Digg to cut workforce 10%, hire new sales team

For the first time, social media aggregation site is building out its own advertising support structure. "We believe we can get to profitability this year," says CEO.

Rafe Needleman Former Editor at Large
Rafe Needleman reviews mobile apps and products for fun, and picks startups apart when he gets bored. He has evaluated thousands of new companies, most of which have since gone out of business.
Rafe Needleman
4 min read

Digg CEO Jay Adelson on Thursday morning is announcing that the social media site is laying off a "very small" portion of its workforce, but will also be hiring a new direct sales force and head of sales to drive the company to profitability this year.

The overall job cuts at the 75-person company will be "microscopic in size," Adelson said to me, later confirming a figure of "about 10 percent." He reiterated that Digg this year is focusing on profitability and growth, and for the first time is building out its own advertising support structure, "which we've never really focused on before." Adelson posted a brief item about the news on the Digg blog.

The partnership Digg has with Microsoft to sell standard advertising units will continue. But Digg will be rolling out higher-profile advertising programs, and features on the site to support them, that his internal sales force will be pitching. He pointed to Digg Dialogg as an example of a vehicle that could be sponsored by a higher-profile advertising program.

It's a difficult time for all media companies, of course, but Adelson says that Digg has not seen any CPM erosion--the price they get for the ads on the site--and that the Microsoft is doing well for the company.

Even though Digg has "multiple years" of cash on hand for operating expenses at the current burn rate, Adelson said, it's a brutal economy today. "It's true we have cash in the bank, but getting to profitability makes more sense to us." Sounding like almost every other Web start-up CEO on the state of his business today, he continued, "If things don't get worse this year, if we get to the second or third quarter and things look good, I can bring some of that talent back in. But if we go in the other direction, that's not a burn rate we can maintain. I'd rather be in front."

The company raised new capital and doubled in size in 2008.

Adelson says Digg's engineering and core development group won't be hit by the layoffs. The cuts will come in areas "not core to our function. We'll be shifting some of that cost to a sales force."

Where's the money?
Adelson strongly denied the accuracy of revenue numbers reported by BusinessWeek last month. "I don't know where those numbers came from," he said, "I can confirm they are not accurate." But he did confirm the spirit of the story. "It is true we have been focused on growth and user features. We had this Microsoft deal to take us to profitability, and we were definitely focused on the user experience. We didn't focus on the ramp time to break-even. We never felt there would be any challenge to monetize Digg."

The Digg CEO backed away from discussing the valuation of the venture-backed Digg today. "We aren't focused on that," he said. "Our plan is to be independent. Our investors look at this as a multibillion-dollar opportunity. We need to go it alone and be much bigger than we are today." Furthermore, he added, "This is not the best market to be discussing exits. Even our investors are desensitized to that."

Media isn't dead, it's evolving
With media companies of all kinds taking hits, Digg's sources of content are shifting as well. But Adelson maintains that the social news aggregator will become more valuable because of this. "We work with a lot of publishers. They see us as a catalyst to transition to this new market."

He continued: "Where the content is getting written does shift in markets like this. It's true that newspapers are laying people off. But the net result is that there is more content online than before, and more reporting is first publishing online than before. I think you'll see a shift to online publications, which will only benefit Digg. Content is exploding upward."

Despite the difficult media landscape this year, Adelson believes it will be a strong year for Digg. "We believe we can get to profitability this year," he said more than once.

What this means to Digg users
While not providing specifics, Adelson said the company will be adding features "that enhance engagement, giving users more reasons for sticking around." He pointed to incremental improvements like the new "related stories" links that appear on Digg permalink pages.

The company is also moving to make Digg more personalized, so everyone gets a different experience, based on who they are and what they like. "We can't apply the same collaborative filter to everyone," he said.

Also coming: New tools to allow Digg to integrate with third-party sites like Facebook and Twitter. And without providing specifics, he added, "We have some ideas in the pipeline that will blow peoples' minds."

Previously: Report: Digg still mining for profits.