Don’t Believe The Hype: Digg, Businessweek, and Accountability

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When I saw the latest Businessweek cover and read why Kevin Rose is worth $60 million, I didn't even deem it bloggable. Yes, I laughed at the fact that Digg is valued at $200 million, but I think I've harped enough on the why Web2.0 isn't worth what people think it is, and I didn't want to beat that dead horse any more. I decided to comment because over the past few days, the story has taken a beating in the blogosphere. I love when that happens. Here is just a small sample of the almost 300 blogs commenting on the story.

37signals, a very pro Web2.0 company, led with some early commentary saying don't believe the bubble math.

Good Morning Silicon Valley cracked me up with this commentary.

It's tossed out in mid-article with virtually no explanation along with another suspect figure that values Digg at $200 million. Quite a fairy tale, no? Reminds me of the days when a black-and-white sock puppet interviewed fellow canines, the Garden.com billboard over 101 was still lush and everything was bubblicious.

Kiwibloke expresses his skepticism

I have less confidence in sites whose traffic is predicated on social bookmarking (del.ico.us) or the latest craze "voter based bookmarking" or Digging. My reasoning is that the benefit from the user is transient. The benefit of long term participation is unclear because the system has already shown that it is open to manipulation. This has resulted in a small group controlling the bulk of the digging on the site. Over time I suspect that the audience will move away as another trend takes it's place. Unlike Myspace I am unclear as to whether the network effect is present in Digg, Newsvine and others.

Techdirt calls Kevin Rose a vapormillionaire.

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Here's what I don't understand. Digg has been praised in so many ways. The business model and user interaction model is supposed to take down old media. Yet, 18 months into it Digg is barely breaking even on $3 million in revenue. In my view, I would compare this to buying an Applebee's franchise. Seriously. I would bet an Applebees in a high foot traffic area makes that kind of revenue 18 months in, and probably shows a few hundred thousand in profit at that. So why the big deal?

The idea isn't revolutionary, the financials aren't revolutionary, so why all the excitement? Don't get me wrong, I think someone will buy Digg (and overpay) and the VCs will cash out, but what is really happening is a mistake in analysis. The success of MySpace makes everyone want to jump into this game, and VCs have extrapolated from a few unique cases to some kind of general rule that doesn't exist. Digg isn't Myspace, and neither are most Web2.0 companies. Digg has no user inertia. If something slightly better comes along, the consumer barriers to change are extremely low.

And anyway, have you seen Digg's business section? YAWN…