Is Digg Headed for the Deadpool?

Digg, which appeared to be stumbling after an ill-fated relaunch sparked a user revolt, now looks to be under siege. The former king of link-sharing services has seen two top-level executives — chief financial officer John Moffett and chief revenue officer Chas Edwards — leave the company in the past two days for jobs with other startups, and new CEO Matt Williams has slashed the workforce by more than a third, and says the company needs to “get back into startup mode.” But is such a thing even possible? Or is Digg on its way to the deadpool?

Not that long ago, Digg was a superstar in the world of “Web 2.0,” with its crowdsourced approach to news aggregation: a social-media twist on the Slashdot model. Websites large and small prayed for a link from the Digg homepage, and then trembled as their servers buckled under the load of millions of hits. Getting your site on Digg was a crucial step in getting popular attention even for mainstream publishers, and founder Kevin Rose wound up on the cover of BusinessWeek (with a photo he likely regrets) as the $60-million kid. Now, Digg is clearly in retreat — cutting staff, backpedaling on its heavily promoted, new features and watching its traffic decline.

How did it all go so wrong? Like plenty of other social networks — Friendster, Bebo and even MySpace (s nws) — Digg just seemed to lose its mojo. Did it get complacent? Did Rose and former CEO Jay Adelson take their eye off the ball? Perhaps. Both got involved with Revision3, the Digg video spinoff, and Rose started to do some angel investing and other activities outside the company (one Hacker News commenter says the Digg founder “probably made more off of the sale of ngmoco than he would with Digg.”). Mostly, the service has simply been passed by, lapped by other competitors who have moved with the times and provided more features that users seem to want.

[inline-pro-content] For many, Twitter has likely taken the place of Digg as a way of sharing interesting links. Others who wanted a community of users based on link-sharing have moved to Reddit, which some say has a more welcoming attitude. Reddit seemed to gain some significant momentum in the wake of Digg’s poorly received redesign and new features, in part because some Digg users hijacked the site’s front page and plastered it with Reddit links. As I pointed out in a recent GigaOM Pro report on Digg’s relaunch (subscription required), trying to appeal to new readers — as most of the site’s changes seemed designed to do — doesn’t accomplish much if you push away your core user base in the process.

Digg seems to have suffered from a certain hubris as well — the assumption that it had a comfortable lead over other services — and over-expanded. A number of observers have pointed out that despite getting as many, or more, pageviews as Digg, competitor Reddit has about 10 employees, compared with Digg’s 67 before the recent cuts and 42 after the layoffs (Reddit is also part of the Conde Nast empire, however, so it’s perhaps not a fair comparison). Should Digg have accepted one of the takeover offers it reportedly got from companies like Yahoo (s yhoo) over the years? Possibly, although former CEO Jay Adelson says he doesn’t regret not selling the company, and suggests there weren’t as many firm offers as outsiders seem to think there were.

As Adelson notes, Digg isn’t on death’s door just yet; the site still has 20 million unique visitors a month, he says (although it may be less than that now). That’s a fairly large number, and the site’s revenues are reportedly in the $10-million range — but then, Yahoo has a huge user base too, and it’s widely seen as failing. New CEO Matt Williams says Digg is embarking on a new strategy of “engaging with users,” and is focusing on revenue-generating ventures such as Digg Ads. But those features depend on growing traffic and users, and Digg seems to no longer have either. Cutting costs may bring the company’s losses down, but you can’t cut your way back to popularity.

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Post and thumbnail photos courtesy of Flickr user NightRPStar