Digg Lays Off More Than One-Third of Staff as It Seeks to Cut Costs

Digg has announced it is laying off 25 of its 67 staffers today, part of an attempt by the San Francisco social news discovery site to rationalize its costs.

In an interview with BoomTown this morning, CEO Matt Williams noted that “the burn rate is just too high” for the company.

“We need to reset, in terms of stategy and get back in a start-up mode,” said Williams, referring to the recent turmoil at Digg, related to management upheavals and product snafus. “The cost structure is not in line with our business.”

Earlier today, I reported that Digg’s Publisher and Chief Revenue Officer Chas Edwards was departing to take a similar job at a photo-tagging advertising start-up called Pixazza.

Edwards is just one of many such issues at Digg, where Williams seems to have stepped into a very big mess since he arrived just six weeks ago.

That includes dealing with a new version widely derided by its passionate and opinionated users, for which Williams quickly apologized.

“I knew it was going to be a big job in terms of a product turnaround,” said Williams. “I think the users love Digg and want to see us succeed and we ultimately let them down.”

Williams said his goal was to get to profitability in 2011, which required the employee layoffs.

From there, he said, “We will be on good footing to be more innovative.”

That would be a nice change of pace, given Digg’s fall from Web 2.0′s hottest start-up to one that seems only to falter.

Those stumbles have included a failed sale to Google, previous layoffs and general product drift.

Here is a blog post that Williams just put on the news aggregator’s site:

Just wanted to share an important development at Digg. Here is a copy of an e-mail that I sent to the staff today…

Team,

When I joined Digg six weeks ago, we set an immediate focus on improving the web site. We listened carefully to user feedback and started making changes to generate momentum in our business.

As I mentioned in one of our first all-hands meetings, another top priority was to take a hard look at the entire business, across product, sales, and operations. Through the time I have spent with each of you, I’ve been impressed by the commitment and enthusiasm you’ve shown. I’ve also learned a great deal about what is working well at Digg, and what is broken.

Many things are working well. The team is listening and acting quickly on the feedback from our passionate community. We’ve been able to deliver nimbly on the new platform, with over 100 bug and feature releases to the web site in the past two months. Our Diggable ads product has seen a notable increase in use by advertisers and clicks by users.

Unfortunately, to reach our goals, we have to take some difficult steps. The fact is our business has a burn rate that is too high. We must significantly cut our expenses to achieve profitability in 2011. We’ve considered all of the possible options for reduction, from salaries to fixed costs. The result is that, in addition to lowering many of our operational costs, I’ve made the decision to downsize our staff from 67 to 42 people.

It’s been an incredibly tough decision. I wish it weren’t necessary. However, I know it’s the right choice for Digg’s future success as a business. I’m personally committed to help find new opportunities for everyone affected by the transition. Digg’s Board members have also offered to help find placements within their portfolio companies.

Let’s please use today to show our sincere appreciation for our friends and colleagues who will be moving on. Tomorrow, we’ll go forward with a new strategy for Digg.

Matt