Digg: What Went Wrong?

You may have heard recently that news sharing/ranking website Digg had to lay off a third of its staff after a relaunch of its site flopped. Two years ago when I visited Digg on TechTrek, Digg was a darling of the Web 2.0 generation of startups. It had a charismatic founder in Kevin Rose, a veteran of the first dot-com bubble in CEO Jay Adelson, and an innovative idea that was poised to change how we consume news. Those Digg icons were all over the web. It turned down lucrative acquisition offers from Yahoo and others. Digg was the kid that was too cool for a million dollars because they had their eyes set on bigger things.

Well things have unraveled since then. Digg had trouble with mainstream adoption and lost its core users to Reddit. More importantly, Facebook’s “Like” and Twitter’s “Retweet” buttons have replaced Digg on most websites. This latest round of layoffs is the largest but certainly not the first as they’ve cut 10% of staff twice since 2009. Jay Adelson left the company earlier this year. Even the company’s major revamp, Digg 4 (which I reviewed favorably in beta), was poorly received. Digg appears to be a dead man walking now eclipsed by its rivals and its core fan base is in revolt. With such a dramatic fall from grace, one has to wonder: Was Digg’s fall inevitable, and if so should we be concerned about many of today’s social and mobile startups?

The answer to the first part of the question is a resounding no. Just look at Reddit, which has thrived during the same period of time. Reddit is a favorite of the hip, quirky, tech-savvy community. In other words the same group that made Digg cool. However, as a mainstream consumer, I would never use Reddit because its UI is unpolished and most of the top stories are kind of odd. Again, I said the same things about the original Digg. Digg knew it had to become more mainstream in order to compete with the rising popularity of Facebook and Twitter. Yet when Digg tried to change, its fanboys revolted. This brings me to my first conclusion about many startups these days:

The business interests of a social startup and the community’s interests are sometimes at odds. Niche fan bases have limited value and in the long run may actually be a constraint.

Few companies have successfully made the leap to mass adoption. Most companies have fallen to their deaths or are too timid to try. The last outcome is fine if you sell out. Reddit is part of the massive Conde Nast publishing empire so it has no pressure to grow and give its investors a payday all on its own. Digg turned down acquisition offers and tried to build its own empire. Its competition was Twitter and Facebook. The problem is news sharing is a feature on Facebook and Twitter while on Digg it is the entire product. This brings me to my second and more important conclusion:

A feature is NOT a product and definitely NOT a sustainable company.

This is what really worries me. A lot of startups I hear about these days are very narrowly focused. They have a novel way of doing something but they compete against one feature of someone else’s product. The current environment makes it possible for these companies to get funded and move their ideas to market, and there’s nothing wrong with that. There is some real innovation going on here. However, it’s foolish to think there are any fortunes to be made with most of these startups, and founders and investors alike would be wise to sell sooner than later.

I don’t think there’s going to be another bubble like 2000 because this boom is not driven by the stock market. Even if a lot of these companies fail, there will be a much smaller impact on the overall economy. However, you do have to wonder how many of these companies have a future. For example, I’m worried about Foursquare and Gowalla. Although they’re slightly differentiated and have strong communities, they are merely features on Facebook. With Facebook Places and the inevitable check-in fatigue setting in, they could risk becoming the next Digg.

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Entrepreneurship in London

So in the aftermath of the Entrepreneur’s International Challenge, I have to write my post on business and entrepreneurship in the UK. I already started profiling a few startups in London through a guest post on the RUNmyERRAND blog last semester. Here, I’m going to focus on more big picture things.

First off, London is no Silicon Valley and it’s probably not even a Cambridge, but there is a good deal of activity going on here. When I was doing sponsorship work for EPIC, I visited several modern, unconventional, and fun startup and small business offices that reminded me of those we saw on EPIC. We also went to a massive 2 day entrepreneurship fair where startups and businesses that support startups (like IT and marketing) tried to promote their businesses. There were keynote speakers, “speed dating” style workshops, and all sorts of networking going on.  And despite this recent article on TechCrunch, I do think the UK government is legitimately trying to promote entrepreneurship especially through giving out seed grants. They’re just really inefficient by nature.

Nor are UK startups absolutely dull and old fashioned. No one’s expecting the next Facebook or Google to come from here, but as you can see from the four business I profiled for RUNmyERRAND, and WAYN.com (Where Are You Now, a travel social network), another EPIC connection, are tech related. Some of them are uniquely London or big city like eCourier. Others are just downright quirky like carding service Serve Legal (don’t know if paying someone to make sure your own employees are carding is really sustainable) or Ben and Jerry style smoothie maker Innocent (who have an annual cap knitting campaign for their bottles).

Even students are coming up with some good ideas. The finals for Pitch It! this week, LSE’s version of BCVC, featured three interesting but in my opinion misguided companies:

  • BestGiraffe is an online marketplace for corporate advertisements. However, other companies have already done this and the mid-smaller size firms they’re aiming for could easily use Craigslist or crowdsource directly to get their work done. Also the team relied on leveraging developing countries for labor to offer low prices but since advertising is highly sensitive to regional and cultural nuances I doubt its really as useful as they believe.
  • Pressure Trade is an online game that simulates certain trading skills. It’s obviously targeted to investment banks and those who want to get jobs with them. Honestly though I think this is a very weak idea. Why not just play a real stock market game that simulates actual trading, not just activities that are similar to trading? One of the judges was smart to point out that this business could have a lot more potential if they just made it a fun, social game. Think WoW or Farmville for trading and investing. I would play that.
  • Youny is a matching service for tutoring. I think this one ended up winning (I didn’t stay till the end) but again I thought it was a weak idea. First off, most universities offer formal tutoring programs that will do this for free. You also run into a one time user problem because once someone finds a tutor they like, they’ll bypass the middleman and arrange future sessions on their own. Finally, the team wanted to attract users by building up a database and having live responses but this can be done for free through a wiki or forum.
  • Younity is a social enterprise that allows users to donate their loyalty points from shopping to charities. I didn’t stay for the social enterprise portion of the competition, but this one caught my attention. I like it because it’s creative, simple, and viable. However, I think most loyalty programs/credit card rewards programs already give you this option to an extent, so I don’t know how much of a market they’ll have.

So maybe I’m a little harsh on these business plans, but as you can see, there’s no shortage of ideas or inspiration.

The problem I think lies in the culture. Entrepreneurship just isn’t something most people consider as a career path. Students at LSE are mostly stuck on the investment banking/consulting route. There’s a culture of working for a nice corporation with a steady paycheck and not taking risks. One entrepreneur told me that in some parts of England, there’s actually a social stigma attached to being an entrepreneur or small business owner. I find this to be the complete opposite of the U.S. where the small business is heralded as the everyman of America. The education system also has a lot to do with it too. The university system here is really focused here so there’s little to no chance to explore outside subjects. The core and liberal education in the U.S. may be a pain at times, but it definitely stimulates creativity and innovation.

Will things change here? I think so. Just look at the popularity of BBC’s Dragon’s Den, an American Idol style competition for business plans. In fact, of all the reality show competitions the Brits could’ve exported to the U.S., I wonder why this one hasn’t made it across the pond yet.