Why Amazon.com Should Buy DiggS

Digg needs to sell itself. Kevin Rose's headline-voting site is drowning; the more popular it gets, the more red ink it generates. But who needs a bunch of news stories rated? Here's an idea: Amazon.com.

Sure, start scoffing. But Digg's past acquisition talks with Current and News Corp. failed in part because they looked at Digg as a media play, and community-generated sites like Digg aren't particularly attractive to advertisers. More recently, Digg and Google got close to an acquisition. That deal fell apart, according to a source familiar with the talks, because Google wanted to closely probe the quality of Digg's engineering staff early on in the deal, and Digg did not relent until talks were well along. (Digg CEO Jay Adelson refused to comment on the company's talks with Google.) The lesson: Digg's not a media company, and not a technology company. It's something else altogether.

Who makes money off of online community? The surprising answer is Amazon. One study suggests that Amazon.com makes $2.7 billion — billion! — a year in incremental sales because of its user-written reviews. Amazon uses the simple mechanism of asking shoppers if a review was helpful to rank its reviews.

It's remarkably similar to Digg's option of "digging" or "burying" a news story. Where might that be useful? Amazon.com's Kindle e-book reader. In addition to selling digital books, Amazon already charges for some news feeds available for free on the Web. Magazine and newspaper editors are delusionally optimistic that they might be able to charge by the article on a device like the Kindle, through a scheme of micropayments.

Micropayments have been technically possible for more than a decade. The problem has always been consumer behavior: How do you know if an article is worth paying for? The time spent pondering that question isn't worth the nickel people hope to charge for it.

But what if you didn't have to ponder that question? What if you knew, through Digg's rating system, that a large number of people had read the story and given it a thumbs-up?

An Amazon-owned Digg wouldn't have to charge for access to its website or the stories it links to; indeed, that would be against its interests, since the rating activity on Digg requires free access to work. The Wall Street Journal even gives Digg users free access to its stories so they can read them and vote.

Instead, Digg would charge Kindle users for a new service which delivers a personalized newspaper to the device — a service far quicker and simpler than the cumbersome process of going to Digg.com and scrolling through endless lists of popular headlines. They'd only pay for the stories they read — which in turn would provide more valuable feedback on what Amazon can charge for. The payment would be essentially voluntary, since readers could always pull up publishers' websites and read the stories for free there — but they payment would be more for the simplicity and ease of use, rather than the content itself. (Arguably, that's why people pay for music on iTunes rather than download it from file-sharing networks.)

Is Amazon.com thinking about such a move? We haven't heard anything about talks between Amazon.com and Digg. But, intriguingly, we heard whispers that Amazon.com is talking to Twitter. Amazon CEO Jeff Bezos is a personal investor in Twitter. Presumably, the attraction would be the same: getting some kind of real-time pulse on what people are interested in.

But Digg's focus on headline voting and Amazon's push into news distribution make them seem like a better match. Will Bezos dig the idea?

(Photoillustration by Richard Blakeley)