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Summary:

Digg, in the last five months, has figured out a social media monetization model that makes sense. So much so that its new social media-specific ad formats are already counting for more than a third of its revenue.

Social networking behavior — endless repetitive page views, unvetted content — isn’t a great fit for traditional forms of online advertising. Early attempts to bring search or brand ads onto sites like MySpace and Facebook had pathetic results compared the trajectories of the sites’ popularity and attention. But now, a few years in, social media companies are starting to discover how to advertise to their own audience. And in the last five months, Digg has figured out a model that makes sense. So much so that its new site-specific ad formats already account for more than a third of its revenue.

Digg, through its savvy users’ curation of news, facilitates tons of page views, comments and clicks to publishers’ sites, but as we here at the GigaOM network have seen firsthand, such bursts of traffic do nothing for advertisers’ click-through rates (CTR). So the company last year launched a program called Digg Ads (it kicked off with paying customers in October) in which advertisers submit or sponsor content with the look and feel of Digg. The company’s publisher and chief revenue officer, Chas Edwards, who came to Digg from Federated Media, told us that it realized that its “local language” is blue headlines and yellow vote boxes. So now ads are made in the “vernacular” of Digg.

GE sponsored Digg's health stories earlier this month

Five months in, Digg Ads are contributing 25-30 percent of the company’s revenue, said Edwards. The site also runs Digg-looking ads in its standard IAB spots, bringing in about another 10 percent of its revenue. The company doubled its revenue in 2009, becoming profitable on an EBITDA basis, and expects to do the same or better this year, according to Edwards.

While Digg — which has an 11-person sales team and uses Microsoft to sell its remnant inventory — had initially thought Digg Ads, with their cheap cost-per-click pricing, would be most useful for e-commerce advertisers like Best Buy and eBay, that changed quickly out of the gate. Now, the big spenders are brand advertisers from sectors like automotive, entertainment and financial services — the folks who would traditionally be running banner ads and the like, said Edwards.

A Digg Ad unit from Intel appears on CNET

Digg Ads as a whole see about a 1 percent click-through rate, but what’s interesting is the spread between more successful ads and less successful ones. Campaigns that mimic the style of Digg — using a numbered list, for example, or pointing to articles rather than product information — were much more effective, with up to 4 percent CTRs compared to 0.3 or 0.4 for the worst-performing Digg Ads. Toyota, for example, ran 16 different creatives for a Prius campaign with Digg (this was before the recall), said Edwards, with one of the most successful being a link to an Toyota-sponsored eHow article on “10 Tips From Happy People.” Of course, how many cars were actually sold through the promotion (and perhaps later recalled), we don’t know.

Alongside sponsored story submissions, Digg also invites advertisers to buy ad units and fill them with relevant organic Digg content. So, for instance, in conjunction with CES in January, Intel ran a package of the top-ranked stories out of the trade show that updated automatically within an ad unit on Digg’s site. It was actually Intel that came up with the idea of running the same dynamic Digg units on other sites where Intel advertised, said Edwards, something Digg hopes will become standard practice. Overall, those ads get o.9 percent CTRs in standard IAB units, said Edwards, up to 2 percent when put in a Unicast slider ad unit that comes across the page.

What’s next for Digg, which at 40 million monthly uniques is a long ways from where it wants to be? As the site redesigns itself this spring to become a personalized news home page by harnessing more signals about what each member is interested in, targeted ads will follow, said Edwards. And the Digg Ad formats will come along for the ride, bringing in dynamic feeds of relevant sponsored stories.

Digg Ads, by definition, aren’t the solution for every other social media site hankering to monetize, but other sites should also be able to find value by mimicking and blending in with their own particular mix of user activity and engagement. Which, if all goes well, will bring value not only to the companies’ bank accounts but to their users’ experiences, too.

Related content from GigaOM Pro (sub req’d):

Monetizing the Social Web Isn’t One Size Fits All

This article also appeared on BusinessWeek.com.

  1. [...] Digg Found a Way to Make Money. Digg Ads are contributing 25-30% of the company’s revenue. http://gigaom.com/2010/02/26/how-digg-found-a-way-to-make-money/ [...]

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  2. digg is one of my favorites,

    at last they found a way to make some money :P

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  3. Funny, how those ad units showed up after Reddit introduced their sponsored posts. No wonder Digg tried to hire Reddit’s founders after they left Reddit last fall.

    There’s no shame in copying a competitor, of course — but clearly Reddit was here first.

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  4. Yahoo did this years ago with a product called search submit pro (ssp). Very similar features and it supported various types of advertisers. Funny how SSP is morphing into social media space.

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  5. [...] since its birth to some 30% of their revenue. And the best part, according to the company they were EBITDA profitable in [...]

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  6. [...] since its birth to some 30% of their revenue. And the best part, according to the company they were EBITDA profitable in 2009.Of course (assuming you are not overly familiar with the annals corporate finance), this [...]

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  7. @fred, sponsored posts and content has been something media has used for decades, including for at least ten years on the internet.

    social networks in a platform business environment like the internet are not ad but utility models. they’ll always have a hard time monetizing via ads because of the nature of the engagement among users. it’s very hard to slip an ad into a conversation.

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  8. Digg is dead. The whole digg ads kerfuffle is tantamount to haggling over the funeral decorations or the wording on the tombstone.

    The takeaway from this article: the only two factors that did anything to increase clickthrough were 1) deceiving naive digg users into thinking the ad was a digg story submission, and 2) blocking the screen with obnoxious, animated slider ads. The only reason for that increase is obvious: accidental clicks from failed attempts to get the freaking ad off the screen.

    RIP

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    1. No, those digg styled ads are clearly marked. They are not accidental clicks.

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    2. That was my first thought. Not a good outlook if the way to make money is to make your ads look “dig-like” in order to get hits.

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  9. [...] Liz Gannes at GigaOM says: “Social networking behavior — endless repetitive page views, unvetted content [...]

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  10. Stopped visiting Digg awhile back. Too many “Top 10″ this and “Top 10″ that lists were making it to the top.

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