Reasons Why StumbleUpon Merged With Digg Makes Sense

Recently TechCrunch has initiated the rumors that eBay may be looking for a potential buyer for StumbleUpon (acquired for $75 million in May 2007) to sell this property for at least the amount it initially paid for it. Of course the blogosphere is actively engaged in various conversation of who could be the right buyer for StumbleUpon during the recession we are facing now. Earlier this week Om Malik has come up with an interesting suggestion for a potential buyer - Digg.

In the post Om mentions that his numerous sources make him believe that StumbleUpon generates from $5 to $7.5 million annual revenue so the price of $75 million could be a fair one for the popular (and possibly profitable) website/toolbar/community. But unfortunately right now the financial climate is not particularly suitable for anyone to consider buying StumbleUpon for the price right away. And here is where Om suggests an interesting idea for Digg. While it is obvious that Digg is not in the position to offer this amount in cash, the founders could make just the right move by merging the two social media properties and offering eBay equity in the resulting property as a payment for StumbleUpon.

This deal sounds like an unlikely one at first (and some people I discussed it with even called it a little ridiculous) but when you come to think of it deeper, I am sure you will see perfect sense in what Om suggests. Here are a few reasons why such a merger could make perfect sense for all the parties involved - Digg, eBay, StumbleUpon and even the web population in general.

Synergy

Of course we see numerous players in the social media playfield where new sites are launched virtually weekly and immediately dubbed Digg killers. The problem with such sites is that they are quickly forgotten. In general we have not seen all that many success stories in social voting and bookmarking - with Digg and StumbleUpon among those few exceptions that can be easily characterized as huge hits unlike any of their competitors.

Of course merging the two properties could result in incredible synergy effect where the ultimate destination for web content discovery could be born. What’s more, I can hardly imagine anyone actually managing to beat such a joined social media giant - so we will probably see no “killers” for a while at least.

eBay could still win

It is quite obvious that eBay is selling StumbleUpon (if the rumors are true, of course) for two main reasons: 1) it could not either make enough money off the property - enough to justify its presence in the portfolio and 2) it did not manage to integrate it into other services to provide any extra value to users. Of course letting Digg have StumbleUpon will not help eBay with integrations and will not even provide instant return of cash it once paid for the bookmarking site. But the joint venture will have much better chances of making money - and good money at that. Digg has a good advertising partnership with Microsoft while StumbleUpon has a solid approach to generating revenue by combining paid memberships with sponsored promotion campaigns. If both business models are combined, the revenue potential will be much stronger: for example, Digg could display sponsored content in addition to traditional display banners, at the same time offering paid memberships to users that would prefer not to be exposed to such sponsored content (same as StumbleUpon now does for paid members). There could be additional benefits for premium members - like they could have an unlimited number of submissions allowed during a month while free members could only submit a certain number of pages to StumbleUpon and/or Digg. I am quite sure that introducing such paid memberships to Digg could significantly increase the revenue potential of the new entity and eventually let eBay at least return the cash it initially paid for StumbleUpon.

Communities will win

It is a well-known fact that Digg still has not managed to build stronger communities outside of technology vertical where it initially started. And even though many early users complain that the site is getting worse with addition of non-tech content, the volume of such content in other verticals is still relatively small.

At the same time StumbleUpon has quite a diversified userbase and lots of content to discover in all the possible topics of interest. Here it does not really matter what type of content you are interested in or what topic it should be focused on - you will be sure to find something worthy anyway.

Merging the two communities into one could make Digg more diversified, at the same time sending some of the more serious content from Digg to StumbleUpon.

Web publishers will win

I think that if such a merger became a reality, it is obvious that the two algorithms would also be merged and if an article or a blog post was gaining attention and popularity on Digg, it could at the same time be pushed at more StumbleUpon users and vice versa. The combined popularity of the same URL in two communities could be a good measure of how actually good the piece of content is and how worth of extra visibility it is - which should be how the algorithm will serve pages and determine popularity of content. And of course web publishers will be the lucky winners here since they will be receiving higher traffic from both communities combined efforts.

Google could buy the combined social media giant

It is quite obvious that the two social media sites already have incredible volumes of information on how popular this or that piece of content is among web users and how often content from a certain website becomes popular on either Digg or StumbleUpon. All this information could be a measure of quality and reliability of a website and the company that could use this valuable aggregated information best is obviously Google. Google could use human-powered rankings from Digg and StumbleUpon to improve its own ranking algorithm and come up with a more sophisticated approach to search - powered by machine algorithm, at the same time using human contributions to determine how reliable web users believe this or that piece of information is.

I can agree with Om Malik 100% that such a combined entity could become a very appealing acquisition object. We have seen Google making attempts to use some human input into search by showing us various experiments where users can vote links on the search engine results pages up and down to show their opinion on content of the presented links. A simple acquisition could provide enough information to take human input into account without adding any new voting functionality to Google search itself.

So it looks like such an arrangement could be a win-win situation for all the participants so hopefully this will be something eBay and Digg will actually consider doing. And while it will obviously damage the competition among the social media websites, it will at least result in one healthy business along with some very probable enhancement of existing search technologies.