Digg for Sale?

User-generated news site Digg has been working with influential investment bank Allen & Co. (the ones that recently got Slide a half billion dollar valuation) for a few months now, and pitching big tech and media companies on a sale.

And despite a number of false starts, this time a sale looks like it might actually happen, and soon. We hear from a source very close to the deal that four companies are in heavy due diligence with Digg - two media/news companies, and two big Internet companies - Google and Microsoft. And Google and Microsoft are on the verge of making their bids.

Digg is prepared to take less than the $300 million Allen & Co. were floating late last year. Google, our source says, will likely bid $200-$225 million, which Digg would likely accept.

Microsoft is looking at a somewhat lower price. That makes sense, since most of Digg’s revenue today comes from a three year advertising deal that Digg signed with Microsoft last year. That deal has revenue guarantees - and Microsoft may be hesitant to value Digg based on revenue that they supply.

If every blog rumor were to be believed, social news site Digg would have been bought a dozen times over by now, so take the latest one with the requisite grain of salt.

Last year’s three-year advertising deal between Microsoft and Digg gives the latter company more flexibility in holding out for better offers. Microsoft is unlikely to concede the sale to Google, spurring a possible bidding war. This is especially likely since there are two other wildcards involved.



Digg’s success story is a relatively short one. The site was started late in 2004, then exploded early in 2005 when a user posted a link to Paris Hilton’s hacked cell phone information on Digg, resulting in a surge of traffic and making Rose realize the potential of his creation. Since its inception, Digg has raised $11.3 million.