This is How Digg Throws Away Good Money

Digg is a mystery to me. Here is one of the most powerful and exciting sites on the web that can make or break a new site trying to get noticed. It’s like Amateur Night at the Apollo where a good show will bring you fame and acclaim but the crowd is rough and quick to jeer you off stage if they don’t like your act.

I recently read on TechCrunch that they took on another couple of million dollars because when they sent out feelers for a sticker price of $150+ million there were no takers.

Apparently they’re not making enough money relative to their standing. One figure I saw was ad revenue of 200k a month.

Usually the hardest part is creating a monster site like Digg in the first place. At this pace Digg will probably keep eating up more capital and eventually be absorbed by their investors.

There are two reasons why Digg is doomed if they keep on like it is now. Here are the two major problems as I see it.

Digg is throwing good ad money away

It’s almost pitiful how Digg just throws away cash laying on the table. The site is well-designed and has always been for as long as I can remember. However, the ads always looked an afterthought and the current design is no exception.

On first inspection, the main adds are right under the Digg banner and under the fold as they say, meaning the ads are highly visible to the casual visitor without scrolling. Only the problem here is that the ads are blended into the pages background and not that visible or even relevant as I’ll explain below.

Granted, Digg users are some of the post tech savvy and therefore ad-resistant but why most Digg go out of their way to make ads even more invisible than they need to be?

Take a look at the main ads on the front page. In this screenshot it happens to be NationalGeographic, footage of the USA ski team, and some astronomy pictures. Right on the front page. In my browser it’s some minor site called braindigg.com, macrecycling, and an add for fetal stem cell treatment. These ads don’t do Digg justice. It’s ironic considering how hard it is to really get on the Digg front page when these ads do it with ease.

Digg can easily replace these generic adsense ads with tasteful image ads from the multitude of sponsors out there. If that’s not attractive, they can put mini malls with tech gadgetry that are sure to attract more interest without detracting from Digg’s focus as a tech site.

But wait, it gets worse. Even if we pretend for a minute that adsense as the sole revenue stream is the best strategy to go with, there is no excuse to have junk ads like this or this on your site. These ads are for what are called Made For Adsense sites that are bidding up lucrative ads only to collect a killing from real advertisers while passing on measly earnings to Digg. This can be easily limited by blacklisting these revenue drainers.

Common wisdom among even small-time publishers is to blend the adsense into your site as much as possible and place them more strategically within content. Granted, Digg can’t take the same road as these fast money blogs touting big adsense revenues, there’s still a lot they can do to get more out of the ads.

They are supposedly partnered with Federated Media but I can’t find such ads, can you?

Another big source of revenue they’re throwing away are the large numbers of individual feeds they generate off the site. They could easily partner with FeedBurner for a white label solution that will slash bandwidth costs (by passing it onto FB) and generate revenue! It’s really crazy.

The lesson here is to optimize the ads and diversify revenue stream. Let us move on to the next topic.

Digg’s infrastructure is costly and doesn’t scale

This has been discussed elsewhere so I wont go into too much detail here but the bottom line is too many servers and too many employees.

Conclusion

I really like Digg and I’d love to see the founders rewarded their innovation and hard work. One thing’s for sure, right now they’re making everyone else rich.

However at this rate, sooner or later these guys are going to get swallowed by venture capital and then sold off to some internet giant only to become modestly wealthy employees in a little cubicle. Let’s hope the Digg people figure out a way to squeeze more money out of Digg without making it suck.

More reading:

Digg is doomed unless they fire their tech staff. « The Paradigm Shift

Why Isn’t Digg Profitable? at We Are Seen Creative