Digg: Not for Sale

The news aggregation site's CEO, Jay Adelson, spelled out Digg's drive for profitability

Over the last few years, Digg has become Silicon Valley's version of the boy who cried wolf. Like the child who warned local villagers that a wolf was about to attack his flock of sheep, potential buyers of Digg have repeatedly leaked reports that the company was about to be sold, but a sale was never consummated.

Not anymore. In an interview with BusinessWeek, Digg Chief Executive Officer Jay Adelson says the popular news aggregation Web site is no longer for sale, and the focus of the company is to build an independent business that reaches profitability as quickly as possible. That means the four-year-old startup will dial back some of its expansion plans, instead prioritizing projects that generate revenue and profit.

Among the new efforts: The company recently started to sell ads on its RSS feeds. It is on the verge of launching a revamped version of its homegrown search engine that the company hopes will produce more relevant and profitable search advertisements. And it is within a month of closing a deal with a mobile ad provider to sell more ads on cell phones. "Now I am pressured to keep costs reasonable and focus more on the top-line revenue, which we really haven't done ever," says Adelson, a 38-year-old father of three who splits his time between Dutchess County in New York, where he lives, and San Francisco, the company's headquarters.

Revenues on the March

Wearing jeans, scuffed black leather boots, and a striped, long-sleeve shirt with the tails hanging out, Adelson described how the financial crisis led him to speed up the company's tempo. In September, Digg said it had tripled revenues over the last year. In 2009, Adelson expects "another tripling if not more." Earlier this year, Adelson wanted to reach profitability within two years. Now, he says, "it will hopefully happen within a year."

Moreover, with $28.7 million in new venture capital raised this past September from Highland Capital Partners, Greylock Partners, Omidyar Network, and SVB Capital, Adelson says that Digg is now considering making its own acquisitions. Although Digg is not in discussions to close a deal, Adelson says he is looking for companies to acquire. "There are Digg clones around the world in every country," says Adelson. "I could go into those markets and clean up those sites. If I needed more capital to do a deal, I could probably do it."

If Digg is no longer on the auction block, as Adelson says, the startup will be under increasing pressure to keep growing and wring a profit from its passionate community of users who post stories on the site on a variety of topics. Although the company claims it has 35 million unique users per month, independent researcher comScore (SCOR) says that Digg had 16.3 million users worldwide in October 2008, up 31% from last October's user base of 12.4 million.

Differences Over Data

Adelson stands by his figures, claiming that comScore's panel methodology underestimates the traffic on social media Web sites. "There are 35 million unique users a month no matter if a panel says there is," he says. "Panels are based on a different demographic than who comes to Digg. The panels aren't working. I don't think you can trust comScore's numbers for any site in this genre."

Adelson says his figures are based on data from Web analytics firms Omniture (OMTR) and Quantcast. Omniture does not release customer data. But according to Quantcast's Web site, Digg.com claimed 21.7 million global users as of Nov. 30.

While international expansion is less of a priority, Adelson says increasing engagement on the site is more important than ever. Over the next few months, Digg will introduce new features that the company hopes will entice users to stick around the site. "There is probably a list of 15 to 20 things we want to do," he says. One opportunity is to make the site more social and expose users to more content that they are likely to find appealing. If the strategy works, it could help the company generate revenue as users click on more pages. "I'd rather get more revenue by getting people to hang out more than by serving more ads," says Adelson.

Adelson also addressed reports that he and other members of the executive team, including founder Kevin Rose, sold stock during the most recent round of financing. "Nobody took any cash-out opportunity on the executive team that was significant," he says. "We wanted to make sure Kevin and I had extremely large stakes. We believe the upside is significantly better."

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