Don’t believe BusinessWeek’s bubble-math Jason 04 Aug 2006

288 comments Latest by me

This week’s BusinessWeek cover story features a beaming Kevin Rose from Digg. Across his chest it says “How this kid made $60 million in 18 months.” Wow, now that sounds like a great success story.

Too bad it’s a blatant lie. BusinessWeek knows it. They prove it themselves in the article:

So far, Digg is breaking even on an estimated $3 million annually in revenues. Nonetheless, people in the know say Digg is easily worth $200 million.

$3 million in revenues and they’re breaking even. That means no meaningful profits. That’s the first hint no one has made $60,000,000. Their gross revenues aren’t even anywhere close to that number. And let’s leave out the “people in the know say it’s easily worth” fantasy numbers. And certainly don’t use those numbers to do the math that makes the cover (we’ll get to that in a minute).

It’s one of those things where we know we could put crazy ads all over the site and clutter it up, but we don’t want to do that,” says Rose. “We have a clear path toward becoming a profitable company.”

A clear path toward becoming a profitable company. How does a path that you haven’t traveled yet get you $60,000,000? The biggest investment they’ve had was $2.5 million. You can’t cash out $60,000,000 from $2,500,000.

That could be a jackpot for Rose, who owns 30% to 40% of the company (he won’t specify) — a massive stake for a founder in a world in which investors routinely demand up to 20% with every outlay. But it’s still only paper wealth, which he and many others have learned can evaporate. “I was here in 2000,” he recalls in an instant message.

Wait a second. This $60,000,000-on-the-cover figure came from multiplying the fictitious “people in the know” number of $200,000,000 by an estimated 30% ownership? 30% of $200,000,000 is $60,000,000. Is that the math that made the number that made the cover? SLIPPERY. And then Rose and BusinessWeek acknowledge it’s “only paper wealth” and “this could be a jackpot” which means it’s not real anyway. So BusinessWeek is using fuzzy math to put a fuzzy number on the cover that isn’t real anyway? All together now: BULLSHIT!

Something my dad always tells me: “No one ever went broke taking a profit.” Last time around plenty of people went broke by not taking a profit. Paper wealth is not money. Try bringing your brokerage statement to McDonald’s and see if will buy you a burger.

And then there’s this:

“The barriers to entry are now so low that all it takes is a laptop and a $50-a-month Internet hookup to make a kid the next mogul”

So why are you writing about an 18-month old company that took $2.5 million to be “finally be flush with enough cash to pay salaries, rent an office, and keep employees in standard startup snacks like Twizzlers and Vitamin Water.” If BusinessWeek wants to say it only takes $50 and an internet connection to be the next mogul they may want to cite a valid example. It’s certainly possible, but Digg isn’t that example.

Now, this isn’t a dig at Digg or Kevin, it’s a dig at shoddy journalism. There are a lot of great things to say about Digg so pick something that’s not true? Why lie in big yellow type on the cover?

UPDATE: Scott Rosenberg, writer and editor and co-founder of Salon weighs in. It’s great to see someone in Scott’s position calling BusinessWeek on this.

UPDATE…THIS JUST IN: How 9rules founders made billions in 12 months.

288 comments so far (Jump to latest)

Chris 04 Aug 06

Man, you are so spot on with this observation. It’s been one of my pet peeves for a long time as I’ve watched magazines do this pretty often. I guess it sells and they know it.

e.j. 04 Aug 06

bah. thats all complex detail. they went with the ‘Less’ cover headline. you weren’t complaining when they got all flowery about you. sh*t, good for digg.

gwg 04 Aug 06

Because big yellow type is Web 2.0!

I don’t know Kevin, but the photo feels pretty damn contrived as well. All in all, a nice read (from SVN) and a lesson to continue to question everything I read.

DHH 04 Aug 06

ej, Digg certainly deserves publicity. They’ve managed to build something pretty special in no time at all. But there’s no to pump it up with lies and bubble math. Why not just report on the site, the community instead? Oh right, then it wouldn’t make a catchy headline on the cover.

JF 04 Aug 06

you weren’t complaining when they got all flowery about you.

What does one have to do with the other? I’m not talking about praise, love, hate, whatever. I’m talking about lying to your readers right on the cover and using that lie to sell magazines.

BusinessWeek is saying Kevin made $60,000,000 on their cover. It’s completely false. BusinessWeek is selling their magazine by misleading their readers right there on the cover. That’s weak, embarrassing journalism.

As I said in the post, there’s a lot of great things to say about Digg. But saying Kevin Rose made $60,000,000 is a lie.

Clayton 04 Aug 06

Does anyone really think that digg _wont_ be around in the future? I started using it about a year ago and upon re-evaluation of my browsing behaviour, I’ve quit reading slashdot, yahoo news, etc… Why? Digg brings in a good combination of featured interesting stories and just random crap that makes you go “oh cool”.

Is it worth $200M? Only if someone will pay that.

$200M wouldnt even get you a major league baseball team like the KC Royals (worst team in baseball).

What excites me? Seeing ‘young people’ do amazing things. That’s the only hype that article provided me.

Nate 04 Aug 06

What is ironic about this article is that Business Week readers will find out about Digg and stop buying Business Week. BW has to lie to sell a magazine (I’m sure their sales are down just like most other print magazines) and this story will only promote their demise.

Good for Digg… I get most of my technology news from there and hopefully their recent changes will give me a good reason to use them as a source of other topics as well.

JF 04 Aug 06

Clayton, I think Digg is a great site and a great service. They’ve definitely managed to tap into something. But that’s not what was on the cover. That’s all we’re talking about here — the proclamation on the cover, not Digg itself.

Chubbs 04 Aug 06

“So why are you writing about an 18-month old company that took $2.5 million to be “finally be flush with enough cash to pay salaries, rent an office, and keep employees in standard startup snacks like Twizzlers and Vitamin Water.”
Give some credit here Jason, your company is a startup too, isn’t it?

I think BusinessWeek is trying to stir the pot a little. I agree with your statements for shoddy journalism, BW should know better. The problems with Web 2.0 today is that hype doesn’t have a revenue model.

As an alternative take on all this, I think it’s worthwhile to note that this IS on Digg’s homepage, meaning the “censorship” allegations that people have been lambasting to Digg isn’t quite as solid as they’d like it to be.

How ironic, debunking Digg’s hype (driven from BusinessWeek, not Kevin Rose), ON Digg.

Matt 04 Aug 06

The “people in the know” stuff, alongside the PITK valuations for myspace, youtube, facebook, etc drive me nuts.

Myspace basically won the rupert murdoch lotto, but it’s sitting on top of what might be the most fidgety audience ever assembled. Facebook apparently turned down almost a billion dollars, probably because they’ve bought into the screwy math one of their investors showed them about how much they’re worth. Youtube is in the same exact business that it’s hosting provider is and is only interesting until copyright holders decide to make money from their work instead of watching other people steal it.

So, the digg business model is basically google ads. Talk about having your eggs in one basket.

The article specifically mentions that it’s “not as dot com deja vu as it sounds” — and justifies that with “some experts say youtube could fetch 500 million”. Uhhhh….isn’t that EXACTLY dot com deja vu? Unattributed experts making outrageous claims?

To blow your mind even more — as of right now all of the comments on the businessweek article are positive and congratulatory. They’re *congratulating* someone for something which may or may not ever happen, or even be possible to happen.

Phil 04 Aug 06

You’re absolutely spot on about the cover being a flat out lie…. but come on it’s just a catchy tag line to get people to read the article. I think if Kevin wanted $60 mil now it wouldn’t be that difficult of a number for him to get.

JF 04 Aug 06

Give some credit here Jason, your company is a startup too, isn’t it?

We’ve been in business for 7 years. We’re not a startup.

I’m not criticizing Digg taking money, I’m focusing on BW’s statement that all you need is $50/month and a laptop. If that’s the case why are they featuring a company that took $2.5MM in investment so they could pay a bunch of salaries and have office space?

BW’s words: “all it takes is a laptop and a $50-a-month Internet hookup to make a kid the next mogul”

$50/month and a laptop is not Digg, and there’s nothing wrong with that, but BW shouldn’t make a statement like that and then use Digg as an example.

brad 04 Aug 06

Why lie in big yellow type on the cover?

Because it sells magazines. This is the main reason I got out of journalism. This kind of stuff is forced on journalists by their editors, and it’s forced on editors by the publishers. There’s a lot of pressure to sensationalize and exaggerate in many mainstream publications, and if you’re a journalist with any sense of responsibility to your craft, you’ll bail out rather than submit yourself to this kind of crap.

Owen Byrne 04 Aug 06

Its kinda ironic in a way, that the shoddy journalism of Business Week sorta validates the peer-driven editorial process of digg. Everytime someone says something about the need for editorial restraint, Kevin can just point to that article.

Bill 04 Aug 06

Well, surely the point is that someone could buy Digg in the next week and he would have $60mn. Indeed Yahoo apparently already offered $50mn, so on the 30% math, that’s $15mn of value.

While I do agree with your sentiments, it’s not that offbase. Everyone values Steve Jobs or Bill Gates on their stock holding of their various companies. Now while they’re public, there’s no way SJ or BG could unload all their stock and liquidate their assets and still have the same value, since the very act of unloading the stock would cause the price to fall, and pretty dramatically if it was high level executives doing it. If anything Rose’s worth is more liquid, since Rose would actually be able to get all that $60mn if they were acquired, unlike SJ or BG trying to achieve similar liquidity.

Andy Brudtkuhl 04 Aug 06

BWeek has definitely been jumping on the web 2.0 journalistic hype bandwagon over the last several months.

I am starting to get unhappy with a lot of their tech/software/web industry coverage because they are definitely getting bubble fever. They have been writing a lot of worthless articles about web startups much like this that are unrealistic and invaluable.

Mike Rundle 04 Aug 06

This is completely and utter bullshit, and the true downside to this story is that people who are young and taking risks to start a business have to answer to this article. I know that my parents are going to read this and say, “Hey Mike, this guy made $60 million so…. what’s up with you? Can you do that?” and it would just take too much effort to explain that it’s a lie.

Look Smart 04 Aug 06

Hi Jason,

*We dont! BusinessWeek was always attracted to cool/gossip stories. they sell and in most cases will cover the lack of real content…

**But the same goes for 37signals! you guys got the BW story + 2xBest of the Web 2005 for the exact same reason. so like any good Model just smile and look pretty…you know it works;)


BTW -my dad always told me ‘Don’t spit in the well you drink from!’

James Archer 04 Aug 06

While there are still a few true journalists out there, it becomes more apparent by the day that the traditional news media has almost completely degenerated (as it has at other points in history as well) into pure entertainment. The average newspaper or news magazine may make for a great way to pass time in the waiting room, there not much good for anything else.

James Archer 04 Aug 06

(There = They’re. Shows what I get for posting before I’m fully awake!)

Chris 04 Aug 06

What does one have to do with the other? I’m not talking about praise, love, hate, whatever. I’m talking about lying to your readers right on the cover and using that lie to sell magazines.


While your intention may have been to criticize the magazine, you come off as a very critical against Kevin & Digg. As an instructor of mine said, ‘You’ve taken a dump in the punch bowl after you’ve had your fill of punch.’

Daniel Reed 04 Aug 06

I agree with many comments here and wanted to point out how articles like this do a dis-service to those that have started a business, any kind of business, and stuck with it during the good and bad. Kids are looking at that article and thinking, “I’ll camp out at the local starbucks and start the next big thing”, without realizing that it takes a lot of hard work and a lot of LUCK (yes, I said it ). I would much rather have $10M in hand than $100M on paper, especially paper that is completely based on “people in the know”.

Jon Maddox 04 Aug 06

Jason, are we to expect a mention of every misleading headline on a magazine now?

You say it has nothing to do with digg, but even in text, I can tell how worked up you are. I didn’t know you were so passionate about journalistic trickery.

J 04 Aug 06

While your intention may have been to criticize the magazine, you come off as a very critical against Kevin & Digg

Care to point that out specifically?

sam 04 Aug 06

While you’re criticising catchy headlines, I wonder if you’d care to apply the same critical approach to 37signal’s own home page headline “Over 500,000 people and small businesses use our web-based applications to get things done the simple way.”

