Let that be a lesson, kids.
Flip your zero revenue startup for big bucks while you can, just like Instagram, because tomorrow it won't be worth the collective price of all those fancy chairs you bought to fill your office space.
Social news- and link-sharing site Digg has sold itself to New York technology incubator Betaworks for the paltry sum of $500,000. The Wall Street Journal reports that Betaworks does not plan to retain any of Digg's current employees. "Over the last few months, we've considered many options of where Digg could go," writes …
Speaking as someone who rather likes things like Herman Miller chairs going on ebay for less than a tenth of their RRP... don't listen to this Jeeves guy, nontrepreneurs! Hype hype hype! Buy buy buy! Your extravagant and unsustainable spending makes the economy go!
How many times do we have to see it before the investors realise, I wonder?
Company forms, comes up with a good idea, gets huge, cruises for a few years and then plummets as the next big thing comes along.
Sometime in the middle there the founders (if they're smart) cash out for a few hundred million, though that didn't happen here, then the new owners or public investors are left watching their 'investment' leak cash and drop in value.
This is why things like the facebook IPO and the recent github VC funding both entertain and annoy me - these services are barely profitable, they have huge userbases but no real must-have product that couldn't be provided by someone else. Yet the cash-vomiting 'genius' investors see fit to throw ludicrous wedges of money at them, seemingly oblivious to the way these things fail, and how the cycle of growth and failure is really quite rapid in the tech world.
So yeah, the Digg guys should have gone for the 200m, and I gotta get me some of that.....
I think it shows more that once you lose momentum by making a few serious missteps, turning corporate, and/or becoming uncool, it is very hard to turn that around. And if there are no real competitive barriers to entry, you can easily go all the way back to zero. Not just web companies - RIM and Nokia have fallen *hard*.
So from that perspective, I actually don't think Facebook is the best example of a bound-to-fail-eventually swindle (mild but sustainable profitability for some time would actually be a good sign to me), and I have no opinion on github and their funding. Groupon, on the other hand, seems like the canonical example of a bad web company - importantly, most people seem to have already noticed that, which means they will have major problems turning it around.
OTOH Ebay, as an example, has the kind of momentum/inertia from its scale which has proven comparatively resilient to their corporate boneheadedness. If you have an addicted customer base, like Activision with their WoW subscribers, you can really go into corporate plunder mode without (immediate) effects. And finally, if you are part of a monopoly or oligopoly like the phone/cable companies, you can do almost any kind of evil and benefit seemingly endlessly. Perhaps that is part of the problem - if a rising web startup without that kind of inbuilt advantage looks at these kinds of "success stories" and tries to follow a similar path, they are very likely to fail.
I'm not *sure* fb is going to fail anytime soon, but I do think it was massively overvalued. A lot of the other things you mention that aren't going to fail I agree with - but these are more traditional businesses that rely for the most part on paying customers and actually selling a product.
I agree that a lot of these things follow the wrong success stories as examples. The other problem I see at the moment is overestimating the stickiness factor of these sites/services, and in doing so performing some sort of direct conversion between number of current users and available dollars. The reality is that for an awful lot of these services (and product, like nokia) there is no real stickiness and people just migrate when things change or something else better (or just newer) comes along.
Either way, there seems to be a buttload of money going on uncertain ventures at the moment, and Digg ought to be a case study for the investors.
Of course facebook will fail. Their business model, at least implicitly, requires them to be in fashion forever. The chances that they''ve invented the blue jeans of the internet are about zero.
Sooner or later facebook will be come a clogged, corporate polluted wasteland at which point all the trendies will be looking for something newer and cooler, and after they desert the ship then it's pretty much over. We've seen this cycle happen so many times for social networks it hardly needs pointing out. Facebook doesn't work if people don't use it every day, and at some point they'll stop.It's not such a huge deal for facebook since everyone meaningfully involved got their payday at the IPO, now it's just the idiot johnny-come-lately shareholders get screwed.
Not sure I agree with you about Facebook there. Obviously they could do a Myspace and disappear almost overnight. But there are a few significant things going in their favour.
They make a profit. Not huge given their market cap, but nonetheless they're making money, and can probably make a bit more. They're almost certainly horrifically over-valued, even having lost 20% of their value - but that's not a problem that should worry their users.
