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A Stark Reminder That Tech Investing Can Be Hazardous to Your Wealth

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Forget about seeing Facebook (NYSE: FB  ) become the next MySpace. Digg, once a popular news-sharing site, already has that dubious honor. New York's Betaworks has purchased the company for just $500,000, The Wall Street Journal reports.

Talk about a fall from grace. At one point, Digg was attracting 17 million monthly visitors and had Microsoft (Nasdaq: MSFT  ) , Google (Nasdaq: GOOG  ) , and Yahoo! battling over the rights to place contextual marketing on the site.

Venture capitalists also loved Digg. All told, the company raised $45 million in equity financing from the likes of Greylock Partners, LinkedIn co-founder Reid Hoffman, and Netscape co-founder Marc Andreessen, the Journal reports. Betaworks won't be giving any of them much of a return.

MySpace offers a similarly sad tale. After several years of leading the way on social media, the network, which gained popularity as a place for musicians to market their work, last June sold for $35 million to a group that included performer Justin Timberlake.

But don't weep for either Digg or MySpace. Founders of both companies have done well enough. News Corp. (Nasdaq: NWS  ) initially paid more than $500 million to acquire MySpace in 2005, while Digg founder Kevin Rose has made successful bets on a number of start-ups you know, including Foursquare, Twitter, and Zynga. He's also working at Google in an as-yet undisclosed capacity.

Nevertheless, the point remains. Investing in innovators such as Digg and MySpace is dangerous, because what looks like a sure thing -- (cough) Research In Motion (cough) -- could be irrelevant within a few years.

Digging up a better tech investing strategy
The same social-media shift that killed Digg and propelled Facebook is giving rise to an even better opportunity. Our senior tech analyst has all the details in this free special report. The research is free for a limited time, so check it out now.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Microsoft, Google, LinkedIn, and Facebook. Motley Fool newsletter services have recommended buying shares of LinkedIn, Microsoft, and Google and creating a bull call spread position in Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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