Do 500,000 people really “use” your apps or is that really something more along the lines of “have tried our apps”?… that’s a fairly significant difference;

If you listed that number as the number of people who’re actually active (i.e, who’ve logged on to one or more of your apps in the past week), I wonder how large that’d be.

BS&S 04 Aug 06

Holy Fuck! Give it a rest. BW lied, JF pointed it out, deal with the issue instead of your pent up jealousy over the success of 37s. For fuck sakes, if you’re going to criticize anything, criticize the Gap Model photo of DHH; that was the moment of singularity where journalism took a nose dive into selling the sizzle.

Nate Cavanaugh 04 Aug 06

When I first read this I was a little blown away at the amount of money being discussed, until I read the article.

And then, in a year, when investors are burned, BusinessWeek will release an artile “Why The Bubble Popped” and talk about how idiot grandma’s investing in the hype didnt do the math for themselves. “Geez, I wonder why stocks got evaluated so high…”.

And of course, you have the reactionaries from digg coming over and flaming anything that is critical of Digg.

Digg is great for what it is, but it is not the be all end all of the web.

Even given the fact that it’s audience is only a slim percentage of the population, they seem to think that it speaks to and for everyone.

Anyways, thanks for actually holding journalism accountable, which is something I think is more necessary the more hype something gets.

Good stuff…

JF 04 Aug 06

Jason, are we to expect a mention of every misleading headline on a magazine now?

Yes that would be logical. I’ll also be posting about every single cool car I see because I posted about a car a few days ago. I’ll also be mentioning every fruit juice company because I posted about POM yesterday. I’ll try to fit those in between all the new posts on cell phones I have queued up because I’ve written about those a couple times as well before.

Jon I am worked up because the cover is utter bullshit and utter bullshit needs to be called out. Digg isn’t bullshit, but this big number on the cover is. This stuff damages our industry. I’m proud to stand behind this post and I’m glad to see techdirt also wrote it up. I hope others will as well.

I wish all business owners success. I hope Digg is successful beyond anyone’s expectations, but that doesn’t mean I won’t call bullshit on a cover that is way off the mark. To reiterate, it’s not Digg that’s off the mark, it’s the number that is off the mark.

brad 04 Aug 06

While you’re criticising catchy headlines, I wonder if you’d care to apply the same critical approach to 37signal’s own home page headline

Apples and oranges. Everyone expects businesses to exaggerate and stretch the truth. Journalism is supposedly held to a different standard. ;-)

timL 04 Aug 06

This strikes me as borderline flaming.. even from 37signals peeps.. There is a much bigger need in the media to be truthful and direct with their stories.. I understand that.. and this is a perfect example.. mind you the details.. however many garage developers out there (kids, etc) need to see some successes from startups.. not that Digg is a success yet.. but it does inspire a dream in some creative developers.. That dream translates to excitement, passion, and hopefully useful and PROFITABLE products..

This kind of publicity indirectly puts confidence in the technology industry and its stock market connections which helps to drive the next few years of American technology.. ultimately the American dream..

in my opinion…

J 04 Aug 06

timL, I think the issue here is that there are many many *real* business success stories out there that can inspire people to build real businesses with real revenues and real profits. Why pick Digg which is a break-even website? And if you ask me the business model sucks. Their users do all the work and Digg still can’t make money off $3,000,000 in revenues. Seems like exactly what NOT to do.

Mike McDerment 04 Aug 06

I guess this is how bubbles get blown…nice tirade…nice.

Brett Sinn 04 Aug 06

Take your own advice. Headlines like that make profit. For both companies, shoddy or not.

heri 04 Aug 06

what i concluded from reading this post is that 37signals is obviously jealous of digg, which is very populary but not as advanced technically as backcamp or one of their products.
digg, in its essence, is a bitc* towards its users, whilst 37signals is more of a group of engineers convinced that a well-crafted product will be successful.

Owen 04 Aug 06

Ummm. Have you EVER read a magazine or newspaper that didn’t do this? If you did it was just because it was in an area you don’t know so well. The Wall Street Journal does it. THe New York Times does it. The Economist does it. Even academic journals in their own muted way do it.

Magazine journalism is NOT about investigating and then reporting the truth - it is about investigating and reporting a STORY. That story may or may not be all the valid truth. You are supposed to read with a critical eye/ear. Even hard news reporting is about telling a story at its core.

This is a really strange and uniquely American phenomenon that journalism is held to be some higher moral calling.

In fact, the story itself isn’t really all that bad if you read it all - it does tell the truth. It’s the cover you have a problem with. Guess what? The cover isn’t put together by the writer or the journalist or even the editor. It’s put together by the publisher. The publisher is in business to sell as many copies as possible. The whole cover is in fact a lie. He isn’t a kid. He hasn’t yet made anything. When (and if) he does there is no guarantee that it will be $60 million and it absolutely WILL take more than 18 months.

Plus there are a few lottery winners all over the country who made more than that in a few seconds.

I would only actually be upset if the article doesn’t talk at all about what he and digg actually did.

JF 04 Aug 06

i concluded from reading this post is that 37signals is obviously jealous of digg

I’m not sure how you concluded that, but we’re not jealous of Digg. This post has nothing to do with jealousy or any opinions about Digg the company.

This post was about saying someone (it could have been anyone, it just happened to be Kevin from Digg) made $60,000,000 when he clearly didn’t. If he did I’d be happy to congratulate him — that would be a great thing for him, but until then it’s not true. And BW shouldn’t put that sort of thing on their cover. That’s for a tabloid, not BusinessWeek.

J 04 Aug 06

This is a really strange and uniquely American phenomenon that journalism is held to be some higher moral calling.

That’s journalism’s own statement. They believe they exist to report the truth. That’s why they’re there. They have to tell the truth because the gov’t and everyone else is telling lies. According to the press the press is around to balance the power. That’s why they’re held to that standard. It’s a standard they created.

"D" 04 Aug 06

This is “YELLOW JOURNALISM” personified!!

Don Wilson 04 Aug 06

Why lie about a fact and paste it on the front cover? To sell copies of course :)

Mark 04 Aug 06

C’mon folks. Getting all in a tizzy about this is like being shocked that Lance Bass’s recent “outing” had absolutely nothing to do with his sexual preferences but everything to do with promoting his new TV pilot.

There’s no news here, so don’t go looking for any. It’s all about the publicity.

J 04 Aug 06

Ya know, if I was Digg I’d be pissed about this cover. It basically says there’s nothing cover-worthy about Digg except a fake number.

SP 04 Aug 06

Why lie in big yellow type on the cover?

Because it sells magazines.

It really is as simple as that.

Jeff 04 Aug 06

Sounds a little like sour grapes to me. It’s a fun story, and I’m fairly certain that Digg has been offered huge amounts of cash. I’m not saying that it makes sense, but there’s no question he’s in a position to build and flip. Hopefully he won’t.

You say it’s not a dig at Digg or Rose, but that holds about as much weight as you saying in your book that you’re not trying to be pretentious regarding your development methodologies.

I think 37signals has been played out to death in the media too, and I think your philosophy is fine for the market you’re after. Some people go for bigger fish, and the bigger money that might come with it.

Fred 04 Aug 06

I’m usually not a critic of magazine covers (honestly, we all know how journalism works), but this one also caught my attention and Jason’s post pretty much sums the feeling. Success is one thing (and honestly, I’m glad Kevin is doing well with Digg). Hyping it for the sole purpose of selling more magazines, and doing it based on make-up facts is “shady”.

Good write-up.

matt 04 Aug 06

A mention on Romenesko would seem to confirm that a major issue here is journalism.

Alexander Muse 04 Aug 06

Great PR for DIGG. I would not be surprised if DIGG was raising more money at a $60MM pre-money number (that would inline with current deals). That does not mean you could sell it for $60MM (it certainly does not mean you couldn’t either).

I would pay 5x revenue on a property like DIGG - $15MM, but someone with synergy might be able to justify a much higher price. To say Kevin “MADE” $60MM in 18 months is reported on the cover in a misleading way. One could make the assertion he made $60MM in value - i.e. the current valuation in 18 months. Value that is only on paper at this point. Does anyone know what the post-money valuation was on the $2.5MM?

MojoMark 04 Aug 06

I just skimmed your definitions of Web 2.0 you posted the other day, and I don’t think I saw “Making billions of imaginary dollars” on the list. Were Kevin, Paul, Mike, Colin, or Tyme on your list of respondants?

Mark Haliday 04 Aug 06

Enter the morons…. This is why the comments on 37s were turned off a while back. Are you people stupid or just dumb? All 37s is saying is that BW’s article is misleading…and thats 100% true. Rose doesn’t have $60 million sitting in his bank account, he has a break even company and thats all. It took a lot more than $50, a computer and a can of paint to create Digg.

Mike Rundle 04 Aug 06

“Sounds a little like sour grapes to me. It’s a fun story, and I’m fairly certain that Digg has been offered huge amounts of cash.”

I’m fairly certain you don’t work for Digg, so how can you be fairly sure about anything you’re saying? Hell I’m fairly sure that I’m going to eat thai food for lunch, but who really knows?

Alexandre Simard 04 Aug 06

BW’s words: “all it takes is a laptop and a $50-a-month Internet hookup to make a kid the next mogul”

$50/month and a laptop is not Digg

It’s not Digg, it’s Reddit!

Good callout on the shoddy journalism. 9rules’ was shorter and funnier, though.

Daniel Reed 04 Aug 06

I wonder Kevin explains how he made $60,000,000 to his employees who must be a little surprised by this cover story.

Rabbit 04 Aug 06

I’m happy to see someone as influential as JF so concerned over these blatant lies. (Because that’s what they are — not “shoddy” journalism or anything else. They’re lies.)

Granted, this is “just” an article about a web site, but it’s reminescent of 1984.

My opinion? The greatest evil isn’t the article itself, it’s the people who let it pass without raising their voice.

Keep it up JF.

AM 04 Aug 06

It doesn’t ring true that your critique of this cover has nothing to do with Digg or another successful entrepreneur getting a cover page and grand headline. To me, your article comes over as indignant and slightly petulant!

Sean Warburton 04 Aug 06

I think I’d consider scrapping this blog because one of these days your ill conceived rants may cost you. Both yourself and DHH are loose cannons and while it’s sometimes entertaining, it’s often ugly.

You’re an educated human being with a great knack for stating the obvious, the problem is that there’s an arrogance in some of your observations. They often assume the rest of us mere mortals to be incapable of drawing our own conclusions or seeing through spin. The irony of this whole debacle is that you’re as guilty as anyone for spinning the truth, there’s a fine line between truth and bullshit, a line that you often tread.

mike toreno 04 Aug 06

woah, what the hell happened here! 37signals makes wonderfully simple products (just take a look at any other project management software after using basecamp) and they care deeply about doing business on the internet. hence the basic interest in discussing mainstream press coverage of it.

insightful, accurate discussion of web-based applications and the industry surrounding it is more important than the trolls in this thread are willing to admit. if VCs, public policy makers, and others not in the loop get the wrong impression about what’s going on, it could hurt the willingness of users to try out new products and it could hurt the ability of talented creative professionals to find work.

all jason said is that the numbers don’t add up and that it upsets him.

Jamie Quint 04 Aug 06

The statement that he MADE $60 mil in 18 months is straight up false, It probably would be valid to say that he became WORTH $60 million in 18 months, of course this is speculatory, but what valuations aren’t. It would be interesting to see what valuation the 2.5 million was invested at.

Jamie Quint 04 Aug 06

The statement that he MADE $60 mil in 18 months is straight up false, It probably would be valid to say that he became WORTH $60 million in 18 months, of course this is speculatory, but what valuations aren’t. It would be interesting to see what valuation the 2.5 million was invested at. I think this whole post is an extreme overreaction, watch newspapers and magazines for a week and I bet you could come up with 100 more “lies” worse than this one.

mike toreno 04 Aug 06

i don’t care about navelgazing speculation. if someone created a lot of real, measurable value (measured after the fact) in a short amount of time, maybe they have something they can teach other people, in which case it’s interesting to hear what they have to say.

otherwise it’s best to just shut the fuck up and talk about something interesting instead.

e.j. 04 Aug 06

DHH:But there’s no [need] to pump it up with lies and bubble math.

