Why Bit.ly Will Upstage Digg

Yesterday, New York-based startup incubator Betaworks raised $2 million in funding for its URL-shortener project, Bit.ly, and spun it out as an independent company. The funding raised some eyebrows, with some speculating if Bit.ly, one of the dozens of link-shortening services, was worth a rumored $8 million. I fall in the camp of those who think Bit.ly is worth the money.

Here’s why: The most important aspect of Bit.ly is not that it can shorten URLs. Instead its real prowess lies in its ability to track the click-performance of those URLs, and conversations around those links. It doesn’t matter where those URLs are embedded — Facebook, Twitter, blogs, email, instant messages or SMS messages — a click is a click and Bit.ly counts it, in real time. Last week alone, nearly 25 million of these Bit.ly URLs were clicked.

By clicking on these URLs, people are essentially voting on the stories behind these links. Now if Bit.ly collated all these links and ranked them by popularity, you would have a visualization of the top stories across the web. In other words, it would be a highly distributed form of Digg.com, the social news service that depends on people submitting and voting for stories from across the web. Don’t be surprised if Bit.ly formally launches such as an offering real soon. This will help them monetize their service via advertising.

And because it would be much more democratic than Digg, and span across many verticals, it could become a potent competitor. Digg has been trying to expand beyond its tech roots and recently teamed up with Facebook for vertical expansion, but a quick glance at data provided by Compete.com, a web-traffic tracking service, shows that San Francisco-based Digg’s traffic has started to plateau. (Data from Quantcast, another such service, shows that the unique monthly visitors to Digg.com have plateaued as well.)

In comparison, Bit.ly has only started to ramp up, much like Twitter itself. And the fact that it’s the default shortener for Tweetdeck, a desktop client for Twitter, is only helping Bit.ly’s cause. Both Bit.ly and Tweetdeck share common investors. Most importantly, what’s working in favor of Bit.ly is that it personifies a much bigger trend: the complete disaggregation of the web in parallel with the slow decline of the destination web.

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Like Bit.ly, another service that could become a challenger to Digg is tr.im. It also provides analytics about your URLs. And it creates a unique URL for every link a user inputs. Tr.im is the default shortener for another Twitter desktop client, Nambu. The reason these URL-shorteners are getting popular is because of limited space — 140 characters — on microblogging services such as Twitter.

I’m pretty sure the rise of short URLs is causing Digg some serious concern. After all, why else would the company be launching its own URL-shortener, perhaps as part of a toolbar or some kind of a browser add-on, as soon as this week.

And just when you were wondering what the damn point of those URL shorteners — which were originally invented to make sure that MS Outlook/Exchange didn’t destroy the links — was anyway…

Update: A couple of points I forgot to add in the original post: [digg=http://digg.com/tech_news/Why_Bit_ly_Could_Upstage_Digg]

1. Bit.ly will have to keep up its hyper growth and attract a lot more URLs in order to ultimately become an authoritative resource for top links on the web.

2. By submitting a link and then sending it to friends or followers, I am actually acting as an editor, thus replicating the role of folks who submit stories on Digg. In other words, I am doing a kind of validation. Similarly when I email or IM a Bit.ly link involves pre-sorting thus making Bit.ly data more valid.

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