BUBBLE 2.0 - Is it coming?

Something has been irking me for a while now. Spotted this a short while ago on Reuters.Com

Rumor: Digg.com to Sell for $300 million
POSTED: Thursday, November 08, 2007
FROM BLOG: TechBuzz - Tech News, Reviews, Tips 'n' Tricks, Blogging

The following blog post is from an independent writer and is not connected with Reuters News. The opinions and views expressed herein are those of the author and are not endorsed by Reuters.com.

Valleywag is reporting that a "major media player" is ready to acquire the social news site, Digg.com for about $300 million to $400 million. At this point, this news is nothing more than a rumor. But interestingly, Digg CEO told Webware that he or his company won’t comment on this rumor, which makes us all feel that something is really cooking!

SWEET BOLLOCKS! I was listening to a podcast the other day where Kevin Rose said he couldn't afford a couch for his new flat. Yet, the man is sitting on a fair stake in a potential $300 million dollar web-votey-thingy.


There has just GOT to be some overvaluation here. Granted - the Digg community is fantastic. A couple of hundred thousand (more?) regular users who vote up and push out the best content the web has to offer. But that's all it is. Fancy front end with a largeish community. Nothing like the 200 million users of MySpace.

So, I decided to do a little investigation. Some snoopin. What is the commercial viability of these sites? How much COULD they make? Because. If Kevin Rose can't afford a couch - Digg ain't making cash. Just like FaceBook isn't.

So, found this post which proposes an interesting theory about Digg.Com Ad Revenue...

So how much will Digg 3.0 be making on ad revenue? It's speculative math, to be sure, but let's take a whack at it. The CPM (cost per thousand displays) rates for Digg's new design are $16 for 728x90 leaderboards, $14 for 120x600 skyscraper positions, and $9 for 125x125 blocks. The 125x125 slots often seem to be filled by Google AdSense ads, which will probably monetize at a slightly lower rate than $9 per thousand displays - but not much lower, given Digg's tech-related topics. So let's say $6 CPM for the 125x125 spots.

That works out to $36 per 1,000 page views for pages with all three ad positions. Here's what that works out to based on the percentage of those 5 million monthly page view bearing ads:

100 percent: $720,000 a month
80 percent: $576,000 a month
50 percent: $360,000 a month

Keep in mind that this doesn't include the $800 a week for text ads on comment pages, since the Federated Media profile doesn't provide enough information to make a reasonable guesstimate. So at current traffic levels, the top end could be reasonably estimated at a little north of $800K a month, which works out to $9.6 million a year.

That's nice cash. But not nearly enough to warrant the price tag? Great business if you can keep overheads low (impossible with bandwidth requirements surely?) and you're earning that off a low base of staff.

What's the model? What am I missing? You can only sell so much advertising before pissing the life of your community away. It's pretty much all on a CPC / CPM basis. There's no innovation going on in terms of delivery or placement (FaceBook flyers setting a precedent for the ability to micro target an audience).

Why is there so much venture capital around? Why are the price tags feeling a little .comish?

Could we be in for another bubble? Users flee social networking due to privacy concerns, invasive advertising and just too many choices.



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