From The Rumor Mill: Digg About to Be Bid On

Digg has been trying hard to be purchased since early last year, going as far as getting valued by Allen & Co., an investment bank. Rumors have surfaced online today that a bid from Google or Microsoft based on the current valuation may be imminent. Allen & Co dropped the company's potential sale value to around $200 to $225 million USD (down from the original value of $300 million USD).

Apparently Google and Microsoft aren't the only ones sniffing around Digg for a potential purchase - two undisclosed news companies are also rumored to be in the mix. Google is expected to make an offer in the valued range of $200 to $225 million USD for the company. Microsoft, already pressed for cash in its bid for Yahoo, not to mention already wrapped up in Diggs bottom line through their role as a source of Digg ad revenue, may make a much smaller offer.

Some sites are expecting a bidding war between Google and Microsoft. I'm not so sure. Digg would be a great acquisition for Google, already set up through it's AdSense network to replace any potential loss of ad revenue from Microsoft pulling out in the event of a sale. It would give them the social news aspect to compliment their thriving Google News and Google Reader brands. As a company, Google's current real estate online would mesh well with Digg's resources.

Microsoft may have its hands full with a resisting Yahoo. It has the clout to make a bid on Digg while in a proxy fight with Yahoo, but it may not have the cash reserves. Is Microsoft willing to go far in debt to gain another foot in the online door? That remains to be seen. Plus the two news media outlets remain an unknown dark horse in this potential sale.

If nothing else, the possible battle for Digg could make for some interesting drama this summer. The Digg core user base is a vocal and powerful minority that still manages to rule the Digg board with an iron fist. Will they tolerate anyone but Google winning this fight? They may see news media outlets as being to "old school" to own the company, and Microsoft as too inexperienced online (or too stodgy and proprietary).

It may not seem that a site's non stock holding user base could do much to affect a sale, but Digg may be the exception to that rule. All it would take is a mass exodus or a Digg rank scheme from a united core user group to skew Digg's value as a company. Any devaluation could tank the sale. This means whoever is courting Digg for purchase also has to court the user base, or risk losing months of behind the scenes work.

UPDATE: 3/7/08 Digg's denial posted