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August 07, 2006
BW's article on Digg, one response
Last week's BW cover story on Digg provoked lots of angry responses in the blogs. Since I'm on book leave, I'm a bit of an outsider. But I went onto Paid Content and asked Rafat Ali to detail his criticisms. He did. I'll leave the response to my colleagues who produced the article. But there is one area where I can weigh in.
Valuations. Loads of complaints focus on the cover language: "How This Kid made $60 Million In 18 Months." After seeing the headline Scott Rosenberg writes: "Gee, I thought, bleary-eyed, I guess I missed the story about how they sold the company. Good for them." His idea, shared by many, is that money is not "made" until an asset is sold in one marketplace or another. But if you look at the rankings of everything from executive compensation to individual wealth, they're based on valuations of diverse assets. Many are open to question and just as tenuous as the valuation of this New Jersey bubble-inflated split-level I'm typing in at this very moment.
So by the logic of the wealth rankings, it's fair to say that Kevin Rose has "made" money, even if the value of Digg takes a dive before he converts it into other (fluctuating) investments, be they publicly traded Digg shares, dollars, or equity in Yahoo!
The other big question is whether $60 million is the right number. As I mentioned on Friday, I find the [description of] sourcing on the valuation thin. ("People in the know" who say the company, of which Rose holds 30% to 40%, could fetch $200 million.) Jason Calicanis, a Digg competitor, runs the numbers and says it makes Google look cheap. I know nothing about Web 2.0 valuations. But I do know that the debates over a company's value are hardly resolved when it is purchased. The arguments rage on. Did Murdoch overpay for MySpace? The market's verdict, whether it's in startups, stocks or real estate, changes from day to day.
UPDATE: Just to be clear, I added "[description of] sourcing." I have no doubt the cited "people in the know" were in fact well-informed sources. But on such a contentious point, readers could have used much more detail on the number and nature of the sources, even if they remained nameless. Also, Heather's out of pocket and I can't approve comments from this laptop. I've e-mailed a BW colleague asking him to, but haven't received a response. Sorry for this. If you want to send a comment, please e-mail me at wfoleyj at gmail, and I'll cut and paste them into comments.
I don't think the real argument is over the semantics of "made" money, but over the quality of the analysis of Digg's value, which you acknowledge to be shaky.
As I said at my site, I think the best response is, "We goofed."
Posted by: Ed Cone at August 7, 2006 02:58 PM
You're damaging your credibility by trying to defend this article. Sometimes the best thing to do is just to accept criticism instead of resorting to defensiveness such as 'valuations are in the eye of the beholder'.
The article made BusinessWeek look bad but this defense by other reporters for the magazine gives the impression that this wasn't an abberation but is part of the culture there. Sad.
Posted by: Dare Obasanjo at August 7, 2006 06:07 PM
>it's fair to say that Kevin Rose has "made" money
is completely bogus. I'm sure Kevin has a ton of restrictions that prevent him from selling some/all of his equity. Until he can do this, he has not "made" a penny.
Posted by: Dave Hodson at August 7, 2006 06:09 PM
If this was another magazine writing this, you'd be pretty up in arms too.
The reality is that "executies" are actually able (in theory) to sell their stock. So their diverse assets have at least a market-based value (even if they can't actually turn their billions or millions into cash).
In this case we have a non-market property, with no actual buyers, okay revenue (given the space) and non-unique IP being valued based on unnamed sources and those unnamed sources being used to produce the 60M.
Either way, the valuation isn't based on any named sources, any due diligence or any actual deals. It's worse than Facebook's valuation, and more needs to be expected of BW.
I mean, I could never get away with saying I'm a millionaire. And my company's been through the valuation and due diligence phase. And if I can't get away with it on the street, how can BW get away with it in print?
Posted by: Jeremy Wright at August 7, 2006 06:34 PM
I don't see what the big hubaloo is about Digg. They are not doing anything new algorithmicaly. I am dumbfounded as to why someone would pay 60 millon for what I see as mayb 50-100K worth of programming. Personally, I find the site useless. I have trusted sites that I go to for news content, such as New York Times, that have writers, editors, foreign correspondents, and a procedure in place for evaluating the newsworthiness of the content they provide. I don't need to read something because 10K other netizens thought it was cool. Plus, the site doesn't seem to provide any interesting content itself, it is just parasitic on other news.
Posted by: Jim at August 8, 2006 04:31 PM
Here's my take:
Digg, a do-it-ourselves (a community of users) news culling site has burned Business Week (BW), the fire ignited in parts of the Blogosphere. BW went starry-eyed, reporting Digg is hot, others thought not: BW, that's BS they said.
My own look @ Digg just reminds me of Wired, of Ars Technica,Diggusers probably seduced by the thought of building their own Wired, of highlighting the news they care about so publicly.
Will Digg beat Google in the big money field? I think Digg's narrow demographic, as reported by BW, just keeps it away from Google's status. A somewhat extreme example, my grandma could easily use Google, but would find Digg useless.
So, the 20 - 30 years old set may dominate the Web, but they are not the only ones using it.
Posted by: Frances at August 11, 2006 10:35 PM
It was a surprise to see Kevin Rose on the cover of Business Week. However, if was even more of a shock to see him on the cover of People Magazine, just a week after Lance Bass was featured...
Posted by: Robert at August 18, 2006 04:22 PM
The criticism of Business Week is unfair. This is actually a very good and insightful article. Keep up the good work, BusinessWeek Online.
Posted by: martin smithers at August 24, 2006 08:44 AM
Its a provocative title and it looks like it was intended.
Posted by: Somu at August 25, 2006 02:15 PM