What Facebook Can Learn from Digg
Halina is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If there's one thing that the recent Digg Inc. sale can teach us, it's that fortune and fame in the land of Silicon Valley are fleeting. Digg, a social media start-up founded in 2004, rose quickly to stardom on the venture capital of investors like Greylock Partners (Facebook investor) and Reid Hoffman (founder of LinkedIn). At one point, Digg was reportedly valued at $200 million by Google, Inc., (NASDAQ: GOOG) who was in negotiations with the company to purchase it. Unfortunately for Digg, Google backed out of negotiations at the last moment, a move spurred perhaps by personality differences with Digg team members. By the end of its lifespan, over $160 million of venture capital was invested in the site.
Last Thursday, Digg was finally sold to the technology developer Betaworks for a purported sum of just $500,000. In a report released by TechCrunch, however, the social media pioneer was actually chopped up and sold as three major chunks, with the Washington Post getting half of Digg's staff (15 employees) for $12 million, LinkedIn paying close to $4 million for 15 patents, and Betaworks paying somewhere between $500,000 and $725,000 for Digg's domain name, code, data and traffic (which according to comScore was still 7 million per month as of May). Perhaps saying that Digg sold for only half a million dollars just sounded more newsworthy.
Interestingly enough, Google did come back for Kevin Rose, the founder of Digg, earlier this year. Rose and several of his employees were nabbed by the search engine giant for a reported $15 million to help Google's social media outreaches, such as Google+.
For those who may recall, Digg was a social news-sharing site where users could publicize a news link of their choosing. Other users could "digg" the link by giving it a thumbs up in much the same manner that users of Facebook (NASDAQ: FB) post "Likes." User "diggs" were also publicized to Digg friends. If a given link received sufficient "diggs," it rose to the front news section of the site.
Even before Facebook and Twitter made it popular, Digg used the concept of link sharing and voting to popularize content posted by users. A small but powerful community of high-ranking Digg "power users" arose, spending hours collecting news stories and matching those stories to ongoing Digg news themes. Such community-powered content made Digg a highly-valued site; by 2008, 30 million unique visitors were visiting Digg every month.
And then, the tide started turning. While some critics claim that competition from Twitter, Facebook and Reddit cannibalized Digg's business, I believe that the main issue was quite different. Digg lost Digg because it failed to understand its community and took it for granted. Faithful Digg users were treated poorly and angry Digg users were waved aside. Such brazen lack of concern for its community of followers ultimately led to Digg's demise. This issue is also apparent in Facebook and its member community.
What went wrong at Digg
A sense of entitlement. In August of 2010, Digg launched a significant and bug-ridden redesign of its website, resulting in a loss of 24% of its traffic in just months. Furthermore, Digg "power users" were alienated from the site when Digg allowed no-name publishers to submit links to feeds. Angered, Digg users went so far as to digg stories from Reddit, a competitor news site that was only too happy to take the extra traffic. Kevin Rose did not initially respond to the backlash and, when he did, simply said that "this too shall pass, it's revolt #5 for us."
Facebook has faced similar redesign backlashes. In 2006, after it introduced its News Feed feature, hundreds of thousands of users turned away from the social media site for what they perceived to be an invasion of privacy. Facebook took some strides to assuage user concerns, such as by adding individual privacy settings and communicating these coding changes via its blog; however, there was never any plan to do away with the News Feed altogether.
Then, in December 2011, Facebook rolled out its "mandatory" Timeline feature, again raising concerns from its member community about old posts showing up and causing potential embarrassment. Up to 70% of the people polled by opinion site SodaHead said that Facebook should drop the Timeline format. Currently, it's unclear when (or if) Facebook will make this feature mandatory for all user accounts. Facebook might simply be proceeding with caution to avoid user backlash or it may still be making last minute changes to the Timeline feature before forcing all users to accept it.
Just last month, Facebook again risked alienating users by changing their primary email addresses to Facebook.com addresses without asking permission. This change was probably made so that users would be forced to log into their profiles through Facebook rather than non-Facebook contact lists on iPhones and other third party mobile devices- devices wherein Facebook struggles to make revenue. However, the email address update came with no real advance notice to users, a move for which Facebook did not bother to apologize. Users can go into their profile page and edit their preferred contact email- or do away with having a published email altogether. However, many folks are not happy with the surprise change.
A lesson to be learned
Facebook has yet to understand that users can make- and break- a social media site. The current #1 social media superstar has no major competitor at the moment, but that is only a matter of time. The same was true of Myspace back in its heyday years of 2005 to 2008. News Corporation (NASDAQ: NWS) paid $580 million for Myspace back in 2005- and by the time it was sold to Specific Media and none other than Justin Timberlake, the site was valued at only $35 million. What News Corporation had failed to consider was the rise of Facebook, which attracted disgruntled Myspace users with its clean and virtually ad-free format and quickly overtook the social media landscape.
Likewise, the social bookmarking site Delicious was acquired by Yahoo! Inc. (NASDAQ: YHOO) in 2005 for $15 to $30 million, then allowed to languish and undergo highly unpopular site redesigns that cost the site its members and traffic. Many disgruntled Delicious users simply migrated to a rising star called Twitter- and never looked back. By the time Yahoo! sold Delicious to Avos Systems, it was valued at a mere $5 million. In similar fashion, Facebook could one day be overshadowed by a new and rising star that becomes a haven for its unhappy users.
Facebook has already experienced a "National Opt-Out Day" in May of 2010, akin to Digg's "quit Digg day." Not paying attention to community concerns and being headstrong with site changes could ultimately lead to Facebook losing a significant portion of its current following. From there, it's not unimaginable that the social media giant could fall from its lofty heights and be sold for parts.
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