JF:I’m not talking about praise, love, hate, whatever. I’m talking about lying to your readers right on the cover and using that lie to sell magazines

Mark: Are you people stupid or just dumb? All 37s is saying is that BW’s article is misleading…and thats 100% true.

yeah well so much of what 37s says about their products seems misleading to alot of people also. $60,000,000 and 500,000 users every day is not apples and oranges.

37s has been cultivating their own reality distortion field for quite a while. ruby on rails, backpack, basecamp. all fairly well positioned as the second coming of jesus christ (jesus now from copenhagen!)

which is fine, i mean more power to them, their marketing talent is unmistakeable.

but to hear them call out business week on something they themselves do all the time seems the height of hypocracy, thats what the comments here are pointing out, the hypocracy. not the simple fact that this magazine cover is sensationalized.

sensational media is nothing new. that jason is harping on this example is perhaps telling. i mean with digg you figure he would lay off. some might guess he is worried about the sheep straying, who knows. id guess he really just needed something to write about today.

Narendra 04 Aug 06

Props Jason on calling this nonsense out. Even if digg is ever sold, well then it’s time to pay the taxes. And if the sale is for stock, you better hope that new company is a good one. We rode Excite@Home stock for Webshots straight down to decorative certificate value…

MMI 04 Aug 06

Although I believe the $60 million dollar mark is, more-than-arguably, off the mark. I’d be curious what number people think they *should* have put on the cover. You can’t just expect BW to put something like, ‘Hey! this kid has fifty bucks in his pocket right now!’ Obviously his 30%-40% of digg is worth a substantial amount of money. Some might say they shouldn’t have put any number on the cover, but I don’t see that as an option - after all the headline does get to the heart of the article, and it needs to be something that will sell magazines, moreover, I don’t think something like, ‘this kid is worth 60,000,000 on paper if you take an estimation of his company divided by his reported share of said company.” - it doesn’t really have the same ring to it. ;)

They could have said something like, ‘How did this kid create a $xxx million dollar company in 18 months.’ Which would take the focus off of Rose, and put it onto digg itself, but then we’d just be having this conversation in regards to diggs valuation instead of Rose’s.

JF 04 Aug 06

It doesn’t ring true that your critique of this cover has nothing to do with Digg or another successful entrepreneur getting a cover page and grand headline.

I can’t change your mind, I can only reiterate what I’ve said before. I love seeing entrepreneurial success stories. It’s a real thrill for me to see other people take a shot and make something great out of it. I know how hard it is to do and anyone that can do it deserves all the praise they get. And Kevin and Digg may very well be on to something big. I’d love to see them succeed on a grand scale and I’d love to see him actually make $60,000,000.

But that hasn’t happened yet which means the cover is wrong and misleading. And I’m glad Scott Rosenberg, the co-founder and editor of Salon.com has spoken out about it too.

J 04 Aug 06

but to hear them call out business week on something they themselves do all the time seems the height of hypocracy, thats what the comments here are pointing out, the hypocracy. not the simple fact that this magazine cover is sensationalized.

Please prove 37signals’ numbers wrong. I can prove the Digg BusinessWeek cover wrong fairly easily: I can read the article. 37signals is a private company. Their numbers are their numbers. If you think they are wrong that’s up to you, but it’s your own speculation. BusinessWeek, on the other hand, is printing a blatant lie on their cover. They even prove it’s not true in their actual piece.

If you can’t see the distinction between a private company publishing numbers and a respected national business magazine printing a known lie on the cover of their magazine then you need to look and thinking a little harder.

Why you’d want to defend a reputable business publication publishing *news* that is false, I don’t understand. And why you’d want to turn this around on 37signals I don’t understand. Unless you have something against 37signals, and you just feel like taking your own personal animosity out on their blog. If you think 37signals is so full of shit why do you read their site and follow their business at all? It seems like a true waste of your time.

Jack Shedd 04 Aug 06

When Jason attacks misleading sound-bytes, you just know somethings off. ;)

Anyone attacking Jason for being “envious” is being silly. He’s consistently quoted and praised other entrepreneurs on this blog, and in numerous interviews. He’s a champion of small business.

You guys are out of your mind.

SJ 04 Aug 06

Can I make a suggestion. Anybody who doesn’t like what Jason, DHH and Co. are saying are free to stop reading this blog and go elsewhere.

I applaud what 37s are doing, I may not always agree with everything that’s being said, but I wouldn’t start flaming them over it; it’s their blog and they can write what they like!

I can’t help thinking these people who start making cutting remarks are somehow lacking in ability and choose the knock those who have it.

J 04 Aug 06

You can’t just expect BW to put something like, ‘Hey! this kid has fifty bucks in his pocket right now!’

So why make it the cover story? If BW can’t think of anything great to say about Digg besides faking a number, then why make this the cover? Does BW *HAVE TO* write a story about Digg and put it on the cover? Or can they make an editorial decision that says “great little company, these guys are going places, but there’s just not enough for a cover story.” That’s what the press does all day — decide what’s newsworthy enough to put on the front page, on the cover, inside the magazine. If they have to fake numbers to make their stories juicy then there’s something deeply wrong on the inside of BW.

Richard Medek 04 Aug 06

Wow. Just wow. Apparently, these are code words for “being indignant at Digg getting a cover article”:

Now, this isn’t a dig at Digg or Kevin, it’s a dig at shoddy journalism. There are a lot of great things to say about Digg so [why] pick something that’s not true? Why lie in big yellow type on the cover?

Heh, indignant, get it? Ok, I’ll stop.

And for the rest of you who can’t read a birthday card from 37S without “sensing arrogance,” I have the feeling that if 37S wasn’t as successful as they are none of this would be an issue. As a matter of fact, I’m fairly certain, which means I’m totally and factually correct.

Anonymous 04 Aug 06

Jason,

The headline says in terms of noun, verb, subject that “kid” “made” “$60 million”. And it is truthful. Digg may screw up and his valuation may move down to $1 million or less. Or it may double or triple. But if the valuation of the company is $200 million and he has approximately 30% of the shares, then for all intents and purposes he has made $60 million.

Here’s a test. If he could sell his stake to you, how much would you pay? If I had the money, I would pay slightly less than the valuation of his shares.

I’m sure many VCs right now would willingly spend around $60 million for a 30% share of DIGG.

Like others have noted… Stop being so picky. You’ve missed the mark on this one.

Regards,

Anon

nnn 04 Aug 06

im going to digg this story

nnn 04 Aug 06

im going to digg this story

Joel Mueller 04 Aug 06

It’s quite amazing - so many times people post things that have a critical edge to them, like Jason’s post here. And then so many people don’t read the post with logic and reason. I’m surprised every time when people start saying silly things like “are you going to post about every misleading headline now,” or “you’re just jealous of digg,” or “you got the same headlines from BW too.” Wow. What a pain for Jason to have to moderate and clarify this points and keep people on the subject and focus at hand.

AM 04 Aug 06

JF writes: I can’t change your mind, I can only reiterate what I’ve said before. I love seeing entrepreneurial success stories.


He protests too much, methinks.

Jack Shedd 04 Aug 06

It’s also pretty silly to bash the entire article on the headline alone. The full text of the article is balanced, and very poignantly points out just how speculative Kevin Rose’s “wealth” is. It’s a focus of a good chunk of the article. Headline aside, it’s not exactly John Katz Bubble Love journalism.

It’s a poorly chosen headline, intended to sell magazines and nothing more.

If you’d like me to point out every hype-ridden 37signals headline ever featured in print, I’d be more than happy too.

J 04 Aug 06

But if the valuation of the company is $200 million

ACCORDING TO WHO? “People in the know?” Don’t you get it? “People in the know” don’t make a valuation. A valuation comes from someone actually paying for something. Something is only worth something when someone is willing to write a check for it right now.

If “People in the know” said 37signals was worth $400,000,000 would you concur? Or would you say “that’s bullshit!”

e.j. 04 Aug 06

Please prove 37signals’ numbers wrong. I can prove the Digg BusinessWeek cover wrong fairly easily: I can read the article.

well the fact that you can “prove” their cover wrong by reading the ARTICLE kinda shows that it is a sensationalized cover about a factual article. that doesnt really fit with shoddy journalism in my book. (no one has actually questioned the facts of the article)

i cant really PROVE 37s’ numbers wrong. even internally im sure its hard to say for sure. but i think everyone can surmise that they look at it in the most flattering, basically plausable, and simply stated way. thats what BusinessWeek did.

If you think 37signals is so full of shit why do you read their site and follow their business at all? It seems like a true waste of your time.

same reason i read BusinessWeek. its entertaining. why did you read and respond to my comment?

Albert 04 Aug 06

Dot-com bubble 2.0?

J 04 Aug 06

If you’d like me to point out every hype-ridden 37signals headline ever featured in print, I’d be more than happy too.

Please do and please be sure to highlight what’s factually incorrect about the headlines. “Hype” is subjective, saying someone made $60,000,000 when they didn’t isn’t. Saying that is a lie. It’s factually incorrect.

J 04 Aug 06

but i think everyone can surmise that they look at it in the most flattering, basically plausable, and simply stated way. thats what BusinessWeek did.

No they didn’t. BUSINESS WEEK SAID KEVIN ROSE MADE $60,000,000. He didn’t. That’s a huge lie. a $60,000,000 lie. It’s not looking at something in the most flattering way, it’s lying in a big way. If you can’t see that then I don’t know what else to say to you.

Sean Warburton 04 Aug 06

Judging by the slowdown of the site, it would appear that your servers aren’t able to cope with being dugg.

Jack Shedd 04 Aug 06

J - Fair point.

To me the $60M is hype. It’s an optimistic assertion of Digg’s value (based on who the hell knows), but I don’t doubt that to some investment firms, that number is spot on. When dealing with tricky things like valuations, it’s all relative anyway.

It’s not quite a lie. It’s not quite the truth. It’s a bit of truthiness to get attention. And look how well it worked.

edwashere 04 Aug 06

Actually, I think he is worth close to $100m. I never heard of Kevin Rose or Digg.com until that cover.

My take is that Amazon or ebay will buy it in 6 months and Kevin will get his $100m and be asked to stay on for a year — then he will leave.

That is what happened to a friend of mine who even moved to Seattle and really tried to make a go of it… A year later he was stripped of what was left of his company, Jeff Bezos gave him “special projects” and shortly after they closed the site and wrote off all of the costs…

$60m is punk change to Kevin now. He should take the money and buy himself one of those new Gillette Fusions — Before the next photo shoot he should also wash his hair.

St 04 Aug 06

No they didn’t. BUSINESS WEEK SAID KEVIN ROSE MADE $60,000,000. He didn’t. That’s a huge lie. a $60,000,000 lie. It’s not looking at something in the most flattering way, it’s lying in a big way. If you can’t see that then I don’t know what else to say to you.

I think people have a different definition of “made”. In silicon valley, for instance, it’s wouldn’t be strange to hear someone say “i just made $xxx today!” when their company’s stock goes up 20%. Doesn’t seem that different than the BusinessWeek headline, just on a larger scale.

When MSFT goes up 20%, Bill Gates “makes” like a billion dollars.

Jeff 04 Aug 06

@ Sean Warburton: Right on! Exactly what I was after, but I just didn’t have the words.

Mike Rundle 04 Aug 06

St: No, there’s only one definition of “made” and it’s based on real money. See when you own 1000 shares of something and it goes up $1, you’ve made $1,000 of actual money. Now if Kevin owns 30% of a company that is *fictionaly valuated at* $200M then he has not made any real money. He’s made a whole lot of speculative pull-numbers-out-of-my-ass money, but not any real money.

See the difference?

Lets Rumble! 04 Aug 06

And since article made the front page of digg, we finally get to see who’s more fanatical, the 37sigs sycophants or the Kevin Rose cult…. flame on!

