What has more Gs -- Digg's moniker or its asking price?

TechCrunch is reporting that a deal is apparently coming together for the social news website where users vote on which stories bubble up to the top. The tech blog's unnamed source claims that the two frontrunners are Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT).

Of course! Aren't those the two names at the top of every dot-com buyout rumor these days?

If the story is accurate, though, is there any doubt that Google will come out on top?

Let's go over Google's perfect timing if it really did want to snap up Digg.

  • Yahoo! (Nasdaq: YHOO) just launched Buzz, a Digg clone that may eat into the pioneer's traffic. The competitive threat may force Digg into selling at a low price.
  • Valuations in the dot-com space have fallen sharply recently. When names like Google, Bankrate (Nasdaq: RATE), and The Knot are fetching next-year income multiples in the teens, privately held darlings like Digg and Facebook aren't going to be able to go public at attractive price points.
  • As long as Microsoft believes that it has a chance to acquire Yahoo!, it will have to be thrifty with its depleting greenbacks.

The cherry on top is that Microsoft is the company currently serving ads on Digg. How perfect is that? Landing Digg would make Google even stronger at the expense of its ad-serving rival.

TechCrunch's source expects Google to bid in the $200 million to $225 million range, well below the $300 million that Digg was supposedly seeking originally. Google is obviously good for the money. As the world's leading online advertiser, it's also in the best position to milk the most out of monetizing Digg's pages.

With Web 2.0 social news sites popping up like gophers on a golf course -- and Google home to a popular news aggregator page -- one can argue that Google would be better off rolling out its own clone. I would disagree. Google's biggest purchase to date was its $1.65 billion purchase of YouTube, and it has paid off for the company even though it had a YouTube knockoff of its own.

Yahoo!'s buy of Flickr was a great deal, even as Yahoo! had an active photo-sharing site on its own (that it has since shuttered). Buying a niche leader provides credibility, one less rival to battle, and the sharp minds that made the upstart popular in the first place.

So I have no idea if Google is really digging Digg, but I dig it if it's so.

Microsoft has made the cut as an Inside Value stock pick. Yahoo! is a former Stock Advisor recommendation. Bankrate and The Knot are Rule Breakers. So many newsletters, so little time? Don't worry. You can check them out for free for the next 30 days with trial subscription offers.

Longtime Fool contributor Rick Munarriz wonders if this story would rise or fall on the Digg stage. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.