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Why Digg Should Buy StumbleUpon
From left: StumbleUpon Backers Brad O'Neill and Ron Conway with founder Garrett Camp. (Photo: Om Malik.)
Over the past few weeks, speculation has surfaced that StumbleUpon, a social media utility that was acquired by eBay in April 2007 for around $75 million, was back on the market. But as TechCrunch, which first reported the story citing an unnamed source “with knowledge of the sale process,” noted late last week, eBay isn’t willing to lose money on its purchase of the toolbar maker that enables the collaborative discovery and recommendation of web sites.
From what I’ve been able to glean from various sources, it’s safe to assume that StumbleUpon is making between $5 million and $7.5 million in annual revenues, and there maybe some profits involved. A sale at $75 million values StumbleUpon at 10 to 15 times those revenues, not such an outrageous amount in normal times.
But these are not normal times. In this current economic climate, eBay is going to have a tough time finding a buyer, never mind one that would be willing to pay such a price. Barry Diller’s IAC has been floated as a possible acquirer, but that is little more than a highly unlikely suggestion.
While I wanted to hound StumbleUpon founder Garrett Camp for information when I attended his big birthday bash in San Francisco, he (understandably) had other things on his mind. Nevertheless, seeing him got me thinking about how, when it comes to StumbleUpon, eBay could have its cake and eat it, too.
The way to do that is simple — by selling it to Digg in exchange for equity in the combined entity. Before you call me crazy, hear me out.
Despite all the hoopla around social media, only Digg and StumbleUpon have been breakout hits. A combination of the two would create a social media powerhouse that would be hard to beat. With its ability to find and curate some of the most popular online content into various categories, Digg has a presence on the web that few can match. The problem with Digg is that despite its efforts to expand into other verticals (such as politics), it is still too technology-centric. And the most popular stories don’t necessarily mean the best or most relevant content.
Small but Smart
In sharp contrast, StumbleUpon, thanks to its toolbar, has better content from many different verticals. Sure it has a smaller footprint, but experts believe that StumbleUpon visitors have a higher degree of intent when compared to other social media sites, as evidenced by their constant curation of content.
As far as StumbleUpon users are concerned, its toolbar provides more useful and productive results than even Google. That’s one of the main reasons why eBay’s tiny division is able to generate revenues by embedding ads between the various pages it serves up. (StumbleUpon embeds sponsor sites into some of its search results, which provides better returns for advertisers since it lands on a sponsor’s page instead of users having to click on an ad, be it a banner or a link.)
Is 1+1 = 11?
The combination of the two companies would allow them to put together an enviable index of the web, which when married to a smart contextual advertising system could prove to be an effective ad channel.
More importantly, we are living in the age of information excess. To date, search engines have crawled the web, sifted through the data and served up search results. Google, thanks to its black-box formula, has done a good job of this.
Of course, that takes a lot of computing horsepower and (nearly all of) the world’s search scientists. Even that is not enough, because we are creating more information than ever before. Muddying the waters is the emergence of video, and here traditional search doesn’t quite work. Digg and StumbleUpon both recognize this, and have applied large-scale human intervention in order to get a better handle on video content.
Alistair Croll, who writes for us on a regular basis, in a recent email to me pointed out that one of the reasons why Google launched a browser (in addition to a toolbar) is because “…the Achilles heel of search engines is their inability to see an increasingly dynamic, increasingly personal, increasingly secured, increasingly transient web without piggybacking on end users.” A Digg-StumbleUpon combo would have that edge over traditional search engines, making the combined company a likely buyout candidate.
Can the deal be done?
Digg’s current valuation, after a recent recent $28 million round of funding, is rumored to be around $175 million. From that perspective, the deal looks expensive and unlikely; it would make the current Digg investors hesitant when it comes to giving up a big portion of their company. They might want to reconsider their conservatism, however, for the combined entity would be attractive to any company looking to get a piece of the search-advertising market — starting with Microsoft. Barring that, however, it could build a strong ad-based business on its own.
Digg CEO Jay Adelson should pick up the phone and call eBay!
eBay Won’t Take Less Than $75 Million For StumbleUpon
Deutsche Bank is still out there trying to find a buyer for eBay’s StumbleUpon business, we’ve heard from new sources (we first reported on this on September 18). But there’s one problem: while eBay wants to unload the business, they aren’t willing to sell it for less than $75 million, the price they paid for it in May 2007.
