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Google Closes in on Digg

They’ve been talking about it for a while now. Google has been keeping an eye on Digg, toying with the idea of purchasing the social news website for a cool $200 million.

Digg is becoming more and more popular with those who are choosy about the news, whether its hard news or entertainment, and want to get reviews before they take the time to read it.

The plan has always been to fold Digg into Google News. Experts say that Google wants to reach out to the millions of customers devoted to Digg and put ads in front of their noses. The thing is, most Digg patrons already use Google.

The question has always been why Google was so interested in Digg beyond the obvious potential of capturing its users. Google is already the almighty Oz of search engines and could easily clone Digg’s format. Yahoo! did just that with Yahoo! Buzz. Perhaps Google just doesn’t want to be bothered reinventing the wheel. Plus, acquiring Digg would also eliminate a competitor. Smart move.

Of course, there is a lot to be said for buying one of the top defining brands on the market. The acquisition trend seems to have been working well for others. After all, eBay snapped up StumbleUpon last year for $75 million; Wired Digital hooked up with Reddit in 2006. As far as trends go, Digg is at the top of the “must have” list regarding social news, and as of right now, it’s the best deal going.

Google is no stranger to the trend. Google’s savvy was the fairly recent acquisition of YouTube for a jaw-dropping $1.65 billion even though it already had its own version of the wildly popular video sharing site. In the larger scheme of things, that little purchase makes the Digg deal look like child’s play.

Experts have listed the following as additional factors involved with the timing of the buyout:

With the recent Yahoo! launch of Yahoo! Buzz, Digg may see a drop in its traffic. That projected drop could force Digg to lower its selling price – score one for Google.

Website valuations have taken a bit of a plunge recently. Many of the big boys like Bankrate and The Knot are counting on 2009 income multiples from the teen sector, privately owned and operated companies won’t be able to fetch such a high price if they choose to go public.

While Google hasn’t released any statements about its rekindled interest in Digg, many suspect that the timing has a lot to do with the company’s ongoing competition with Microsoft. At one time, it would have been a sure bet that Microsoft would kick sand in the face of any rival but that no longer seems to be true, particularly since Google has been secretly working out. Plus, it seems that Microsoft is still considering snapping up Yahoo, which may curb its spending budget for a month or two.

Of course, the price will be an issue yet it most likely will not be a deal breaker. Digg was originally asking for $300 million, which was probably just a “pie in the sky” type of figure. The projected amount of the deal is somewhere in the neighborhood of $200-225 million.

Google Closes in on Digg

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