Indexing Sites: A Retrospective

Search engines such as those owned by Google do a good job at finding the right mathematical fit for a user’s query. But traditional search engines don’t necessarily give results that are best suited to the user’s interests. Social bookmarking and indexing sites such as StumbleUpon, Delicious and Digg, to name a few, index the Internet’s ever-increasing amount of information for content specific to a user’s choice and help users store, share and access links that may not have turned up on the traditional search. Here is a snapshot of the big players in this space.

StumbleUpon
StumbleUpon is known as a discovery engine that helps users find what they would like via collective intelligence. It was founded in November 2001 before being sold off to eBay for $75 million in 2007. A couple of years later, in 2009, co-founders, Garrett Camp and Geoff Smith and other investors got together to buy StumbleUpon back from eBay, when its value is reported to have depreciated to $29 million and was earning revenues of $5 million to $10 million annually. Since then, the company has been operating as an independent, investor-backed startup.

The service lets users, also known as Stumblers, see pages that friends with similar interests have found interesting and recommended. Users can post their opinions on the page using StumbleUpon’s thumbs-up or thumbs-down icons. Using either the StumbleUpon toolbar or through the website, Stumblers can choose from more than 500 topics to indicate interests and preferences to get the content most relevant to them.

The service boasts of more than 15 million users and is estimated to be adding 500,000 new users each month. The service has more than 800 million personalized recommendations monthly and recently crossed a billion stumbles per month. According to digital marketing agency Zeta Interactive, StumbleUpon was last year’s ninth most buzzed-about site.

Besides user recommendations, the site also has sponsored recommendations where marketers can place their links on user recommendation lists for a fee. The service helps marketers by targeting ads to people based on their preference, location and demographics. StumbleUpon charges the marketer a fee of $0.05 per visitor. Like most privately owned companies, StumbleUpon’s current revenues and earning performance are unknown. Last quarter, though, the company raised $17 million in funding from investors.

StumbleUpon recently introduced tier-based pricing for its Paid Discovery service. Now advertisers can choose from multiple pricing options and opt for premium placement of links. For instance, for a fee of $0.10 per visit, marketers can have access to premium placement and advanced reporting tools that help them understand their traffic and website quality. An additional $0.15 per visitor guarantees top serving priority in content streams. StumbleUpon is also introducing newer marketing tools such as analytics that let advertisers that let brands track frequency of user engagement with a particular StumbleUpon campaign and campaigns targeted to specific devices such as the iPhone and iPad.

Earlier last year, the company also launched mobile apps for both the iPhone and the Android platform. The company claims to get 40% of its new user growth through the mobile. The iPhone app is estimated to have been downloaded more than 1 million times since launch.

Digg
Digg, founded in 2004 by Kevin Rose and Jay Adelson, calls itself a place for users to “discover” content. It is a social news bookmarking site that lets users rate content on the Net by letting them say that they liked the content. The company earns revenues through ads, which include placement of news articles or product stories in-line with organic content. According to Quantcast, Digg has more than 8.4 million monthly visitors in the U.S. and has an Alexa traffic rating of 135.

Digg has raised $40 million in funding, securing its most recent round of $28.7 million in 2008, which put its valuation at $167 million. Digg was being evaluated by Google for a possible acquisition worth $200 million. Google did not buy Digg, claiming a personality mismatch. Digg’s revenues haven’t been disclosed and the most recent reports available are for 2008, when they were estimated to have earned $8.5 million revenues with $5.3 million in losses. But despite the weak financials, last year, a Business Insider article pegged Digg’s valuation at $250 million.

Analysts believe that Digg is dead as it has failed to successfully combat competition posed by other social network leaders, including Twitter and Facebook. Facebook’s “Like” button has dealt a big blow to Digg’s following. Founder Kevin Rose was also seen to prefer Twitter over Digg, confirming faltering loyalty to the company. Earlier last year, Digg tried to address this by launching Digg v4, a major revision of the platform which boasted of faster speed, personalization, and additional sharing features. But the new Digg was fraught by technical problems and was labeled a failure as it saw traffic decline rapidly. According to Hitwise data published last year, Digg’s U.K. traffic fell 34% and U.S. traffic fell 24% following the launch of the new version. However, Digg believes that while it is no longer as significant in the domestic market, it is a big global player.

Reddit
Condé Nast’s Reddit is another growing competitor for Digg. Reddit is a social news aggregator site that was founded in 2005 by two University of Virginia grads, Alexis Ohanian and Steve Huffman, through funding from the Y Combinator program. In 2006, Condé Nast acquired Reddit for an estimated $65 million. Recently, Reddit recorded its first ever 1 billion page view month.

In 2009, Reddit launched its self-service advertising platform to earn revenues through sponsored links. For as little as $20 a day, a business can advertise its products or services on Reddit’s bid-based pricing model and reach the audience with interests specific to the business need. Recently, it also launched Reddit Gold, a paid membership program for users that offers features such as the ability to turn-off ads, comment highlighting, a gold trophy for display on the homepage, to name a few. The membership is priced at $3.99 a month or $29.99 a year. Reddit does not disclose financials or member estimates.

Recently, there have been market rumors suggesting that Condé Nast may be spinning off Reddit. Peter Kafka, in his article, claims that the publishing giant has valued the site at $200 million. Reddit’s management has vehemently denied such a possibility.

Y Combinator Hacker News
Hacker News is a social news website that focuses on news about technology startups. The site is owned by seed funding investor Y Combinator and was created in 2007. It is similar to Reddit in that it allows users to share, vote, and comment on stories. But Hacker News is different from other news aggregator services as it does not let user submissions be voted down by any reader. Either the reader votes them up or does not vote at all. Earlier this year, Hacker News had announced that it had more than 90,000 unique visitors and more than 1 million page views daily leaving 25,000 votes on any given weekday.

Hacker News is also known to be a more “civil” site than other aggregators given the highly focused readership that it attracts. It remains to be seen how the company will manage to maintain such dignity amid the growth it is experiencing.

Yahoo!’s Delicious
Delicious, formerly known as Del.icio.us, grew out of a text file in 2003 that founder Joshua Schachter used to keep track of links related to the weblog Memepool. In 2005, the company was sold to Yahoo! for an estimated valuation of $10 million to $15 million. Since then, Delicious has become one of the “biggest” social bookmarking website that lets users store, access and manage bookmarks online. The site also builds on the social network by letting users share links and access others’ tagged bookmarks. According to market reports, the site has zero monetization. Quantcast estimates the site to have close to 200,000 users in the U.S., and Compete pegs the viewership at fewer than 600,000 worldwide.

Earlier last year, Yahoo! announced plans to shutter Delicious, claiming that the unprofitable venture was no longer a strategic fit. However, more recent news reveals that the company is looking for a potential buyer for a sale worth $1 million to $2 million. Analysts believe that players like StumbleUpon and Google could look at the acquisition.

These social indexing companies have done a good job at helping blogs publicize their content. But most of these players still have a very small base compared with Facebook’s 600 million and Twitter’s 200 million registered users. They are also facing competition from other technology companies such as Microsoft, which is working on its own social news aggregator service, Montage. It will be interesting to watch how these players not only battle competition but also expand their monetization capabilities in the coming quarters.

As of now, the valuations seem out of whack across the board, relative to revenues and profits.