Digg Struggles To Make A Profit, Creates New Advertising System

Business Week got its mitts on Digg’s latest financial statement and has reported that the popular website is having a hard time turning a profit in these troubling economic times.

Here are the facts: Digg had revenues of $4.8 million in 2007 and losses of $2.8 million. The first three quarters of 2008 report a similar situation with revenues of $6.4 million and losses of $4 million. Total revenue for 2008 is $8.5 million with a loss of $5.3 million. Overall, the numbers are not looking too good for the company. Blame can be put on the Digg’s ad model, which is nothing special and quite bland. With all of the interesting links posted by users on the site, there is nothing drawing users to the advertisements placed in blocks around the site.

Xoost blames the company’s losses on its number of employees. Digg has 70 employees and plans to grow to more than twice that by the end of next year. Experts say that Digg would be able to run smoothly with as little as 6-15 engineers.

Comscore reports that Digg has 16 million unique monthly visitors from all over the world that give the site 58 million pages views every 30 days. With these numbers, any sensible mind would believe the website should be rolling in the dough, but that’s just not the case with Digg. Because of the company’s huge staff, Digg will be losing $5 million or more this year.

Digg has recently acquired some financial investments that will be put into vast expansion of the site and community. “Today is a big day for Digg,” wrote CEO Jay Adelson. “We’re announcing a major expansion effort–the largest we’ve undergone in our history. With a new round of funding, we’re accelerating many of the programs that we’ve been working on over the past several months, including investments in infrastructure, new feature development, international expansion and hiring all the people we need to get there.” Digg has been rumored to be looking to sell the company sometime in the near future. This recent news may be in attempt to make the website more attractive for potential buyers in the market.

After announcing its plans for expansion, rumors have come about that say Digg is working on a new way of advertising that they will experiment with. The new ad system is said to give users the ability to vote on ads, ranking them by popularity. “The product would insert advertisements into the Digg news stream (presumably clearly marked), says Michael Arrington of TechCrunch. Where those ads end up, and how much an advertiser pays per click, would be based on user feedback.”

It seems as if Digg recognizes its money troubles, but instead of firing a chunk of its staff to solve some of the problems, the company is looking to grow further and experiment with new ways of earning a buck. It is all very interesting, almost crazy. I like the ad voting idea, it encourages creative and entertaining advertisements that we may actually enjoy.

Though Digg isn’t turning as large of a profit as many would expect it to be, the company does have enough cash to carry it through the next year. A few million lying around as a safety net is always a good thing, but if these big plans don’t start earning some good profit for the company in the upcoming year Digg may need to lessen its workforce to bring the money scale back to black.