What makes a social network an investment success?

18th July 2012

At one stage it seemed that Digg could be the biggest driver of social news, but the site soon stumbled when trying to remake the way that users could vote stories up or down its front page, and lost its community as a result – the key to social success.

Digg's decline saw its audience slide from 30 million to 8 million in little more than a year, and that wasn't due to fickle consumer tastes, or to competitive pressure from a hotter rival, stresses Forbes. It was down to alienating its user base through a series of errors and redesigns that failed to listen to what they wanted.

Created within months of Facebook, Digg was one of the earliest social media sites, and Facebook "likes" closely resemble the "Digg" function, which links votes to the site's popularity rankings. It created a way for consumers to put together their own collections of news and other Internet content by posting links on the homepage.

Digg's founder, Kevin Rose, told the Wall Street Journal that Twitter and Facebook started to eat away at Digg's traffic as both sites evolved into places where people discovered the most up-to-the-minute news and information, the main reason people visited Digg.

But according to Forbes, at times Digg "seemed to be going out of its way to antagonize" those who were responsible for its initial success" – as when it got rid of Shouts, which many community members used for talking to each other, in 2009.

Ernie Codell comments: "I agree wholeheartedly with the superdiggers: There has to be a social glue to create community; members have to be part of the experience, or soon there won't be one. It's so obvious that it sounds foolish. Complete disdain and open hostility for your clientèle is social suicide: You can debate your advocacy, but ignoring or insulting them is a ticket straight out of the business."

Many of Digg's users protested by veering towards rival Reddit . Last year, Reddit overtook Digg in popularity. Digg had seven million monthly visitors in May, according to ComScore; however, Reddit's busiest subsection, "/r/funny", attracts almost that many per day. Reddit now describes itself as "the front page of the internet", says the Independent. It has managed to avoid the sort of sudden moves that could have enraged its users.

And to add to the mix, we have other sites, such as Tumblr, the micro-blogging site launched back in April 2007. While it seemed like we had enough blogging platforms and other social media aggregation sites that were driving hundreds of thousands of visits and thousands of links, this has proved a grand success.

The social world has recentlty been partly dedicated to Tumblr, with its blogs going viral on other social media sites, such as Twitter. The key is that the system has one of the most vibrant and active user bases around, and it's also easy and enjoyable to participate in.

The company had a $800 million valuation in August 2011, says Wikipedia. In September 2011, the company raised a hefty $85 million in a round of funding led by Greylock Partners and Insight Venture Partners.

Facebook's growth and popuarlity, however, means that it has managed, over and over again, to implement some changes it wanted to make in the face of resistance from its users. But Digg couldn't afford to show the same level of nonchalance.

Despite Digg's demise, some credit should be given to Rose for his own intuition which has given him great success in other social investments such as Twitter. "I look for the next big thing," he says. "I look for consumer Internet companies that I would use, and getting into them as early as possible."

So while future-proofing any social site could prove futile, listening to the community is essential – unless, it appears, you've got the strength and fan base of a site such as Facebook. If you can provide an innovative service to your user base, you're setting yourself on the right path for success and future profit.


More on Mindful Money

Investing and the social media revolution

Is Social Media a human right?

Could social networks provide a moral compass for the City?

Sign up to our daily newsletter and you could win an Amazon Kindle Touch.

The Financialist

Leave a Reply

Your email address will not be published. Required fields are marked *