with trusted brands of toothpaste or soda. MySpace executives watched in awe recently as photo- sharing app Instagram and other startups quickly shot past the once-dominant social network, said Arvind Puri, who was a vice president at MySpace in 2010 and is now chief technology officer at startup Stayhealthy Inc.

“The coolness factor is so crucial, because that’s where the next generation is going to go,” Puri said. “Once a brand kind of loses its shine, then people are reluctant to go back.”

Napster, the pioneering music-download service that has changed hands twice in the past four years, faces similar challenges, said Elizabeth Brooks, an early executive at the company who is now chief marketing officer at BuzzMedia. Owners have squandered any goodwill that was left from the original service, she said.

“You’re looking at nine years of diminishing brand,” Brooks said. “I’m not sure that Napster means anything to the younger generation. If you weren’t around, if you weren’t using the computer when the original Napster was in force, it doesn’t mean anything.”

Napster Name

Rhapsody International Inc., a paid music-streaming provider, has no plans to squeeze the remaining drops from the Napster name in the U.S. after acquiring it from Best Buy Co. (BBY) last year, said Jon Irwin, Rhapsody’s president. Napster’s U.S. subscribers were transitioned to Rhapsody software, he said.

Irwin wanted Napster mainly for its operations in Europe, where the name is held in higher esteem, he said. Erin Bix, a Best Buy spokeswoman, declined to comment.

Attempts to recreate past Internet glory need to take today’s competition into consideration, said Jay Adelson, who ran Digg as chief executive officer for most of its existence.

“What entrepreneurs and investors have learned in the Valley is that timing is so critical for some of these ideas,” Adelson said. “The original concepts behind Digg are dated.”

Delicious Opportunity

Joshua Schachter, founder of Delicious, has said the opportunity for the sort of bookmarking site he created in 2003 probably doesn’t exist anymore, because it now faces tougher competition from other social-networking sites, and its features can be overwhelming to a mainstream audience.

“We’re in the process of reinvigorating that now,” Chad Hurley, one of the YouTube founders who acquired Delicious, said in a statement. Delicious had 457,000 visitors in June, an increase of 11 percent from a year earlier, according to ComScore.

Hurley and his cohorts at AVOS Systems Inc. have turned much of their attention away from Delicious in the past few months to focus on a project called Zeen, which is projected to debut in the next few weeks. They recently began work on a redesign of Delicious, which won’t be finished for several months, Hurley said.

AVOS saw buying Delicious as a way to “hit the ground running” by working on a service that had hundreds of thousands of visitors at the outset, Hurley said. His team rewrote the code of the Delicious site to be more efficient, like Betaworks did with Digg.

Slimming Down

The new Digg, meanwhile, has slimmed its operations by hosting the site on rented equipment from Amazon.com Inc. and running with a staff that’s about a 10th the size of what it once was, making a potential fall less costly. Betaworks paid $500,000 and gave a few percentage points of equity in the new venture in exchange for Digg’s remaining intellectual property, according to a person familiar with the deal who asked not to be named because terms weren’t publicly disclosed. Betaworks had already been working on a similar news aggregation service called News.me.

“The fit was almost too good,” said Digg General Manager Jake Levine, adding that he hadn’t used the social-news site much in the past four years. “It was so new and different in 2004, and we want to be new and different again.”

To contact the reporter on this story: Mark Milian in San Francisco at mmilian@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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