Digg: Is Bubble 2.0 Starting to Deflate?

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On the heels of the collapse of print publishing, what if online media companies start failing, as well? Or, put another way, is Web 2.0 doomed just another bubble that will pop much as did the first dot.bomb?

Reporter Spencer E. Ante at Business Week obtained financial statements for Digg, and revealed a couple days ago that last year the company lost $2.8 million on $4.8 million in revenue. Furthermore, according to Ante, in the first three quarters of 2008, Digg’s performance worsened, as it lost $4 million on $6.4 million in revenue. This translates into a loss of three out every four new dollars in revenue — not the trajectory any company hoping to achieve profitability wants to follow.

When you look at other Web 2.0 titans — Facebook, YouTube, and MySpace — monetization also has proved difficult, despite the enormous scale they’ve achieved in their user bases. With online advertising declining broadly the past two quarters, investors are increasingly wary of companies that cannot demonstrate a clear path to profitability. In this context, many of the Web 2.0 players have watched their market valuations steadily fall. Digg, for example, once on the sales block for a reported $300 million, more recently booked an investment that implicitly shaved that book value almost in half, to around $167 million.

Many, if not most of these companies still have plenty of cash to turn their fates around, because up until recently they have been successful at attracting venture capital. But, given the likely length and depth of the current recession, V.C. money may well be the next pool to dry up. If so, we’ve all seen how this movie ends before — back in 2000-02, as many of the first generation of websites collapsed and were consigned to the digital dustbins of history.

Tags: Revenue, Digg, Web 2.0, Channel Management, Operational Accounting, Internet, Marketing, Finance, David Weir

In addition to serving as a BNET Media analyst/blogger, David Weir is a veteran journalist and the author of several books. Weir is a co-founder and vice-president of the Center for Investigative Reporting, as well as an editorial board member of The Nation.

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1

Nohohome

12/22/08 | Report as spam

RE: Digg: Is Bubble 2.0 Starting to Deflate?

Yesterday I watched a panel on CNN talking in a realistic and practical way about what it will be like to live through the next 2 years (assuming unemployment even begins to rise after that), and this will depend upon how much cash each of us has right now. Even good old Tech Ticker on Yahoo Finance is finally interviewing people willing to talk about what life will be like "without the V recovery." All forms of communication that are revenue supported will falter. Both technology as well as the derivation of revenue require change. What would it be like to have only word of mouth?
2

hotweir

12/22/08 | Report as spam

RE: Digg: Is Bubble 2.0 Starting to Deflate?

That does it. I'm going back to selling my home-made backyard plum jam. Any takers? How about a newspaper about living cheaply? Thanks for your insights, lookingbck.
3

paulpgama

12/23/08 | Report as spam

RE: Digg: Is Bubble 2.0 Starting to Deflate?

Since when did print publishing collapse?
4

myson1

12/23/08 | Report as spam

RE: Digg: Is Bubble 2.0 Starting to Deflate?

What's the old saying about those that ignore history being doomed to repeat it? We have a world (and country) full of extremely talented people. Myriad technological advances have led to a plethora of media offerings that can barely be supported (Digg?) in a robust economy much less an economy that is challenged. Do we really need over 300 ad networks filling inventory but commoditizing product? 300+? Crazy! Technology proposition - perhaps. Value proposition - perhaps not. Reminds me of all those petfood sites that launched in the late '90s. The real question is why we - the media community - haven't learned from our mistakes. Could it be desire for the big homerun at all costs a la Fannie Mae, Freddie Mac and Lehman Brothers...shall I go on? Not every MIT or Stanford grad has a birthright to be the next Steve Jobs but in America they have every right to try. The folks that back them however can and should ask tougher questions at the beginning of the process well before the economic cycle bottoms out. I guess when people spot an opportunity to roll the dice on what's "in" and make a quick buck without studying recent history, bubble 2.0 is bound to happen...and it is happening!
5

hotweir

12/23/08 | Report as spam

RE: Digg: Is Bubble 2.0 Starting to Deflate?

Unfortunately, just as there is no viable business model to help print publications survive, there is as yet no viable online publication models that I'm aware of that will help any but very small operations to survive. I haven't had the chance yet to cover what is happening to book publishing, but it's pretty ugly, just like for newspapers and magazines. Online, it's virtually impossible for media sites to attain the scale necessary to make money from ads, since the current metrics (CTR) are in the fractions of what they would ned to be to generate real income.