Odd, then, to hear that Digg sacked 10 percent of its staff today for what founder and CEO Kevin Rose says is “the long-term health of the company.”

“This is one of the hardest decisions we’ve had to make recently but we strongly believe that it is the right decision for the long-term health of the company,” Rose wrote in a memo to employees.

“In order to achieve our goals,” he added, “we are putting more emphasis on the engineering and development efforts. In fact, we are still hiring for these teams as they are critical in getting us to where we need to be for the future, for our impending upcoming redesign, and much beyond. The only way for us to truly succeed is to adapt and adjust as necessary.”

That 2006 BusinessWeek cover, “How This Kid Made $60 Million In 18 Months,” must seem like a distant memory now …

Almost from the minute former AOL head Randy Falco handed over a giant bag of cash to Joanna Shields, the awfully clever chief money charmer of once darling social networking site Bebo, it was clear it was not going to end well.

Essentially, AOL (AOL)–then a unit of Time Warner (TWX)–had forked over $850 million to corner the market on teen girls in the United Kingdom.

Of course, all those girls are now using Facebook.

It was, sorry to say, the peak of the social networking lunacy of early Web 2.0, which is now being bookended by another series of wackadoodle fundings for start-ups by venture capitalists insecurely prompted not to miss the next big thing.

Not much changes. As I wrote about the Bebo deal two years ago in a post titled, “Bebo: By the (Not So Big) Numbers”:

What’s AOL getting for its $850 million in cash to purchase social-networking site, Bebo?

A very attractive social-networking service and a very experienced exec who has been running it.

But, perhaps more importantly for those who focus on pesky numbers, not a whole lot of revenue and negligible profits, judging financial information I got a gander at, courtesy of sources at several companies that looked at funding or buying Bebo.

And the rest of the overall outlook for Bebo? A small but growing business, with nice user engagement with strong page views and minutes spent per session, but little traction beyond Britain and Ireland, and too small a presence in the critical U.S. market.

That was the best AOL got from the deal, as it turned out, as the asset declined and Shields was shuffled out of AOL by new CEO Tim Armstrong (ironically, she’s now running a big chunk of international sales for winner-took-all Facebook).

Now comes the final shoe dropping, with AOL admitting in a filing the glaringly obvious–that it was evaluating strategic alternatives with respect to Bebo, which could include a sale or shutdown of Bebo in 2010.

In a message shared with employees today, the company noted:

The strategy we set in May 2009 leverages our core strengths and scale in quality content, premium advertising and consumer applications, positioning us for the next phase of growth of the Internet. As we evaluate our portfolio of brands against our strategy, it is clear that social networking is a space with heavy competition, and where scale defines success. Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space. AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking.

AOL is committed to working quickly to determine if there are any interested parties for Bebo and the company’s current expectation is to complete our strategic evaluation by the end of May 2010.

Quicker translation: Bebo is a dog and it bites.

But the experience is one that will soon be forgotten with the next careless gorging of VC funding.

Not be lost on anyone should be the sudden departure of Jay Adelson as CEO of Digg this past week from the social news site, yet another example of hot going cold in the eyes of Silicon Valley.

At one time Digg and Bebo could do no wrong. Now, no right.

In actuality, neither characterization is correct, but it matters little. In the warped tech perception game, Bebo is apparently dead and it’s time to bury the corpse and move on.

Digg CEO Jay Adelson has left the company he has run for the past five years, leaving founder Kevin Rose to run the social news site in the interim.

Statements from Adelson and Rose (below) do not shed light on what happened, though I imagine the picture will start coming together in the near future.

But I can start by noting that Adelson has long been said to be restless at Digg and that he and the company’s board of directors have reportedly butted heads several times. Adelson, who commuted for years between Digg’s San Francisco offices and his home in suburban New York, finally moved his family to the Bay Area last fall.

Digg used to be best known as a company that was always going to be acquired but never got acquired. Google (GOOG) got close to buying it in the summer of 2008, and then backed away from the deal during due diligence.

Meanwhile, Digg’s growth has flat-lined for a while. Here via comScore (SCOR) is what it has looked since October 2009 (click to enlarge):

Here’s the official word from Jay Adelson, followed by Kevin Rose.

Hey all,

Got some news. After five years, forty million users, and an amazing ride, I’ve decided to step down as CEO of Digg. With the new Digg getting ready to launch, Digg Ads doing well, our sales force growing, our hiring ramping, and the company maturing well beyond its startup phase, I feel that now is the right time.

The entrepreneurial calling is strong, and I am ready to incubate some new business ideas over the next twelve months. As the economy exits a very deep recession, I believe that it is an excellent time for new companies to develop. Of course, I will continue to serve as an
adviser to Digg. In the interim, Kevin has agreed to step in as Chairman and CEO.

I’d like to thank Kevin, the Digg staff and the Digg community for their support, insight and, most of all, their loyalty in turning Digg into the force that it is today.

–Jay

Update from Kevin:

I want to be the first to thank Jay for the last five years of amazing work. You’ve been a great friend and mentor, we wouldn’t be where we are today if it wasn’t for you.

