Uh-oh, Google (Nasdaq: GOOG ) is unhinging its jaws again.
TechCrunch is reporting that the world's leading search engine is closing in on a deal to acquire social-news website Digg for roughly $200 million.
For those unfamiliar with Digg, it's a news aggregator site where registered users vote for stories that rise -- or fall -- in prominence. The Digg community also discusses the latest headlines.
Google snapping up Digg is certainly not a new rumor. Tech blogs like TechCrunch have been writing about Microsoft (Nasdaq: MSFT ) and Google stepping up as potential suitors for several months. TechCrunch's latest entry is based on several unnamed Google insiders.
Big G's motivation
What's in it for Google? Plenty.
It's not as if Google couldn't wipe out Digg on its own if it wanted to. Yahoo! (Nasdaq: YHOO ) launched Digg clone Yahoo! Buzz earlier this year. According to last night's Yahoo! earnings call, Buzz is now trumping Digg in traffic. The key, of course, is that Yahoo! showcases Buzz headlines within its popular portal. If Yahoo! has fared well with its "me too" product, imagine how easy it would be for Big G to claim the pole position.
However, there is something to be said for buying the defining brand. Other sites, like Reddit and StumbleUpon, have helped democratize the news-filtering process, but Digg is the name everyone knows. It's the verb. It's the killer brand in what is quickly becoming a crowded space. Besides, eBay (Nasdaq: EBAY ) bought StumbleUpon last year in a $75 million deal. Conde Nast's Wired Digital picked up Reddit the year before that. Digg is pretty much the last big catch in social news, and it will probably be the best.
Buying the leader saves the hassle of starting from scratch, while also turning a threat into an ally. Whether it's eBay picking up PayPal after it struggled with its own financial pay service or News Corp. (NYSE: NWS ) acquiring PhotoBucket after its MySpace users kept turning to the photo-sharing site for profile-page snapshot storage, it's hard to go wrong with buying the initial disruptor.
Google already had a video-sharing site, but that didn't stop it from ponying up $1.65 billion for YouTube. Spending $200 million or so, and then building on Digg's popularity by incorporating it into Google's own news aggregator page, would be child's play for a cash-rich player like Google.
There is another big reason for Google to pay up for Digg, and its name is Mr. Softy. Digg tapped Microsoft to be its contextual marketing provider last summer. Microsoft hasn't been as successful as Google in nabbing affiliate sites to display its ad inventory, but Microsoft has done well in scoring Web 2.0 darlings Digg and Facebook.
Digg is no Facebook, but for a Microsoft grappling with its botched attempt to snap up Yahoo! to compete against Google, watching Digg run into Google's arms cuts both ways. It's surprising to see Microsoft not putting up much of a fight, though perhaps Microsoft's reluctance to outbid Google is an indicator of the difficulty of monetizing Digg in the first place. It should know.
Digg's motivation
It's easier to understand why Digg is on the market. If Yahoo! Buzz was able to make a dent in this niche in a matter of months, imagine the market-altering splash of Google going for a belly flop in social news.
Digg could either watch itself get crushed by both Yahoo! and Google, or it can play nice, cash out, and be a part of Google's plan to humble Yahoo! Buzz.
Will Digg lose some community members who feel the site will go corporate under Google's ownership? Of course. However, Google's global reach will quickly replenish the audience, and then some.
It doesn't have to settle for Google, but it may not have much of a choice. Digg would look good on the arm of a struggling print-news titan like New York Times (NYSE: NYT ) , but money would be an issue. A smaller search engine, like Ask.com parent IAC (Nasdaq: IACI ) , doesn't have the attractively priced ad inventory to populate the volume of page views that Digg delivers.
This really comes down to Google and Microsoft, and if Microsoft -- a company as notorious as the New York Yankees for overbidding in its acquisitions -- isn't raising a bidding card, Digg would be best served to shake hands with Google quickly.
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