J 04 Aug 06

i just made $xxx today!” when their company’s stock goes up 20%. Doesn’t seem that different than the BusinessWeek headline, just on a larger scale.

Totally different.

If you have stock traded on the public markets and that stock goes up, you can sell it and liquidate your position and enjoy your gains in cash. That’s real money.

If you own a private company and “people in the know” say you are now worth $60,000,000 yet you have no way of getting at that money (mainly because it’s not real money, it’s some anonymous source), then you don’t have the money. You don’t have the cash. And you aren’t worth anything. As mentioned in the post, try buying a burger with the $60,000,000 you “made.”

It’s not quite a lie.

Yes it is. Kevin did not make $60,000,000 in 18 months. He didn’t make 50,000,000 either or 40,000,000 or even 1,000,000. “People in the know” don’t make you money until someone writes you a check.

sw0rdfish 04 Aug 06

While I agree it’s not completly accurate, I wouldn’t call it an outright lie. Also, I think you’ve all gotten a little carried away with this… Especially on a “design and useability” blog.

Jack Shedd 04 Aug 06

J - what you’re missing is that if Rose decided tomorrow he wanted out of Digg, and decided to sell the whole thing, he’d obviously snag quite a bit of cash based on his valuation.

I think you’re getting too caught up in semantics. There’s another perspective here, that while you might disagree with, is quite common to financial types.

JF 04 Aug 06

what you’re missing is that if Rose decided tomorrow he wanted out of Digg, and decided to sell the whole thing, he’d obviously snag quite a bit of cash based on his valuation.

According to who? “People in the know” or a “rumored offer from Yahoo.” What you’re missing are facts. He didn’t make $60,000,000 and there is no guarantee that tomorrow he could make $60,000,000 either. People love to spend other people’s money, but when it comes right down to it Digg isn’t worth a dime until someone is willing to actually pay for it. Rumors and people in the know don’t pay the bills.

Jack Shedd 04 Aug 06

Jason - I don’t think Digg would have any problems finding a buyer. They clearly have no problems finding investments.

Phil 04 Aug 06

His ownership in Digg is an asset, that asset, be it producing millions or not still has a value. In the same way that your house is “worth” $600,000. Even if you don’t sell your house, I don’t think it would be a lie to say you’ve made $200k off the house if you bought it for $400k. Heck, even the bank will loan you that. Your house is determined to be “worth” $600k by comparing sales of similar assets in the area. In the same way, that $200m valuation was given to Digg. I don’t think thats completely baseless and I don’t think even you truely doubt he can get $60m for his share of Digg if he wanted to.

DHH 04 Aug 06

It’s truly a sad day when bubble math is seen as equivalent to money in the bank. If BW wanted to do a story about young entrenpenuers who have made millions, why pick Digg? Why not go with MySpace, Delicious, Flickr, or any of the other startups that has been sold for real millions, not vapor-millions.

Digg will be a real story soon enough if it truly is worth $200M and someone coughs up that kind of dough. Then we’ll be the first in line to say congratulations to Kevin Rose and the rest of the team.

shane 04 Aug 06

@ Jack Shedd,

I agree they would probably have no problem finding a buyer but… the headline reads, “How this kid *made* 60 million in 18 months”… *made* isn’t *could make* and I think that’s all Jason is pointing out.

Chris 04 Aug 06

Such pretentious drivel. All of this. If it ain’t ‘we are sooo great because we love the simplicity and minimalism of our own navels’ then it’s ‘we are soooo great because we know that a similarily sized startup couldn’t be nearly as successful as we are’. And ya, you’re a startup. Like it or not, that’s how your viewed.

So guys, why not get off of Digg’s coat tails for a minute or two and let them have a dance or two at the ball? There’s plenty of girls to go ‘round.

JF 04 Aug 06

Investments for 2.5 million is quite different from a buyer at $200,000,000. Selling a company is not an easy thing and fetching an eval at 60x revenues is exponentially more difficult.

I wouldn’t be so certain there’s a line of buyers willing to fork out 60x revenues on site that’s just breaking even. Could they sell for $20million? Easier perhaps, but that’s would only net Kevin $6,000,000 so BW would be off by a factor of 10. That’s a big factor to be off when you use it as the eye-catcher for your cover. That’s bait and switch.

All I’m saying is let’s not throw fantasy numbers around and treat them as if they’re real. It’s fun to toss around millions, tens of millions, and hundreds of millions, but at the end of the day those are completely speculative.

If BusinessWeek’s cover was “Could this kid be worth $60,000,000?” then it would be fair game. But the cover said “This kid made $60,000,000” and that’s not fair game unless you want to mislead people on the cover of your magazine.

Mike Rundle 04 Aug 06

Jack: Not many people have trouble finding investments. The most ridiculous “business ideas” on the planet have found money to back them, so I wouldn’t say that just because an idea or company is fundable automatically makes them purchasable.

Phil:

“In the same way, that $200m valuation was given to Digg. I don’t think thats completely baseless and I don’t think even you truely doubt he can get $60m for his share of Digg if he wanted to.”

The valuation was NOT given to them by investors, it was merely pulled out of thin air. If a venture capital firm gave them $20M for a 10% stake, then the valuation of $200M would be accurate but nothing like that has happened.

I *could* win the lottery tomorrow but until it actually happens then it’s not a reality I should be buying into.

Why is it that Digg readers/commenters have the worst common sense (not even business or math sense here, it’s common sense) of any group of people I’ve ever seen comment on a story. Go back to elementary school and learn real from fake.

Erin 04 Aug 06

It’s debatable whether the math is incorrect. What’s not at issue is whether the coverline is. It’s factually incorrect. As a former journalist, I’m appalled that this coverline made it to print.

“Made” means Rose has the money—whether it’s in the bank right now or he’s completed a transaction that will produce the money in a certain timeframe.

Rose clearly has not made $60 million. He hasn’t completed the sale of the company nor has he engaged in a transaction to do so, according to BusinessWeek.

BW *could* make the argument—it’s very shaky but somewhat supportable—that Rose is “worth” $60 million, just as you can accurately say that Bill Gates is worth $xx million based on how many shares of Microsoft stock he owns and the current stock price. Digg is private, so there’s no stock price to guide the valuation and thus Rose’s worth. We have to go to other sources for valuation. BusinessWeek relies on “people in the know,” who have *some* authority, however dubious.

(Journalists use terms like these as the very last resort when they can’t convince anyone to go on the record. If the writer could have put a name there, he would have.)

When Rose sells Digg for $200 million, he’ll have made $60 million. Until then, BW’s coverline is blatantly wrong.

Scott Rosenberg 04 Aug 06

I agree with Jason, as I wrote here, and I don’t think there’s any jealousy or rudeness (or dissing of Digg) in pointing out that Business Week’s cover is entirely indefensible.

As someone coming at this more from the world of journalism (albeit Salon’s history gives me a perspective on the tech and Web universes as well), I have to say there is *no* ambiguity or fuzziness when a business publications says someone “made” a sum of money. “Made” means the dollars are sitting in some liquid account somewhere — stock you can sell or dollars you can spend. “Made” does not mean “someone speculated your company might be worth a certain sum,” any more than I could say that I “made” $100,000 if Zillow decided that my home somehow increased that amount in value. These numbers are fictions until someone comes along with a real offer. Business Week’s editors know this, and could easily have written a coverline that said Kevin Rose is “worth” $60 million, whichj would still have been hype, but would have been a little more defensible.

Also, I think that calling out this sort of hype is healthier for the Web industry than sitting back and letting it sucker investors who don’t know any better. That’s what happened in the ’90s. Let’s not allow it to happen again. So I disagree with Brad above when he writes “This kind of publicity indirectly puts confidence in the technology industry and its stock market connections which helps to drive the next few years of American technology…” Confidence based on deception ultimately explodes in the industry’s face. In this case, I don’t hold Digg responsible —they’re just trying to build a service — but I do think Business Week should know better.

JF 04 Aug 06

Some more people weigh in on the BW fallout.

I like Calacanis’ take on the numbers:

“DIGG has not been sold yet, from what I understand BusinessWeek is basing the $60M number on someone telling them that DIGG would sell for $200M. DIGG is making $3M a year from what people are saying. That would give them a 65x revenue, and if they have $500k in profit a 400x earnings multiple ($1M in profits would give them a 200x earnings multiple). Wow… makes Google look cheap!”

Neil J. Squillante 04 Aug 06

For once I agree with you guys. You can’t fault Digg’s PR firm though — they were just doing their job. Business Week deserves the blame for taking the bait.

Now, can you guys please stop blogging for a minute and add expense tracking to Basecamp. Thank you.

bob 04 Aug 06

he copied the “thumbs up” pose of Bob from GiveBobaDollar.com

http://www.givebobadollar.com/images/purchases/full/1122052shirtfull.jpg

Brad the Dad 04 Aug 06

The kind of bubble-math logic, which Newsweek is using, is what determines the Forbes top 20 (I think it’s 20) richest people in the world. It is verbally misleading, yes, they’re journalists, but it also a great barometer of judgement, just not an accurate revenue forecast.

It is amazing how Kevin Rose (and I don’t say this lightly) built an empire which appears will stand the test of time. It squashed the competition, as well as effectively shrugging off almost all, if not all, the naysayers.

Neil J. Squillante 04 Aug 06

For once I agree with you guys. You can’t fault Digg’s PR firm though — they were just doing their job. Business Week deserves the blame for taking the bait. Then again, I enjoyed the article, which will move copies of the magazine so perhaps Business Week should be praised.

Anyway, can you guys please stop blogging for a minute and add expense tracking to Basecamp. Thank you.

David 04 Aug 06

Man give it a rest and stop being so jealous. The cover of a magazine is designed to sell the magazine and that is exactly what this headline will do. Does it really matter whether or not Kevin Rose is worth $60 million or not - heck no it does not. You are totally correct in the relative lack of accuracy of their statement, but this is hardly the first or last time that will be an issue with any magazine. A more accurate title would have been “Is this man really worth $60 million?” And the picture is bad.

"David" is an idiot 04 Aug 06

Okay, so if I pour 2 million into, say, and electronics store and the store blows up and every in the WORLD goes there, wiping out every other store in existence and making mine a monopoly being the only electronic store on the Earth, am I worth the 2 million I put into the store, or whatever I fucking feel like selling it for because now I own the market? Digg has invested 3 million + dollars into itself, but if someone bought it and ad-raped it like they did MySpace, it would easily be worth an ungodly amount more than that. Until the user base got sick of the ads and went somewhere else that is…

The person who wrote this article clearly has small penis syndrome and is jealous of Robert Kevin Rose for some unknown reason. Application get rejected or something? Well, anyhoo, enjoy writing for some website no ones ever heard of until it got PLACED ON THE SITE YOU’RE DOWNPLAYING.

Fool.

sw0rdfish 04 Aug 06

Christ… an over exaggerated headline to sell magazines… and newspapers…

You act like this is new.

Oh well, you’ve been Dugg and you’re starting a stirr… more traffic for you :)

I wouldn’t quote AOL or Calcanis on this topic… he’s openly admitted to hating Rose

qc 04 Aug 06

You guys happen to remember how much topix.net was sold for? I think Digg is getting more traffic these days.

russ 04 Aug 06

What a jealous d-bag. Get over it.

INgrid 04 Aug 06

You know when I read these hype articles in Business week it makes me ask these questions:
1. Where are the women entrepreneurs
2. Who paid that person to “write” that article and why isn’t the editor who allow it to go to press still working there?
3. We so wish we could get even one tenth of some of the obviously idle venture capital money to fund some killer ideas here in the Caribbean. But as we say here in Jamaica - “John Crow seh di worl’ no level” which is patois for, At times, the world’s playing field, just isn’t level.
Nuff respect to the 37signals team. We read you alot at our company here in Kingston, Jamaica.

Which leads me to this…I’ve read a number of articles on Fried and 37signals and what has been achieved, remarkable and quite inspiring. BUT…I’d love to be read about just a few struggles and how you overcame them…eg. when choosing to remain small may have caused some chafing internally, or caused some lifestyle downsizing exercises.

Keep on keeping this blog fresh and a must read.