While I’ll miss working with Jay day-to-day I am excited to be taking on the role of Chairman and acting CEO, driving Digg forward on our promise to enable social curation of the world’s content and the conversation around it. We’ve been super busy on the product side getting ready for the upcoming Digg redesign and delivering our mobile apps for the iPhone and Android.

Thank you very much for your on-going support of Digg, I’m truly excited about the next five years, big things coming!

-Kevin

Digg, the San Francisco-based news discovery service and one of Silicon Valley’s more prominent start-ups of late, said in its company blog today that it would cut its 75-person workforce.

A company spokeswoman told BoomTown the cut would be about 10 percent, but would not give out a specific number of employees to be let go.

In addition, Digg noted it would be aiming to cut costs and be profitable in 2009. It will also be hiring a direct sales team.

In other words, revenue does matter too, Web 2.0!

Here’s the entire blog post on the layoffs and more, by CEO Jay Adelson:

Brief update on Digg

Thanks,
Jay

Last month, Web video studio/distributor Revision3 said the plummeting economy had caused it to cut staff and stop making and distributing some of its shows. Today, the company has a different message it wants to get out: Things are great!

The company, which is best known as a side project of Digg masterminds Kevin Rose and Jay Adelson, has put out a press release that is largely information-free. It dutifully lists the company’s accomplishments: six million show views per month, 60 ad partners, 140 million “minutes of engagement” per month, etc.

The one metric the company really should be boasting about isn’t included in the release: Revision3 will have tripled its revenues, to $3 million, by the end of 2008, a person familiar with the company tells me. Even better, ad sales ticked up significantly in the fourth quarter, even as the Web ad market began sputtering. Revision3 is on track to book more than $1 million in the last three months of 2008, I’m told.

Those results alone won’t be enough to keep Revision3 afloat: Web video remains a novelty for many advertisers, and the stuff that Revision3 makes–podcasts designed to be downloaded and watched on your PC or iPhone later on–are particularly challenging for advertisers to get their heads around.

A marketer who pays for an ad impression on Hulu, for instance, can be reasonably sure that someone actually watched it. That’s because the joint venture between GE’s NBC (GE) and News Corp.’s (NWS) Fox only offers up video for on-demand streaming, and doesn’t allow you to fast-forward past ads. But if you download an episode of Diggnation, the company’s flagship show, from Apple’s (AAPL) iTunes, there’s no guarantee you’ll actually see Rose and co-host Alex Albrecht endorse something called Brain Toniq.

But so far, at least, the pitch seems to be working. Here’s an example of what Revision3 advertisers are actually buying–a typical example of Diggnation, in which Rose and Albrecht sit on a couch, drink beer and talk about nerd things they like (Twitter) and things they don’t (Star Wars games).

Our quest was to find out what some savvy Web 2.0 types thought would–or should–happen next in the Microsoft (MSFT)-Yahoo (YHOO) takeover battle, following Yahoo’s earnings report yesterday.

Thus, we made the scene–at widgetmaker RockYou’s “Rockin’ Spring Mixer” at Bong Su and news site Digg’s get-together at Mighty–to get some advice on what’s going to happen next.

Frankly, BoomTown is running low on ideas and we got a good range of predictions to bolster our bare cupboard.

So here’s a good mix of interviews on the topic, with folks such as RockYou CEO Lance Tokuda, Broadband Mechanics’ Marc Canter, Digg Founder Kevin Rose (in the very, very dark and noisy club–sorry!–but you can hear him at least), Digg CEO Jay Adelson and others.

And, at the end of the video, using a dinosaur toy as a metaphor, Louie and Alex Swisher, who pretty much have the situation down cold.

Here’s the video:

And it is no real secret in Silicon Valley that the pair have been talking on and off for a while now, as Google (GOOG) mulls where to take Google News and Digg ponders how it can grow and improve its reliability by being linked to the largest and most neutral company it can.

But after all the Sturm und Drang around news of a phony bidding war for Digg between Google and Microsoft (MSFT) with prices hovering around $200 million that broke out a month ago (which BoomTown refuted in a post here), I thought it was long about time I chatted with its CEO Jay Adelson, to talk about the future of Digg and also the state of news online.

While photogenic Digg founder Kevin Rose often gets the focus as the geek-in-charge at the company, Adelson has had as much skin in the game and also has a deep tech background at early Internet networking companies like Netcom and also as a founder of Equinix.

Traveling between his home in New York and Digg’s San Francisco HQ, Adelson has been helming the user-generated news-discovery site, as it has grown to its current 27 million unique monthly visitors and 250 million page views. Adelson says Digg is poised to be profitable this year.

And while it is easy to find problems–pointing to aggressive competitors like Mixx and Yahoo’s (YHOO) BuzzTracker and serious and nagging issues around technological glitches (like yesterday, for example)–Digg still remains one of the most interesting and substantial start-ups to emerge from the Web 2.0 landscape.