StumbleUpon’s 2008 revenues are estimated to be $6 million or so.
eBay has denied the sale attempt, but there are too many people who’ve seen the deal book and have heard Deutsche Bank’s pitch. The big question is, will it sell?
As we wrote in our last post, StumbleUpon’s traffic has stagnated or declined, depending on which analytics service you look at. StumbleUpon says usage is growing at a fast clip, despite website traffic, because most users never visit the site after downloading the toolbar.
Ok, but StumbleUpon didn’t mind pointing to usage stats in the early days before the sale to eBay. And the stats are likely irrelevant anyway, since StumbleUpon recently deprioritized the toolbar to let users “stumble” to new sites directly from the website. Expect traffic to grow quickly with that change.
Update: Yet another source who’s been pitched says Ebay may consider a $50 million deal. I’m starting to feel like I should get a finders fee.
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New StumbleUpon In The Wild; When Do The Rest Of Us Get It?
Israeli blogger Tal Siach, one of the authors of the Walyou blog, seems to be one of the few people who can actually access the new, toolbar-free version of StumbleUpon. The new version was set to launch to everyone on Wednesday, but so far everyone I’ve spoken with is still on the old design, which requires the downloaded toolbar to function properly. Lucky for us, though, Tal is in, and wrote a review of what he sees.
One nice trick: if you want to see the new javascript toolbar in action, click here and it should work. You can stumble on to other pages from there.
Tal’s post is below:
I use StumbleUpon on a daily basis, so I was surprised to see a brand new design and face on one of my favorite social networking sites. It also came as a shock since TechCrunch recently reported that Ebay showed their interest in selling StumbleUpon.
Since it came so sudden, I spoke to some of my friends and realized they do not see the same new face that I see on my monitor. I assume that StumbleUpon must have wanted to slowly bring it up on various users, test it, get feedback and then provide it to their massive community. I am extremely fortunate and lucky to be one of the selected to test the design.
I am still not sure what all the changes are, but here are a few I noticed immediately:
New Homepage Look
Once I enter the new StumbleUpon Homepage, I noticed that it has had a complete makeover.
As you can see in the screenshot below, there is an innovative header to the site and all of the sites that are featured here have 5 stars.
Stars for each Discovery (Submission)
Every time a story has been discovered it ranks on a 0-5 stars scale which makes up the score of the Submission. This of course will be based by the number of thumbs up, reviews, domain popularity and several additional parameters within the StumbleUpon algorithm. You can get some additional insights on the latter in Tim Nash excellent post - Stumbleupon mathematics for stumblers (http://blog.venture-skills.co.uk/2007/09/19/stumbleupon-mathematics-for-stumblers/)
In the second screenshot below, different scales are presented, and the number of reviews do not decide the popularity alone. You can see that the last submission received 24 reviews yet still did not rank well and has 0 stars.
This refers per submission and doesn’t necessarily say anything about the domain itself; the same site can have additional posts with varying stars rank.
Discovery Page
Seems like StumbleUpon gives a Featured Icon to any post that has been discovered. At first glance I thought it is a mark to show if posts have become hot or not; however after a second look I am fairly certain its just a mark to show the URL has been discovered, and the number of stars are the real indication whether a post went popular or not in the StumbleUpon algorithm.
I just recently stumbled an interesting post about Kwiclick.com via Orli Yakuel’s blog.
Below you can see the discovery page of that submission with the Featured Icon and the user who discovered on the right. Underneath that Stumbler who discovered it you will see others who liked it. Since I just discovered it, it is only me ;).
After people review the post they can add the specific site as a place for cool resources and with that get more similar stuff they like in the future - improving the recommendation engine.
For example, I clicked the question above, and marked Go2web20.net as a source I would like to see more from the site. The picture below shows the changes on what happens where the “do you like this page from…” is.
Featured Posts in Categories
In the new StumbleUpon design, the Categories are listed on top, while the ranked posts based on stars rating and enough algorithm popularity are listed within their category.
In this screenshot example below: all the technology related posts that were featured have subcategories like Electronics inside technology. The items listed here aren’t necessarily new ones, and you can find links that are rather old but with good rankings from the StumbleUpon community.