Nuff Respect
Ingrid
Kingston,Jamaica

UnicycleBoy 04 Aug 06

newsweek is just another example of driveby media…these guys make me wanna barf

INgrid 04 Aug 06

You know when I read these hype articles in Business week it makes me ask these questions:
1. Where are the women entrepreneurs
2. Who paid that person to “write” that article and why isn’t the editor who allow it to go to press still working there?
3. We so wish we could get even one tenth of some of the obviously idle venture capital money to fund some killer ideas here in the Caribbean. But as we say here in Jamaica - “John Crow seh di worl’ no level” which is patois for, At times, the world’s playing field, just isn’t level.
Nuff respect to the 37signals team. We read you alot at our company here in Kingston, Jamaica.

Which leads me to this…I’ve read a number of articles on Fried and 37signals and what has been achieved, remarkable and quite inspiring. BUT…I’d love to be read about just a few struggles and how you overcame them…eg. when choosing to remain small may have caused some chafing internally, or caused some lifestyle downsizing exercises.

Keep on keeping this blog fresh and a must read.

Nuff Respect
Ingrid
Kingston,Jamaica

macewan 04 Aug 06

Would you mind too much if I requested you add a “Digg this” button to your blog?

macewan 04 Aug 06

Would you mind too much if I requested you add a “Digg this” button to your blog?

RJB 04 Aug 06

JF… Maybe you could elaborate on the real, or other side of the issue here… I feel the same way as you, but not only because of the blantant lie. “Shoddy journalism” runs rampant in the US. We deal with it everyday.

What does this mean to the industry? What effects, small or large does or could it have?


Very grey area, but… “…“A Taste of Paradise” to “Untouched by Human Hands. Until You Drink It.” Sales jumped 67 percent in the past year…”. Is that all it takes in business? Is alluding a lie?

JF 04 Aug 06

We have a “digg this” link on articles in our RSS feed.

zx 04 Aug 06

jason, BusinessWeek acted the same with the 37S story (getting real, less is more, stay small, bla bla…) you are a gimmick in the same way that Kevin is…and it’s not so bad.

* don’t forget that ‘BusinessWeek’ is mentioned 6 times on 37S home page;) i hope that 37S&digg will make it but please - get real!

St 04 Aug 06

Mike Rundle:


No, there’s only one definition of “made” and it’s based on real money. See when you own 1000 shares of something and it goes up $1, you’ve made $1,000 of actual money.

No you haven’t. Not until you sell it. Ask any of the people who were around at the big internet bust who had untold millions in stock that they never actually sold how much “actual” money they made. “Made” is often used to convey unrealized gains.

See the difference?

Nice added condescension.

George 04 Aug 06

The Digg effect: Number of visitors skyrockets. Average intelligence of commenter crashes and burns.

Amazing, the number of people who go through this neaderthal thought process of “criticism that indirectly involves Digg = criticism of Digg … I heart Digg … therefore I must act all aggressive and troll-like in the comments”.

mathgenius 04 Aug 06

Of course, all the saying about a web2.0 startup is worth this or that is all bullshit. Web2.0 is real, but the hype it generates is bullshit. And bullshit is all it needed to create another bubble.

First of all, a VC will invest in a company that most probably has a return of at least 10 times. Businessweek and other magazine has actually has good relationship with many powerful persons in the IT arena, be it VC, inventor, innovator ,web startup. It is a win-win situation. Businessweek gain publicity and free access to important and famous of the time, and at same time, whoever in this magazine interview get more popular and money will follow.
Therefore, Yahoo invest 2.5million, want to get back 25 millions, and so is rest of investor, and so add it up will be around 60million or even more. So, relationship with magazine, these companies invested will want to see the money it invest pump up, so that a “fucked” company can buy it up, or some jerked ass brokerage firm give it higher value than it actually is.

Yes, it is worth $60 million after this news is publicised. Before that it may worth $3million probably. Why ? Because after this news, there will be many dumbass and investor continue to throw in money believing that a company that a magazine claim to worth $60million might be true afterall.

So, they keep pumping money to make the relevation come true.

And which dumbass say business is ethnical ??? Face it. Everyday, we live in smokescreen society which believe they doing it in humane favourite. But wise man know it well, beneath it, is the lust and greed for money.

So, some magazines are conned goods, but it is good for knowledge of knowing how bullshit the realworld is.

Fart it up.

yuck. 04 Aug 06

Only Neil Squillante seems to have brought up the fact that every story in BusinessWeek is planted there by a PR firm. Thus if Digg was only valued at $50M last week they are now valued at closer to $200M, because BW said so. Congrats to whomever at Digg who knows exactly how the Silicon Valley PR system works.

Perhaps this is the difference between living in Chicago and living in Silicon Valley. You seem bummed out by Digg working the Silicon Valley PR game, but some geezers with a pomegranate farm get praised for invoking the oldest marketing practices in the world: celebrity endorsements, a fancy bottle, comissioned research studies, etc.

mathgenius 04 Aug 06

Of course, all the saying about a web2.0 startup is worth this or that is all bullshit. Web2.0 is real, but the hype it generates is bullshit. And bullshit is all it needed to create another bubble.

First of all, a VC will invest in a company that most probably has a return of at least 10 times. Businessweek and other magazine has actually has good relationship with many powerful persons in the IT arena, be it VC, inventor, innovator ,web startup. It is a win-win situation. Businessweek gain publicity and free access to important and famous of the time, and at same time, whoever in this magazine interview get more popular and money will follow.
Therefore, Yahoo invest 2.5million, want to get back 25 millions, and so is rest of investor, and so add it up will be around 60million or even more. So, relationship with magazine, these companies invested will want to see the money it invest pump up, so that a “fucked” company can buy it up, or some jerked ass brokerage firm give it higher value than it actually is.

Yes, it is worth $60 million after this news is publicised. Before that it may worth $3million probably. Why ? Because after this news, there will be many dumbass and investor continue to throw in money believing that a company that a magazine claim to worth $60million might be true afterall.

So, they keep pumping money to make the relevation come true.

And which dumbass say business is ethnical ??? Face it. Everyday, we live in smokescreen society which believe they doing it in humane favourite. But wise man know it well, beneath it, is the lust and greed for money.

So, some magazines are conned goods, but it is good for knowledge of knowing how bullshit the realworld is.

Fart it up.

mathgenius 04 Aug 06

Of course, all the saying about a web2.0 startup is worth this or that is all bullshit. Web2.0 is real, but the hype it generates is bullshit. And bullshit is all it needed to create another bubble.

First of all, a VC will invest in a company that most probably has a return of at least 10 times. Businessweek and other magazine has actually has good relationship with many powerful persons in the IT arena, be it VC, inventor, innovator ,web startup. It is a win-win situation. Businessweek gain publicity and free access to important and famous of the time, and at same time, whoever in this magazine interview get more popular and money will follow.
Therefore, Yahoo invest 2.5million, want to get back 25 millions, and so is rest of investor, and so add it up will be around 60million or even more. So, relationship with magazine, these companies invested will want to see the money it invest pump up, so that a “fucked” company can buy it up, or some jerked ass brokerage firm give it higher value than it actually is.

Yes, it is worth $60 million after this news is publicised. Before that it may worth $3million probably. Why ? Because after this news, there will be many dumbass and investor continue to throw in money believing that a company that a magazine claim to worth $60million might be true afterall.

So, they keep pumping money to make the relevation come true.

And which dumbass say business is ethnical ??? Face it. Everyday, we live in smokescreen society which believe they doing it in humane favourite. But wise man know it well, beneath it, is the lust and greed for money.

So, some magazines are conned goods, but it is good for knowledge of knowing how bullshit the realworld is.

Fart it up.

UnicycleBoy 04 Aug 06

newsweek is just another example of driveby media…these guys make me wanna barf

mathgenius 04 Aug 06

Of course, all the saying about a web2.0 startup is worth this or that is all bullshit. Web2.0 is real, but the hype it generates is bullshit. And bullshit is all it needed to create another bubble.

First of all, a VC will invest in a company that most probably has a return of at least 10 times. Businessweek and other magazine has actually has good relationship with many powerful persons in the IT arena, be it VC, inventor, innovator ,web startup. It is a win-win situation. Businessweek gain publicity and free access to important and famous of the time, and at same time, whoever in this magazine interview get more popular and money will follow.
Therefore, Yahoo invest 2.5million, want to get back 25 millions, and so is rest of investor, and so add it up will be around 60million or even more. So, relationship with magazine, these companies invested will want to see the money it invest pump up, so that a “fucked” company can buy it up, or some jerked ass brokerage firm give it higher value than it actually is.

Yes, it is worth $60 million after this news is publicised. Before that it may worth $3million probably. Why ? Because after this news, there will be many dumbass and investor continue to throw in money believing that a company that a magazine claim to worth $60million might be true afterall.

So, they keep pumping money to make the relevation come true.

And which dumbass say business is ethnical ??? Face it. Everyday, we live in smokescreen society which believe they doing it in humane favourite. But wise man know it well, beneath it, is the lust and greed for money.

So, some magazines are conned goods, but it is good for knowledge of knowing how bullshit the realworld is.

Fart it up.

James 04 Aug 06

There is of course another lie on the cover that seems to have been missed. Kevin is not a kid. He’s 30. BusinessWeek is just trying to capitalize on the whole .COM web 1.0 “Teenagers making millions” hype that sold the original bubble so well.

Stacy 04 Aug 06

Sometimes you have to just step back and see the forest. Does the BW article help or hurt software developers? Overall, it helps for peaks sake!

You can’t control what people will write or say about you. And when you “think” you can, pick your “call outs” carefully!

J 04 Aug 06

Thus if Digg was only valued at $50M last week they are now valued at closer to $200M, because BW said so.

Yeah right. Anyone who is going to spend $200,000,000 on a site that generates $3,000,000 a year and is just breaking even doesn’t look to BusinessWeek for their valuations. They don’t say “hey, BW said so so now it’s $200MM.” That’s not how real money is spent. So you don’t know as much as you think you know about how valuations come about.

Jack Shedd 04 Aug 06

Jason - I agree with you that the $60M number is completely misleading as a headline. I would also agree that there’s no way Digg should be valued that high. Whether or not it is is a function of the sillyness of valley investors.

zx 04 Aug 06

jason, BusinessWeek acted the same with the 37S story (getting real, less is more, stay small, bla bla…) you are a gimmick in the same way that Kevin is…and it’s not so bad.

* don’t forget that ‘BusinessWeek’ is mentioned 6 times on 37S home page;) i hope that 37S&digg will make it but please - get real!

Brandon 04 Aug 06

I think the most interesting thing will be to watch what happens with digg in the future.

Its now in the process of being taken over by jr. high comment mentality as most forum types sites usually do.

Sure its neat to see whats people are interested in, but half the time, I can just read techcrunch and see what is about to be posted on digg.

Owen van Dijk 04 Aug 06

So i just spent the past 15 minutes reading the comments here and on Digg. I think Scott Rosenberg’s article sums it up well keeping a balanced voice, while Jason’s blogposting here is written with more passion so to say.

And yes it’s true, BW’s headline is factual false and in my humble opinion it would show good journalism if they get on the record, either on their site or in their next issue regarding this. And yes, it may ‘hurt our industry’ (being a engineer myself) and it may smell like ‘the next bubble’…all true statements.

The fact is that we are being lied to every minute of the day, through all kinds of media, whether it’s TV, Radio, Print or Internet. Some we notice, the most we don’t or we simply don’t care to raise our voice about. What put things in perspective is that some of these lies involves people being killed or die due to war, diseases or dictatorship. That fact alone makes me feel humble and not worry ‘too much’ about these kind of ‘lies by BW to sell more copies’.

I can write about all this here, safe in my own house behind my $3000 laptop while there’s a huge group of people out there that can be helped if we start worrying about them a little more :)

Dennis 04 Aug 06

Good catch…..I mean that is nothing. I have had a blog for 9 months and have made $30 on Adsense. Now top that Kevin!

Brendan 04 Aug 06

Sounds like BusinessWeek has a case of the Enrons

Anon 04 Aug 06

I like “For their big stakes of, say, $15 million for 20% of a company, venture capitalists received board seats, control of the management levers, and most of the equity.”

