13 thoughts on “Why Digg Should Buy StumbleUpon”

  1. Good call, Om.

    Helps Digg grow into other vertical segments, gains them browser runtime real estate from which they could grow out more of a platform play. Plus, that type of user (i.e., ones who’ve downloaded a companion app) tends to be more engaged than web only users.

    I don’t know if the economics could be worked out, although given all of the fear in the market, and the resultant lack of M&A frothiness, there is probably a decent arbitrage for a private buyer like Digg to score from a motivated public seller looking to shed an asset sooner than later.

  2. Om,

    In theory, a StumbleUpon-Digg deal makes sense. There’s good synergy in terms of two services focus on content discovery. But I just don’t think has the financial resources to make it happen. My sense is its investors want Digg to focus on organic growth rather than expending its money and energy digesting an acquisition – even one as tempting as StumbleUpon.


  3. @Mark Evans

    In theory I think this is a deal which makes absolute sense and the companies have to figure out a way to do this deal. It is in eBay’s best interest that they merge with Digg and wait for the outcome ala VMWare and EMC. I think together these guys are going to be formidable/

    At the valuation Digg is getting, it is a paramount that investors think about this opportunity and run the social news site like a grown up technology company.

  4. I think you’re all kidding yourselves if you think its even remotely possible to combine the radically different businesses, algorithms, dev teams, management approaches and cultures of these two small companies and get anything other than an epic fiasco.
    There is no logical point of meaningful tech integration at a code level. And if you know developers at either of these two companies, you’ll know they’re teams both notorious for being extremely talented hacks, resistant to traditional frameworks. Unfortunately, when you combine to legacy apps, you need framework oriented teams to succeed.

    Cool thought exercise, but it would be a distraction to the efficiency of both companies.

  5. @Om,

    As much as I always enjoy your analysis, I think in this case you’ve missed the “elephant in the room”. EBay’s auction business has flatlined, and it normally generates a healthy free cash flow. Despite StumbleUpon’s short term performance issues, it is doubtful that SU can make up for the current decline in EBay’s free cash flow. This concern combined with the global credit crisis likely means EBay wants cash for SU and cash only. An equity swap likely isn’t worth the risk in today’s recessionary environment.

    I see your logic, which I think has merit. Unfortunately, in this climate equity swaps are much too risky.



  6. @Curtis

    So the only option facing Ebay is to sell it for pennies on a dollar. They paid about $50 million for this. They be lucky to get 4 times sales in the near future. So what i am suggesting is that they instead try and work with Digg to get something done.

    As far as Digg is concerned, they are going to face a moment of truth because their entire business depends on CPM based advertising and this is precisely the moment for them to do something bold. they have the money to innovate out of the downturn.

  7. @Om,

    I am not suggesting that EBay sell SU for pennies on the dollar. In fact, EBay couldn’t pick a worse time for an asset liquidation. I’m simply saying that your analysis, sound in rationale, is simply not feasible in the current market conditions. I am not offering an alternative scenario for EBay and SU as I don’t know what EBay is planning strategically – though I’d recommend an additional round of financing (perhaps mezzanine) to complement your analysis for financial feasibility. Digg should hold on to its’ recent cash raised plus consider an additional round which could facilitate your recommended scenario and provide EBay with at least some liquidity. This way, the combined Digg/SU entity would improve upon Digg’s current revenue and free cash flow growth, while reducing SU overhead.

    I also believe that a CPM nuclear winter is eminent, and many web 2.0 entities are facing a moment of truth.



  8. Thanks for the link back Om. Digg purchasing StumbleUpon would be a good idea, but Digg hasn’t penetrated the in-site, value-add reccomendation system that Stumble wants to go after now. I still think Diller might be able to pick this thing up on the cheap and reap the benefits of the new strategy. Digg has too much on their plate to work with Stumble, which may be way worse off than we think and could be a headache for Jay and Kevin.

  9. It wont be so good. Maybe the biggest competitor for digg is stumbleupon. If digg buys stumble then it’ll remain just mixx, reddit and del.ici.us. It’s not enough for a good competition in this domain.

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