StumbleUpon users can now check the selected articles, pictures and videos that the community marked as Popular. By placing the categories on top of the page, StumbleUpon encourages users not only to stumble random stuff directly from the toolbar but actually go and choose a list of popular stumbles themselves of what they would like to read, see or watch.
If you ask me, maybe StumbleUpon wants to encourage users to use the site more like other social bookmarking sites like Digg, Reddit or Mixx.
Transparency Ranking in your Subscriptions and Blog Page
From now on, you and others can see the number of stars on your own discoveries and vice versa. Moreover, you can see the star action in actual sections as well, so it may encourage you to check additional stumbles.
Well, these are some of the changes I saw so far and there are probably others. With time, additional information will be revealed, and as I mentioned not all users can see the new design in the beginning. I am not sure what the reason is, but it is probably to beta test its effectiveness first.
Another addition we may see is what Tec Crunch (http://www.techcrunch.com/2008/09/30/stumbleupon-set-for-resurgence-with-web-toolbar-partner-program/) mentioned of StumbleUpon’s desire to develop their toolbar for the web instead of an install toolbar. They must be missing a lot of users by requiring the installation, which many want to avoid.
My own new design assumptions have not been confirmed by the StumbleUpon staff and are my own opinions and beliefs. If there is something you have found out which I have missed, I would love if you would share in the comments for all the readers to read as well.
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StumbleUpon Set For Resurgence With Web Toolbar, Partner Program
Recommendation engine StumbleUpon has been facing some tough times lately: earlier this month we reported that eBay was looking to sell the startup less than 18 months after acquiring it (the company refuses to comment). And its traffic has been showing signs of stagnation (though the number of registered users to steadily rise). But tonight, the site is launching a new feature that may very well turn things around: a long awaited install-free web toolbar.
Update: CEO Garrett Camp says that usage of the service isn’t stagnating - the unique views have leveled off because users tend to Stumble without returning to the site’s homepage, so their hits aren’t recorded.
StumbleUpon has long been hindered by the fact that it requires a browser plugin that users have to download and install. Such plugins create a large barrier to entry, as they are time consuming and tend to be associated with malware. These problems are magnified by the fact that StumbleUpon’s purpose isn’t immediately obvious - many users have to actually try it out before they understand what it does (for the uninitiated, it uses an algorithm based on your preferences and other users to direct you to websites that you’ll find interesting).
The service’s web-based browser toolbar, which launches tonight, overcomes these issues by replicating much of StumbleUpon’s functionality without requiring an install. To access the web toolbar, you simply visit the revamped StumbleUpon homepage and click on one of the recommended links. The toolbar sits conveniently at the top of the browser window in its own frame, with a prominent “Stumble” button sitting aside a set of stars for rating the sites you come across. The service uses cookies to persistently keep track of your actions across multiple sessions (you can import this data to the toolbar if you ever choose to install it).
To coincide with tonight’s announcement, StumbleUpon is introducing a partner program for sites that will take advantage of the web toolbar. At launch, The Huffington Post and HowStuffWorks will include widgets alongside their articles that will allow users to launch a StumbleUpon browser toolbar that is restricted to their sites (a toolbar launched at Huffington Post would only stumble across Huffington Post articles). The program will likely be a big success, as it allows partner sites to increase their page views by introducing users to new content, while helping StumbleUpon reach a broader audience.
StumbleUpon will still have some obstacles to overcome - the purpose of the web toolbar won’t be immediately obvious to new users, especially those who reach it from partner sites like The Huffington Post. But the burden of the browser plugin has finally been lifted, and I wouldn’t be surprised if these additions prompt impressive growth numbers in the coming months.
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That Was Fun, But Now Ebay’s Selling Off StumbleUpon
In May 2007 eBay acquired website recommendation engine StumbleUpon for $75 million. Now, less than a year and a half later, they’re trying to unload it according to a source with knowledge of the sale process.
eBay has hired Deutsche Bank to find the right buyer, says our source, but the asking price is unknown. It’s not certain that eBay will be able to sell it for the price they paid - In July StumbleUpon had 1.3 million worldwide visitors and 25 million page views. Twelve months earlier the service attracted 4.4 million visitors and 31 million page views (Comscore). Google trends shows stagnation over the last year as well.
Registered users have continued to rise steadily, however. The service had 5 million in April 2008. As of this evening, the site shows 6,003,763, a 20% rise in less than 5 months.
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