Digg's Sorry Revenue Stream, And Rumors Of An Experimental Ad Product

So Business Week gets their hands on Digg’s financials and reports that the company had 2007 revenues of $4.8 million and losses of $2.8 million. The first three quarters of 2008 Digg had revenues of $6.4 million and losses of $4 million. That implies total 2008 revenue of $8.5 million, with $5.3 million in losses.

First of all, ouch. People close to Digg once suggested to me that the Microsoft search deal, which was announced in July 2007, would bring in well over $100 million in revenue to Digg over the three year agreement (something we’ve never reported). That suggestion seems to be completely false. The deal is bringing in less than $10 million/year.

Second, Digg shouldn’t be losing money. They have over 70 employees, the company recently confirmed, and plan to grow to 150 by the end of next year. That’s an awful lot of people for a company that outsources sales and content creation, and has little to do besides focus on keeping the servers humming.

Granted, Digg has a number of people on staff that moderate content and focus on the community. But even so, experts I polled this evening who’ve run large scale Internet sites tell me Digg should be able to keep the lights on with no more than 15 engineers, and as few as five or six. Comscore says Digg has 16 million worldwide unique monthly visitors and 58 million page views. Those numbers are likely significantly lower than reality, but still. Digg could turn itself profitable, even at these low revenues, by simply firing much of its staff. Instead they choose to lose $5 million or more this year.

Digg’s Product Plans

A Digg employee recently told me that “most” (I took it to mean more than half) of the 70 employees were development and operations engineers, so they are clearly up to something besides keeping the lights on.

One experiment Digg is working on, says one source close to the company, is a self service advertising product that will be somewhat similar to Google Adwords, but with a twist. The product would insert advertisements into the Digg news stream (presumably clearly marked). Where those ads end up, and how much an advertiser pays per click, would be based on user feedback.

So users would have the ability to vote on advertisements in the same way they vote on stories. The better ads, as determined by Digg users, will get more prominent placement and a lower cost-per-click.

Digg won’t comment on these rumors. And from what we heard, at best the product is still an internal experiment.

But clearly some significant portion of those 70 engineers must be working on new products, and if I were Digg I’d be thinking a lot about revenue. Given how successful the company has been at leveraging their users to sort through the news to determine what’s hot, perhaps they’ll be able to do the same with advertising.