Would You Pay to Advertise on Digg.com?

TechCrunch ran a story over the weekend with a review of Digg’s financials and it is not looking that good (also on Silicon Alley).

The first three quarters of 2008 Digg had revenues of $6.4 million and losses of $4 million. That implies total 2008 revenue of $8.5 million, with $5.3 million in losses.

The big question that TechCrunch asks is what are the estimated 35+ engineers working on at Digg?   With a smaller staff, their massive web traffic (estimated at 16 million worldwide unique monthly visitors)  should enable them to squeak out a profit of some kind.

The speculation is that they are trying to build some sort of advanced advertisement platform similar to Google’s AdSense that will enable them to insert targeted adds into their user generated posts.  In the theory, that sounds like a good idea, but will it really pay off?

I am a fan of Digg and visit the site daily (If you don’t know much about Digg and their founder Kevin Rose, Inc.com recently published an overview).  It is one of the best places on the web to find all the current popular news, stories, and latest gossip and follies.  But that in itself is the issue.  “All” is a very broad market to target on the web and Digg hangs it all out there to see.

Here is a sample of a few of the stories on the front page today:

1. Independent Investigation: Special Olympics Fixed (A farce from the Onion.com)
2. The Wine development release 1.1.11 is now available (Software for running Windows on Linux)
3. Kids Say The Most Existentially Terrifying Things (A cartoon from Cracked.com)
4. Warner Brothers Pulls All Videos from Youtube (a news story update from cnet.com)

This is the best part of Digg.  Right next to serious social/political issues are irreverent, silly, outrageous, and sometimes, offensive posts.  That’s great for users of Digg but make a tough sale for corporate advertisers.  Now, I am not saying that corporate advertisers will not post ads on Digg.  In fact, right now there is an ad for a Ford Flex featured in the top right banner.  But note, this is right above the ad from GIftCardFreebies.com (view screen shot here).

There are a lot of brands out there that are not going to like having their products squashed between jokes on Marijuana and SMBC comics and these brands have deep pockets.

So what about Google then?  They have targeted ads and they can have much more offensive material on their site so, why are they such a success?  Because Google search starts with a blank canvas and you give it a target.  It knows that if you are searching for Teddy Bear vs. Teddy, what is acceptable and what is not.  Plus in situations where there is ambiguity, the lack of banner ads help keep the site neutral.

The hardest part of this for Digg is that even though they helped drive this GroundSwell of user generated content, they don’t control it (see HD-DVD encryption fiasco). Any effort to mainstream the site or push edgy content off the front page will not be met with a quiet response.

Thoughts?