Most=20%. Math 2.0

Brian Carnell 04 Aug 06

If only you’d spend as much time making Backpack functional as you do carping about a fluff BusinessWeek piece.

Humble Jon 04 Aug 06

Okay, seriously. Between this page and this page http://www.flickr.com/photos/kk/206114040 I’m now one day further away from making MY $60MM. I’m starting to hate interesting people.

Agoracom 04 Aug 06

Jason, glad you nailed this on the head. This is the kind of hype you’d expect out of some ‘“pump and dump” e-mail stock spam that would go something like this:

=========
BW Stock Profile Of the Day - HOT HOT HOT

HOT STOCK NOW - “$200 MILLION” ACCORDING TO PEOPLE IN THE KNOW!

Digg.com (stock symbol DIGG) is going to take off this morning because people in the know are valuing it at $200 MILLION!

Don’t wait, this stock is going to take off and you are going to miss out on the next Google. Just look at these numbers!

Revenues - $3,000,000!
Profits - Now Breakeven and able to pay the rent!
Current Value - $3,000,000
Projected Value Next Week - $200,000,000!!!!!!
You Make - 66,000% !!!

Buy it now. This is a freebie just for readers of BW stock promotions e-mail list.

========

Best,
George

Bill 04 Aug 06

Your whole commentary is off. The founder really did “make $60 million”. That’s what his net worth is. Is the number a little high? Maybe. So maybe he only “made” $40 million.

You’re confusing current (lack of) profitability with the valuation of the company, which is the net present value of future cash flows and/or its value to an acquirer. It could very well be more than $200 million.

Bill 04 Aug 06

Your whole commentary is off. The founder really did “make $60 million”. That’s what his net worth is. Is the number a little high? Maybe. So maybe he only “made” $40 million.

You’re confusing current (lack of) profitability with the valuation of the company, which is the net present value of future cash flows and/or its value to an acquirer. It could very well be more than $200 million.

Bill 04 Aug 06

Your whole commentary is off. The founder really did “make $60 million”. That’s what his net worth is. Is the number a little high? Maybe. So maybe he only “made” $40 million.

You’re confusing current (lack of) profitability with the valuation of the company, which is the net present value of future cash flows and/or its value to an acquirer. It could very well be more than $200 million.

Bill 04 Aug 06

Your whole commentary is off. The founder really did “make $60 million”. That’s what his net worth is. Is the number a little high? Maybe. So maybe he only “made” $40 million.

You’re confusing current (lack of) profitability with the valuation of the company, which is the net present value of future cash flows and/or its value to an acquirer. It could very well be more than $200 million.

Bill 04 Aug 06

Sorry about the multi-posts. The site just sat there and clocked.

Bill 04 Aug 06

Sorry about the multi-posts. The site just sat there and clocked.

J 04 Aug 06

Your whole commentary is off. The founder really did “make $60 million”. That’s what his net worth is. Is the number a little high? Maybe. So maybe he only “made” $40 million.

Bill where are you getting this net worth figure? Not from the % he owns multiplied by the “people in the know” figure, are you? Because that’s the problem. The “people in the know” number is made up.

Kevin’s net worth is what he has in the bank, not what he could have or might have or the people in the know predict he’ll have. Net worth is NET, it’s not imaginary.

Jack Shedd 04 Aug 06

Would this whole argument would have been mute if the author had sourced the $200M figure?

Bill 04 Aug 06

Sorry J… we disagree. While we don’t know the exact value of the company, whatever it is (and trust me, VC’s are drooling over this company, so the $200m # may be low), multiplied by 30% is the Digg founders’ net worth. It’s based on the pre-money valuation that a VC would give it. It has nothing to do with the fact that the company is breaking even right now.

Also, it is NOT what he has in the bank. You’re confusing liquidity with net worth… 2 different things.

JonD 04 Aug 06

I’m continually amazed at the amount of trollish posts you guys put up with on this blog.

And the idiotic posts seem to be from the same handful of people over and over. Maybe moving back to the ‘no comments’ model would be best.

Fact is Business week wrote a bullshit headline and instead of pointing out how Businessweek could be in the right for making the headline, the trolls make the same old, jealous-of-37signals, OMG-rails-sucks, omg-Jason-sucks posts.

If I were you (Jason/SVN writers) I’d just delete those troll posts and ban them. Or maybe move to a sign-in model for comments.

J 04 Aug 06

Bill, it’s not that we disagree, it’s that your wrong.

VCs drooling over you does not contribute to your net worth. A rumored valuation by “people in the know” in a magazine does not make up your net worth.

Right now Digg company is break even. Try going to the bank and saying “Hi, I’d like to take out a loan for, oh, let’s say $20,000,000. Here are my current assets.” Then the bank says “Based on your actual financial situation we don’t think you’d ever be able to pay back this loan. Your salary is about $150K a year and you have maybe $50,000 in savings.” “Oh, I have this article where they said they said my company is worth $200,000,000. Lots of people want to invest in my company. Someone last week told me my company is worth $400,000,000!” Then the bank says “Well that’s nice sir, but we don’t take magazine articles, rumors, and heresy into consideration when determining risk factors.” “Aw, shucks, I really thought everyone had to believe those numbers because they were in a magazine.” “No, sorry sir. Great picture though!”

Bill 04 Aug 06

J….you’re way off….what’s your background in?

VC’s drooling DOES contribute to his net worth (you’re confusing liquidity with net worth). Is the 200m # exact? Of course not. We don’t have the exact valuations by VC’s. Digg currently has a fair market value, and it’s near the 200m range. It has absolutely nothing to do w/ Digg’s current financial statements.

You also show your lack of knowledge by comparing a bank’s lending criteria to a VC’s valuation criteria. Those are 2 different worlds, and are completely unrelated.

Additionally, you’re still confused by the fact that company valuations are NOT dependent on current profitability… there are many other factors.

J 04 Aug 06

Oh and I forgot to add…

The bank asks “Ok, so you own a company. That’s great. What are the financials?” “Oh we have no money in the bank and we’re break even.” “So you don’t turn a profit and don’t have any real assets other than some computers?” “Right. We spend about as much as we take in.” “Oh, well, umm… That’s not something we can count on to help you back back your loan. You really don’t have any assets there.” “Oh, shucks. Ok, well, umm… Did you read that article?!!”

Bill 04 Aug 06

J…your lack of knowledge is scary. You are commenting on a subject you know little about. Again:

A bank’s lending criteria has ***NOTHING*** to do with a VC firm’s pre-money valuation criteria.

Bird 04 Aug 06

Please pass a bucket. Time to start making drool. Better than gold.

yaizzle 04 Aug 06

It’s blatant….not blatent.

B-I-G-P-O-P-P-A 04 Aug 06

sounds like a bit of jealousy

angryinch 04 Aug 06

It’s not even paper wealth.

Paper wealth is stock you can’t sell yet. Or stock you haven’t sold yet.

Fabricated valuations based on a magazine cover line is not wealth at all. It’s public relations.

Digg’s founder has no paper wealth. He is trading off public relations currency. And no bank will accept it as far as I know.

Marc Luzietti 04 Aug 06

The real estate bubble is over, and investors and flippers are looking to cash out and put their money someplace else (just like after the Asian currency crash in ‘97). The hype isn’t driving the web 2.0 crazy, it’s reflecting it. The money is coming, and no amount of trying to downplay the clueless BS is going to stop it. A lot of stupid people are going to hand their money over to us.

So, you can kvetch about all the hype and BS, or you can stick your hands in the stream and try and catch a fish.

Jim 04 Aug 06

The $200 million is a retarded valuation. Google trades a 10-20 times revenues, Yahoo 6-8 times revenues, and we’re expected to believe that Digg is somehow worth 60-70 times revenues. It’s competing in a space, while not crowded yet, is getting there. Reddit is pretty cool, and del.icio.us (where the real story is — guy with a day job sells his site to Yahoo for millions) is very useful without any proprietary algorithms.
The other obvious reason why it’s not worth $200 million, is simply because the cost of rolling your own is far less than $200 million.

Brandon 04 Aug 06

@Bill

Maybe a bank’s lending criteria isn’t the same as a VC’s criteria, but no profit is still, at the end of the day, no profit. What exactly can you buy with no profit? How much is no profit worth?

The value for digg is in the demographic. The scary thing is, their business model is based on advertising. All it takes is a shift in the public and the advertising dollars disappear, and you’re left with some servers and now, a magazine cover. If you don’t believe that, check out any newspaper’s financials in the country.

This reminds me of when I was a kid and I was into baseball cards. I would tell my dad that this card or that card was worth $100 or whatever. He would remind me that its only worth that when someone buys it. If you can’t get anyone to buy it for that, then it isn’t worth that. So until digg sells for 200 million or whatever, it really is worth whatever assets it has.

If you are right, and VC’s want to throw money at things that don’t make a profit and are valuing a site with 3 mill in revenue per year (1.5% of the 200 million) then I need to find some things to sell to those idiots.

Steve Akers 04 Aug 06

Why is it no one was this upset when Wired claims DHH was the hottest hacker on Earth? Equally as shoddy in my opinion. ;-)

Steve Akers 04 Aug 06

Come to think of it… Business 2.0’s 50 people who matter list was highly questionable as well.

J 04 Aug 06

Business 2.0’s 50 people who matter list was highly questionable as well.

That’s a subjective list. BusinessWeek’s claim that Kevin made $60,000,000 is not subjective, it’s stated as fact. And it’s a lie.

Joe 04 Aug 06

Wow, great dissection and debunking of the BW article. As I read it I was scratching my head how KR could have made so much money and I double checked to make sure they hadn’t gone public. The BW reporter really talked out of both sides of his ass (Digg’s a NEW type of Net company that can be started with $50 and a laptop, yet they’ve taken a lot of VC money).

jon 04 Aug 06

Face it JF. This post has backfired!

Be careful of your words now that you are growing fast. I think it is a longer post then the Bezos one!

bert 05 Aug 06

The funny thing is the BW headline reminds me somewhat of the “Amazing!!!! Video of some random thing!!! Must see!!!!” headlines usually found on Digg (and oft-criticized by many Digg users).

JonD 05 Aug 06

“Face it JF. This post has backfired!”

How has it backfired? By bringing them hits from all over the web from people who aren’t too stupid to see that Jason is right about the bullshit headline?

Elliot Anderson 05 Aug 06

If there is a Bubble 2.0 and a Bust 2.0, this magazine will be the cause of it.

Hype kills when it is unsubstanciated

Elliot Anderson 05 Aug 06

If there is a Bubble 2.0 and a Bust 2.0, this magazine will be the cause of it.

Hype kills when it is unsubstanciated

JPB 05 Aug 06

The Signal is: Media is selling their magazine by misleading their readers right there on the cover.

The Noise is: comments like: “So What? Happens all the time.”

Or is it the other way around ?

The Colonel 05 Aug 06

According to these figures Slantmouth.com is worth at least 2,000,000 as a result of the searches we get from Google Images alone!

I think we’re going to cash out now while the getting’s good. Any buyers?

But seriously, here’s a course of action to help you get over this mess:

Step 1.) Stand up.
Step 2.) Turn around.
Step 3.) Walk away from the computer.
Step 4.) Stop caring about this crap, and enjoy global warming! (It’s hot outside.)
Step 5.) Sweat out the frustration (seriously, you’ll sunburn through your clothes on the East Coast!).

Honestly, Business Week was wrong. Posting a lie is always wrong, unless doing so for the sake of humor (humour, for the Brits).

BW is as good as Bowel Waste, at this point. What little credibility they had is shot to the toilet.

If you disagree with me, I dig it. If not, then you’re definitively correct. Good for you! I’ll send you some brownies.

Good for everyone! Huzzah!

TheBizofKnowledge 05 Aug 06

I didn’t read through all 170 of the comments that were posted already, so I apologize in advance if this question has been covered. Did Kevin Rose sit for an interview with Business Week, and did he say that he has made $60 million? Or did BW pretty much come up with that figure themselves?

Reid 05 Aug 06

Look ma, old media can still spark a ruckus. Good for them. Now what would be great is if they could attract this conversation and all these eyeballs.