They are now so huge, that they've created a big barrier to entry in the social networking market. They've got hundreds of millions of people spending hours a month on there, and filling the site up with content. No start-up can compete with that. Even if fashion changes (and I suspect it already has), that's an incredibly hard thing to overcome. To be a social network you need users, by definition, and you also need content (look how empty Google+ looked even though it hit 90m users in a few weeks).
I also wonder if following the young crowd is always the right idea. Kids don't have that much money. I suspect that having attracted the parents to FB, losing the kids isn't that big a deal. The parents and grandparents are the ones with the cash. And probably less fashion conscious, and so less likely to move. A better target for advertisers. Kids may (or have already) moved because they don't want to post their party photos on a site their parents can see, but they probably still have a Facebook account as well.
So there are big risks to Facebook, but they also have big advantages. Including cash on hand to buy or copy any rival. They also have time. With so many users, if they do start losing out to some new kid on the block, they should have plenty of opportunity to recover. Assuming management aren't totally stupid. Hmmm, not sure that's an assumption I'm willing to make, and Zuck is un-sackable with their current share structure.
Biggest Losers (Based on single stock):
Chairman and CEO, Facebook
Down 73.33 M
Down 23.91 M
Down 20.19 M
"How many times do we have to see it before the investors realise"
Well, it ain't quite that simple. Look at the folk who pumped up the value of Instagram into the stratosphere before flogging it to Zuckerberg, for example: their investment was incredibly profitable. You have to view it like a Ponzi scheme, or a pyramid scam, or possibly live-handgrenade-catch. Or perhaps more accurately, a pump'n'dump scam. The last person in the game is going to lose out massively, and you really need to make sure that person isn't you.
I disagree with your article, this wasn't a case of it became less popular because of other sites like Facebook, reddit etc. This was self inflicted, digg changed their site design and algorithm and it was an absolute disaster. Rather than admit this they decided to die a slow death. Because of that people moved to other sites like reddit.
To quote the CEO of Digg, Matt Williams, from the article:
"We wanted to find a way to take Digg back to its startup roots."
By making a buyout deal with that retains absolutely *zero* of Digg's current staff? That's not taking the company back to its "startup roots," that's hitting the damn reset button!
Since you could argue that a company's employees, the people that make a company actually work, are one of its most valuable assets and Betaworks is keeping none of them, Betaworks must be buying Digg primarily for its brand-name recognition only, which is pretty darn sad statement for the value of Digg. If Betaworks was interested in any of Digg's underlying technology you would think that they would retain at least some of Digg's remaining engineers and developers because those are the people who understand how Digg's platform works and could help Betaworks incorporate it into their own web offerings.
On a personal side note, these kinds of stories always make me feel kind of down. I was never a Digg user, so I have no attachment to Digg itself, but it is always kind of sad to see any tech company that was once considered to be "the next big thing" or an industry darling do a catastrophic tumble from grace, lay off most or all of its staff, and then get picked apart by the vultures like this. We've seen it so many times before: Infocom, Commodore, Silicon Graphics, Thinking Machines, DEC, Midway Games, SiCortex, and so on. It makes you feel bad for those poor mill-of-the-run employees who lose their jobs (especially when the company's execs get a golden parachute at the same time), and it makes you wonder what "could have been" if things at the company were run better, the company's innovations came to market quicker, or external circumstances had been better. Yahoo! and RIM had better take a note of this and shape up, because if they don't I have a sinking feeling that in a few months I am going to be writing these same sort of lamenting comments all over again, only next time around it's going to be about them.
Easy to spot what's going where. Look at the serious news sites and see whose "recommend this on..." buttons are present.
At the moment you seem to get FB, Tw@ter and G+ (always very low count and probably next to go IMHO - already hors de combat here I see). Really straight-laced places often sport LinkedIn too.
Last year you could have almost always have added Digg, Reddit, that nauseatingly contrived one ending in "us" that I can't bring myself to name and sometimes even StumbleUpon to that lot. The "also rans" have now been relegated to being found under a generic "Share" button, if they're there at all. Stench of Death award goes to those only found by thumping the "others" link after hitting "Share".
As Reddit also seems to have been demoted in most places, I doubt it's them pissing on Digg's picnic..........
I was on Digg quite a bit. Then they revamped the site --- it was more complicated and uglier; so I stopped going. Plus there was the Diggbar...
Enterprises love shaking things up and embracing change. Generally, users rarely like radical UI changes with no commensurate benefit except the dominant pleasure devs get from screwing with users' expectations.
Forcing toolbars on users is the beginning of the end; particularly as only idiots collect toolbars.
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