Adelson talks about all this, with an interesting perspective on the hothouse that is Silicon Valley and also where things are going in the digital sector.

Here’s the video:

Please see this disclosure related to me and Google.

First, let’s see if we can sort this latest rumor about the acquisition fever wafting around the popular Digg news site, published by TechCrunch last week.

Its take: That Digg has been pitching itself for sale using bankers from Allen & Co. and was poised to receive high-priced bids from archrivals Microsoft (MSFT) and Google (GOOG), and also had interest from two unnamed major media companies (a good guess here would be CBS and News Corp., owner of Dow Jones, which owns this site).

How exciting! How dramatic! How gripping!

And: How untrue!

That’s because once you actually take time to do actual reporting, you find the story is quite a bit less exciting and dramatic and gripping–pretty much nothing more than part of the typical sniffing and circling that goes on constantly in Silicon Valley.

Here’s what my many and varied sources close to all the companies involved told me, related specifically to the TechCrunch report: Digg is not going around hawking itself, but using bankers to handle interest it receives fairly regularly; and neither Google nor Microsoft is poised to make a bid hovering around $200 million (in fact, most every possible acquirer I spoke to said $60 million to $80 million was a more likely price if Digg were ever sold).

This is not to say that Digg could not suddenly get an amazing offer too good to refuse, from any of the parties and others, as any company could.

And Google is a natural bidder and has to be interested in Digg, of course, given that it needs to add more to its Google News product and likes highly distributed plays like Digg.

In addition, given that it did a guaranteed ad deal with Digg last year and might have to have alternatives if its Yahoo bid fails, Microsoft is the other obvious candidate to own a site like Digg.

But, once again (these Digg sale rumors surface with wearying regularity, much like the colds I get from my kids), Digg is not embroiled in this fantastic kind of Spy-vs.-Spy battle between Google and Microsoft, news of which rocketed around the Web and took on a life of its own.

In other words: While Digg has been to visit the Googleplex and Microsoft to discuss all sorts of linkups, including recently, along with several others over the last two years (Yahoo, for example), from partnerships to traffic deals that could–of course–all lead to a possible acquisition, its executives have not been waiting by the fax machine for offer bids to start rolling in of late.

Here’s the duller truth, in contrast to sexier rumormongering: Of course, larger companies are interested in high-growth Internet phenoms like Digg, whose massive distribution on the Web via Digg buttons and a motivated audience is impressive.

The user-generated news-discovery site that has grown quickly to 27 million unique monthly visitors and 250 million page views is poised to be profitable this year.

While some debate its helpfulness at generating monetizable traffic, when Digg points to a story, huge audience spikes quickly follow.

That’s attracted attention from larger companies, from both the Web and media worlds, all of whom have been calling the still-small start-up (50 employees) for a getting-to-know-you chat.

“Everyone is looking to see if they can copy Digg, partner with Digg, acquire Digg,” said one person familiar with the company.

That has been both a blessing and a distraction to the company, I would imagine, as it takes the eye off the ball of actual executing on a day-to-day basis. As I have seen with a lot of companies I have covered, acquisition interest can be a heady experience and not always in a good way.

And there have been some actual offers to buy Digg over time, although not recently, and none has reached even close to the kind of fire-alarm state that TechCrunch loudly rang last week.

The report was so over the top that it prompted Digg CEO Jay Adelson to refute it on the company’s blog.

He wrote: “Normally our policy is to not comment about things like this, but this morning’s rumors about a bidding war involving Google and Microsoft have created such a stir we feel compelled to tell you all directly that they are completely inaccurate.

“Sorry to burst any drama theories, but they aren’t true. We remain focused on improving Digg and rolling out great features.”

Of course, that was not enough of a denial for TechCrunch, which stood by its source, and then spun a somewhat convoluted conspiracy theory about Adelson’s post: “Digg may have had an angry Microsoft and Google on its hands this morning after this post, leading Jay to comment on this where they usually wouldn’t. Jay certainly wouldn’t say anything untrue in his post, but there’s a lot he isn’t saying in that post, too.”

But that’s kind of like trotting out the old when-did-you-stop- beating-your-wife courtroom ploy. Quick, Della, parachute in Perry Mason to get Adelson to confess to his alleged crime!

Sure, Adelson could have been even more specific, denying Digg was for sale completely and once and for all, I guess. But no public or private company would ever do such a imbecilic thing, as everyone is ultimately for sale, and saying otherwise would have also been completely inaccurate.

And, it goes without saying, no one wants to be completely inaccurate, do they?

Please see this disclosure related to me and Google. ]]> http://allthingsd.com/20080310/the-dirty-job-of-digging-for-accurate-information/feed/ 4 http://allthingsd.com/20071025/kara-visits-the-lobby-in-hawaii/ http://allthingsd.com/20071025/kara-visits-the-lobby-in-hawaii/#comments Thu, 25 Oct 2007 16:14:58 +0000 Kara Swisher http://kara.allthingsd.com/20071025/kara-visits-the-lobby-in-hawaii/