Question for 37s: doesn’t hosting these “conversations” get a little distracting? You can’t possibly be getting any work done with all of this going on. Just asking.

Glen 05 Aug 06

Just remember one thing here-Of all of the things that could be, how many of them are?
Any supposed news story that uses the term “could be” even once is to be taken with a grain, if not a mountain of salt!
After all, how many of you “could be” the next pope? Any unmarried Catholic male is eligable!!

U Guys R Pathetic 05 Aug 06

Seriously, I agree with Reid. Why don’t you quit crying about this and just stick to doing some good work. You sound like a bunch of jealous babies.

Chris 05 Aug 06

I still don't understand the jealously comments. For all we know 37signals is worth $500,000,000. I highly doubt they're jealous of Digg. Digg is a break even company. I have a feeling 37signals is handsomely profitable. I'd much rather be in 37s' shoes than Digg's. Digg has all their users do the work for them and they *still* can't make a profit off $3mil in revenues? That sounds like a crap business, not one to be jealous of.

Jake 05 Aug 06

“How this kid MADE $60 million in 18 months”

The word MADE can be defined many different ways. Jason, I believe you are reading the word “made” as though it reads, “How this kid EARNED $60 million in 18 months”.

Where it should actually be read as, “How this kid CREATED $60 million in wealth in 18 months.”

Let me give example:

1. I MADE a chair. The “made” in this example implies “creation”, whereas
2. I MADE a living. I “made” in this example implies “earning”.

Matt 05 Aug 06

Bill said … “While we don’t know the exact value of the company, whatever it is (and trust me, VC’s are drooling over this company, so the $200m # may be low),”…

This is actually not a point in support of the “the article isn’t that bad” position — it’s an argument in support of the “the world is even MORE insane than the article made it out to be”.

If anyone knows a VC who is “drooling” over the opportunity to throw 200m at something which only has one source of revenue that’s contingent on the participation of someone who could build their business overnight (google), and will bring in 3m / year as a return, please put them in touch with me.

I’ll pay myself 100k/year to put their 200m in a savings account, beat the digg return, and email them a quarterly report.

dave rau 05 Aug 06

———————————
Above this line you will find at least 150 reasons to not read below the original post. Cool.

What causes people to get so angry about a blog post? I really don’t get it.

Scott Burton 05 Aug 06

This article does smell a lot like the pre-bubble BS I used to read. You are right on the money when they talk about some kid building a multi-million dollar site with a $50 internet connection, yet the article they mention that in spent millions. Ironic.

Bran 05 Aug 06

The problem with digg (and myspace, too), is that they may have a lot of “users” but ultimately they’re not leveragable.

Google has leveragable users because a person who just searched for “mufflers” is likely to want to buy one.

But the kids on Myspace (and digg, which is mostly kids, as far as I can tell) aren’t in the position to buy anything. That’s why Myspace scrapes the bottom of the barrell for ads (like the “you’ve won a free ipod” flashers), and digg can barely brake even.

Also Digg’s “stories” aren’t well chosen. It’s mostly anti-business (unless it’s Apple!), and naive libertarian politics from not-fully-cooked youthful minds.

And it’s hardly a democracy: I posted a link to this story and Digg responding by promptly deleting my user account! Why not let the “people” vote?

Iggy 05 Aug 06

Jason, great post. I agree with your arguments and only hope that you, I and everyone else would have the balls one day to not be happy to read similar BS about OURSELEVES…

Iggy 05 Aug 06

Jason, great post. I agree with your arguments and only hope that you, I and everyone else would have the balls one day to not be happy to read similar BS about OURSELEVES…

Iggy 05 Aug 06

Jason, great post. I agree with your arguments and only hope that you, I and everyone else would have the balls one day to not be happy to read similar BS about OURSELEVES…

Dan 05 Aug 06

They did BUILD the site with a $50 internet connection, the site was a huge success before they took any vc money. It’s not like they took a load of money and then built up a website.

Devan 05 Aug 06

I cannot believe the level of vitriol going around this post at the moment! I think Jason has stated emphatically several times that this is not an attack at Digg in particular (or Kevin), but is simply pointing out irresponsible journalism on the part of BW.

I saw the ‘alternative’ cover to this BW issue on another site last night (sorry, cannot remember the URL), and yes, it was a bit boring, so an irresponsible marketing person, who probably didnt even read the actual article in detail vamped it up so the cover would sell.

Top level management at BW should really be looking hard at their ethical standards and the responsibility they have to their readers to ensure that this does not happen again. Plain and simple.

Let’s step back from the ‘personality’ attacks here and take a close look at the real issue…

Cary 05 Aug 06

Great, after surviving the dotcom implosion, I’l have the Web 2.0 implosion to look forward to.

That said, my company made a slight profit last year. does that make it worth $800mm or worthless?

Cary 05 Aug 06

Great, after surviving the dotcom implosion, I’l have the Web 2.0 implosion to look forward to.

That said, my company made a slight profit last year. does that make it worth $800mm or worthless?

RJ 06 Aug 06

The bottom line is Hype sells regardless of what market you’re in. Like it or not…the Hypebeasts are out there and they’re eating it up, whether you’re in the tech, electronics, sneaker or publishing industry.

Public Enemy said it best “Don’t believe the Hype”!!

merc 06 Aug 06

Read about the newest cell phone video scandal (malaysia tammy) http://xialanxue.blogspot.com/2006/08/more-on-malaysian-tammy-nyp.html

merc 06 Aug 06

Read about the newest cell phone video scandal (malaysia tammy) http://xialanxue.blogspot.com/2006/08/more-on-malaysian-tammy-nyp.html

anonymous coward 06 Aug 06

typo: “Try bringing your brokerage statement to McDonald’s and see *if will buy* you a burger.”

nalts 06 Aug 06

Maybe he and YouTube Founder Chad Hurley can go out and buy a yacht with their “estimated” worth.

I’d like to buy these companies for what I think they’re worth and sell them for what the media thinks they’re worth.

This is the Bubble all over again. The bigger it gets the harder it bursts. Can’t we let out some steam so it’s not 2000/2001 all over again?

Jobb 06 Aug 06

too long.

Anonymous Coward 06 Aug 06

I think it’s pretty transparent to the readers here that 37 signals are simply quite jealous. I guess when you’re only running around giving conferences, it doesn’t seem as glamorous as being a businessweek poster boy.

Besides, DHH shouldn’t have any problem with exagerration for headlines, he’s reinvented that skill masterfully for Web 2.0

STe 06 Aug 06

Well, why not stop nit-picking over one word and try looking at it another way? MADE can be construed as saying he took his company and MADE it worth $200M. He owns 30% - 40% of the company and he MADE his share worth an estimated $60M. He MADE it go up from whatever it was worth to $60M. He MADE it do that. He didn’t MAKE $60M in physical money, but if you read it that way, then you see the article as being wrong and a lie. He did MAKE his share of the company go up to an estimated $60m, though. Depending on how you read it, the headline can be true or not true. Those of you who are negative, nit-picking types can take the word MADE and find holes in every tiny little piece of information that was written in the article. Then again, others can read this article and look at it as being he MADE his company worth $60M. I hope to be the first to nit-pick over little words on the 37Signals site and they are ok with that. My advice? Go with your own philosophy: LESS nit-picking.

J 06 Aug 06

MADE can be construed as saying he took his company and MADE it worth $200M

Sigh… Haven’t we been through this already?

DIGG IS NOT WORTH $200,000,000 UNTIL SOMEONE PAYS $200,000,000 FOR IT. A quote from “people in the know” in a BusinessWeek article does NOT make a company worth anything. It’s heresay and heresay isn’t worth anything until it’s confirmed. In the case of financial confirmation, that only comes when someone writes a check.

STe 06 Aug 06

Hence, CAN BE CONSTRUED. Maybe we can stop all that and read articles in magazines the way we want to. Starting to pick fault with the whole publishing industry seems a bit much when you consider one small word on the cover - MADE.

Yesterday I went travelling. I made great time by setting out early. I never MADE time now did I? I can’t actually show you the time I made, but, I know I did. How many of you have MADE great time when travelling? Prove it to me. Or, change the sentence and how you speak to fit the way other people think. Personally, I wouldn’t do that since the word MADE fits in their nicely.

STe 06 Aug 06

Hence, CAN BE CONSTRUED. Maybe we can stop all that and read articles in magazines the way we want to. Starting to pick fault with the whole publishing industry seems a bit much when you consider one small word on the cover - MADE.

Yesterday I went travelling. I MADE great time by setting out early. I never MADE time now did I? I can’t actually show you the time I made, but, I know I did. How many of you have MADE great time when travelling? Prove it to me. Or, change the sentence and how you speak to fit the way other people think. Personally, I wouldn’t do that, since the word MADE fits in there nicely.

STe 06 Aug 06

Read the second post above. A few mistakes in the first. I guess everyone is human. Still, just like the headline on the magazine, you’ll get the jist and take from that what you will. Or, be a nit-picker and point out my incorrect usage of certain words. The choice is yours.

Anonymous Coward 06 Aug 06

Wierd… why did you write this article?

Curious 06 Aug 06

Wierd… why did you write this article?

STe 06 Aug 06

I understand the point people are trying to make, but, that does not change my perception of the article. He did make his share of the company worth an estimated whatever someone will pay for it to $60M to whatever someone will pay for it. In my opinion, he did do exactly what the article headline said he did. Maybe I read it a little differently to most. I fully understand the views and opinions of others. I am simply giving mine.

Mathew Patterson 06 Aug 06

If you ‘make time’ you actually have that time to do something else with. In this case, Digg doesn’t actually have any of the potential money. Therefore, they haven’t actually ‘made’ the money.

Anonymous Coward 06 Aug 06

Ok, lets try the 37signals approach. Less words makes more of an impact. The title: How this kid took his company and made it worth and estimated $60m on paper, or whatever someone will pay for it, in 18 months. Well, that’s too big. Lets make it smaller. Wait, we are losing the readers attention on the main headline. What can we do? Try reducing the number of words in the title again. That is more effective and gets the job done. Great! What do we have? How this kid made $60m in 18 months. I like it! Short, sharp, and going to catch peoples attention. Lets go with that. Hold on boss, won’t people misunderstand and get confused over the word made? You are right. Go with the longer version to catch all readers and cater to everyone. Also, lets not forget when 37signals pointed out Mr More. Mr More likes to point out this. Mr More likes to point out that. Oh, how readers are quick to forget.

STe 06 Aug 06

That is my comment above

@Mathew Patterson

So, I could also use the word saved. I saved time. Still you knew what I meant and that is what is important.

Jason, would you like to comment on the Mr More situation?

Eric Vogel 06 Aug 06

If i remember right digg was granted 60,000,000 in venture captial funds i think this is where they got the figure

Mathew Patterson 06 Aug 06

So, I could also use the word saved. I saved time. Still you knew what I meant and that is what is important.

Saving time still means you actually have time to spend now - unlike imaginary money you can’t do anything with, because it doesn’t exist.

JF 07 Aug 06

This has nothing to do with more or less words, it has to do with making an false claim in bold type on the cover of the magazine.

Kevin has not made $60,000,000 from Digg in any way. Not in 1 month, 6 months, 12 months or 18 months. Not in cash, not in stock, not in a promissory note, nothing. It’s simply incorrect. Don’t take my word for it — ask Kevin yourself. He’ll tell you.

This isn’t about taking journalistic liberties by shoehorning a factual headline into a small amount of space, it’s about lying in bold on the cover of the magazine. There is no $60,000,000 or $200,000,000. Could there be one day? Perhaps, but today there isn’t. And until then, nothing has been made.

I’ll quote Scott Rosenberg (co-founder of Salon.com) from a comment above:

“I have to say there is *no* ambiguity or fuzziness when a business publication says someone “made” a sum of money. “Made” means the dollars are sitting in some liquid account somewhere — stock you can sell or dollars you can spend. Made does not mean ‘someone speculated your company might be worth a certain sum,’ any more than I could say that I “made” $100,000 if Zillow decided that my home somehow increased that amount in value. These numbers are fictions until someone comes along with a real offer.”

