Since Business Week ran their infamous story about Digg, I’ve been thinking about how you might be able to monetize a site like Digg. Ultimately, I think it will end up being a more sophisticated form of contextual advertising than we are seeing right now.
As the hype around Web2.0 has grown, marketers and PR people have been struggling with ideas about how to interact with sites like Digg. Spamming stories to Digg is more likely to damage a company’s reputation than anything else, so how do they get their message out this user base?
The dirty little secret of Web2.0 is that “interactivity,” “tagging,” and “user generated content” are really code words for data mining. As the recent leak of AOL search data has shown, how you interact with the web reveals a great deal about you. What stories you digg can also say a great deal about you. Digg is using this data to build a Recommendation Engine. So if you dugg the story about nVidia’s latest graphics card and you dugg a story about Apple’s new OS, maybe you’d be interested in the story about awesome graphical screensavers for your Mac.
I think Digg is going to use this data to build their own contextual advertising system. They could stick with traditional contextual text ads and simply target their ads more effectively than Google can because of the sophisticated data they have about their users. They could charge higher rates and they wouldn’t have to split the revenue with Google (although they might have to split some of it with Federated Media depending on how that relationship is setup).
Beyond traditional text ads, they have a few other options that would be more controversial. Using the recommendation engine, they could allow marketers to seed stories to certain interest groups. This could work a variety of different ways, they could simple show the stories/link to the stories on the recommendations page or they could allow users to digg the stories and allow them to reach the front page. If they did this transparently and their targeting was accurate enough, users might not mind. The reality is marketers are trying to do this anyway and they would pay for it.
The success of such a plan is dependent on Digg’s continued growth. Running your own ad system requires considerable mass of both users and advertisers. Ultimately it may make more sense for Digg to feed the data to Federated Media or another partner and let them integrate it with their larger network of sites.