So you can keep Mr. More or Mr Less in your pocket for another argument. This situation has nothing to do with either. It has to do with printing false information on the cover to sell magazines.

Great stories sell without lies on the cover. Either BW couldn’t make the Digg story into a great story without lying, or they just got swept up in the speculative excitement. I don’t know the reason, but it’s unfortunate either way. And I don’t blame Digg at all. This isn’t a Digg issue. This is a BusinessWeek issue. It’s a serious issue for BW and our industry as a whole.

STe 07 Aug 06

JF:It’s completely false. BusinessWeek is selling their magazine by misleading their readers right there on the cover. That’s weak, embarrassing journalism.

Writing an article one month with the title ‘Mr More’ that includes lines such as: “Mr. More corrects your facts, reminds you it’s “fewer” not “less”, and then pointing out what you call ‘weak, embarrassing journalism’ based on one word seems a little hypocritical don’t you think? You have taken ONE word and twisted it and bent it to suit yourself. You have made rather damning and critical statements about Business Week and made inflammatory comments based on a single word. Cut the crap, Jason and stop being someone you so eloquently title ‘Mr More’

STe 07 Aug 06

“Made” means the dollars are sitting in some liquid account somewhere — stock you can sell or dollars you can spend.

Should the reader not decide what ‘Made’ means? Business Week are in the business of selling magazines. How they get you to buy that magazine is through catchy headlines. It’s up to you if you buy it or not, but, don’t preach that it is lies and should be stopped. We all know that magazines and newspapers and other publications do that. If you don’t like it, DON’T BUY the magazine.

This situation has nothing to do with either.

This situation is dealing with the underlying meaning of the word ‘Made’. Books, music, movies all allow the person reading, watching or listening to interpret the material as they see fit. You are getting bogged down with the word ‘Made’ and it should not be a factor. ‘Made’ is whatever the reader interprets it as being. You are pointing out it should mean this with quotes from others. Therefore, your previous notion of ‘Mr More’ becomes evident in your writing and postings and you lose more credibility by pointing out more facts. Would you like further quotes from your own ‘Mr More’ posting?

Anonymous Coward 07 Aug 06

J and JF - wrong, wrong, wrong. Kevin HAS made $60,000,000 from Digg in some way. It has nothing to do with whether anyone has made an offer, or whether his stock is liquid. It has to do with the stock’s market value. That value is whatever **ONE** VC is willing to give it right now. That amount is probably in the $200m range, and arguably higher.
BW is not lying. What a joke.

Bill 07 Aug 06

I made the post above (anon coward)

STe 07 Aug 06

Please remove this quote from your web site: Our Signal vs. Noise Weblog is read by over 30,000 people every day.

Your FeedBurner counter clearly states 27,940 readers. If you want to nit pick, at least tell the truth on your own site. Using the phrase ‘read by over’ suggests you are adding a few readers based on speculation and other factors. To stand by your ‘telling the truth’ principle, should you not clear state actual figures on your web site? Or, are you hyping things up a little to get people to buy your products and read your blog? Like Business Week

Rich 07 Aug 06

You guys are funny. It’s like a little nerd war.

One magazine publishes an over-the-top headline that exemplifies the Web 2.0 hype; a few sites, including this one, call bullshit, and you guys go nuts. Why aren’t you guys trolling 9rules or Salon?

Listen, if you can’t buy a hooker or blow with it, it’s not real money.

STe 07 Aug 06

Listen, if you can’t buy a hooker or blow with it, it’s not real money.

You can buy things on a credit card, but it is not real money. It becomes real when you have to pay it back. You still don’t actually have that money in your bank. Kevin Rose ‘MADE’ $60M on his share of the company. It becomes real when he gets the money to that amount. He made, theoretically speaking, $60M. How you nit-pick over the finer details is your problem

Matt/slapshotw 07 Aug 06

STe, you’re being a little ridiculous. You claim you understand what people are saying, but I don’t actually think you do.

Digg is not actually worth $200 million, hence, Kevin Rose’s 30% is not worth $60 million. Digg is only worth what somebody will actually pay for it. Until somebody will pay a certain amount for it, Kevin Rose hasn’t made anything except his salary.

To make myself (and other people) even clearer: A couple people in a room (even if those people are VCs) advising BusinessWeek as to how much Digg is worth do not make it worth a certain amount. I could call BusinessWeek right now and tell them Digg is worth $500 million. Would you then claim that Kevin Rose has “made” in ANY sense of the word $150 million? Obviously you wouldn’t. Because what people say is meaningless- it’s when people actually put up money and BUY the company that Kevin Rose’s 30% will have made him something.

-Matt/slapshotw

STe 07 Aug 06

I repeat:

How you nit-pick over the finer details is your problem.

STe 07 Aug 06

Also, since a lot of people clearly support 37Signals, how do you justify the RSS feed claim not being true? Telling the truth only applies when it is not your publication/company? If you nit-pick some much over wording and facts being true, why not turn your attention to the ‘over 30,000’ claim made by 37Signals? Please comment if you have anything to offer on this clearly inflated figure.

Rich 07 Aug 06

A. I can buy both hookers and blow with a credit card.

B. Not every reader is a RSS subscriber. Myself included.

STe 07 Aug 06

that stil doesn’t change the fact that the figure is a lie and plucked from the air overThat still doesn’t change the fact that the figure is a lie and has been plucked from the air based on the FeedBurner figure. Both 37Signals and Business Week have lied.

A. I can buy both hookers and blow with a credit card.

You’re still not dealing with physical money, though

Rich 07 Aug 06

How you nit-pick over the final details is your problem.

All I know is, it’s a party over here and my credit’s not looking so good anymore.

STe 07 Aug 06

@ Rich

Well said

I use 37Signals software and I like coming to this site. People often give very good comments and opinions. I like throwing my views in here and have been doing so for years. I read and agree with a lot of what 37Signals say, but, not this. In my opinion , they are wrong and I am simply airing my views on this matter.

I do understand the opinions of others, but they are not in line with what I think about this situation. I apologize for the ‘Mr More’ comments, they were out of order, but the others still stand.

Matt/slapshotw 07 Aug 06

STe,

Are you suggesting that 37signals doesn’t have access to statistics about who reads their blog that we don’t? I think I believe 37signals informed claim about their readership numbers more than your complete guess.

There are obviously readers of this blog who don’t subscribe to the RSS feed. According to their stats page, they get 13,000 average hits per day. If only 2,000 of those 13,000 people don’t subscribe to the feed, then their claim of 30,000+ subscribers is correct. Obviously, you have factual knowledge that less than 2,000 of their daily visitors don’t subscribe to the RSS? I’d like to see it before you go making claims that 37s is lying.

And actually, that’s the point of this post. BW has no factual basis for Digg’s valuation— only guesses by people who aren’t buying the company.

This is NOT nitpicking over “finer details”— it’s the crux of the argument! Kevin Rose’s 30% is worth NOTHING until somebody actually pays/offers money for it. Let me repeat that, because you cannot possibly again claim that what I’m saying is a “fine detail” that I’m nitpicking over. There is absolutely no usage of the word “made” that truthfully represents the value of Kevin Rose’s 30% without a bidder.

-Matt

Kate 07 Aug 06

Umm… I actually have a problem with the word ‘KID’ the guy is apparently 29 years old!

James Head 07 Aug 06

Come on Jason, - mock up an alternate cover you would approve of! Certainly when I see a cover like that I don’t really think the guy has $60 mill in his bank..

Sean Warburton 07 Aug 06

I don’t remember anybody from 37 Signals complaining when DHH was placed thirty-fourth in Business 2.0’s “50 People That Matter” list ahead of people like Oprah Wimfrey, Jeff Bezoz and Richard Branson. You were all more than happy to take that accolade even though it’s totally ludicrous. DHH has no influence outside the - tiny - RoR community and even within that small group there’s plenty of people that feel uncomforable with him as the “figurehead”.

If you’re so keen that we have the absolute truth, then why not answer Sam’s question above and tell us how many of your 500,000 ‘headline’ users actually pay to use your products. It’s a simple question, you’re happy to tell us how successful your ebook is so why not your core business?

You’re obviously very keen on taking a pragmatic approach to business so why not answer all of your critics rather than the ones that you feel able to cope with. You have plenty of ‘fanboys’ here to massage your ego if it gets a little dented.

You’re starting to look like a one trick pony, you have a small reportoir of sound bites and credit where due, you’re an excellent orator but the message is starting to look a little thread bare. I often sit and listen to various podcasts and a few weeks back on hearing your name mentioned, my wife said, “oh not him again he says the same thing over and over” and that kind of sums you up at the moment.

You’ve built a great foundation and I actually liked what you had to say at the beginning, not all but a lot of it made sense. Don’t turn to spewing vitriol in order to grab headlines, you know as well as I do that the people with any interest in that Business Week headline would see straight through it so why the poison post, or are you really that arrogant?

Andy 07 Aug 06

If I had a nickle for every response in this thread then I could have made $60,000,000 in a weekend!

reid 07 Aug 06

@Andy:

Actually, you’d have $11.35. Oops. Make that $11.40.

To make $60,000,000 at a nickle apiece would require 1.2 billion responses instead of 228.

Your suggestion to the contrary is an outrageous exageration and you should be burned at the stake for making it.

Matt 07 Aug 06

For anyone still maintaining that there somehow was 60 million dollars made, here’s an offer for you.

Send me $100 dollars. In exchange, you will receive 1 share in a company I’m starting today. I guarantee and promise that I have immediate access to “people in the know”, who are willing and able to provide a valuation for a company I start at well over $2 billion, based on my character alone. Prior to receiving this “people in the know valuation”, I will limit the initial round of investment to $1 million.

After the valuation, I will have collected $1 million actual dollars, as a service fee — and you will have “made” a return of 200 times your original investment, payable in the magical “people in the know” currency. You can start spending your share right away, possibly. I suggest taking your friends and family out for a nice dinner.

For an additional $39/month from each of you, I’ll keep a staff of persons in the know on call 24/7 to answer any questions that waiters, cashiers, bankers, etc might have about how much you’ve actually made. There PITK will be willing to stand by their valuation of the company (possibly increasing it, arbitrarily, and at their own discretion), no matter how hard the questions that your creditors will surely ask become.

Ara Pehlivanian 07 Aug 06

@Jason:

LOL, “How BusinessWeek sold this month’s issue by making up numbers” ;-)

J 07 Aug 06

I don’t remember anybody from 37 Signals complaining when DHH was placed thirty-fourth in Business 2.0’s “50 People That Matter” list ahead of people like Oprah Wimfrey, Jeff Bezoz and Richard Branson. You were all more than happy to take that accolade even though it’s totally ludicrous.

A list of “top 10 funniest movies” or “top 20 road trips” or “50 People That Matter” are subjective lists. They are someone’s opinions. They don’t represent fact or pretend to represent fact. They are clearly subjective.

However, “Kevin Rose made $60,000,000 in 18 months” is not subjective, it’s a presented as statement of fact. But it’s not fact because it’s not true.

That’s the difference.

grammar nazi 07 Aug 06

it’s blatant not blantent

grammar nazi 07 Aug 06

it’s blatant not blantent

J 07 Aug 06

STe, if you have an issue with the RSS feed subscriber number you should take that up with Feedburner. They manage their feed and track their feed traffic. Tens of thousands of sites on the web use Feedburner to manage their feeds.

And if you can’t see the difference between a national respected business magazine making a completely false claim on the cover of their magazine, and web site traffic stats which will never be completely accurate just because the nature of the way they are tracked, then you are out of your mind. You are reaching for something that isn’t there.

Anonymous Coward 07 Aug 06

@J

I totally agree, but being as subjective as you possibly can, do you really see DHH in the top fifty people that matter and considering that 37 Signals is supposed to be about “keeping it real” their response to the article was anything but. To quote Jason from his blog post “Congrats David, that’s quite an accomplishment.” hardly the response you’d expect from such a pragmatic businessman.

e.j. 07 Aug 06

amazing.

after all this stuff about misleading headlines, dhh posts this over at his blog.

Rails steps into year three

i was of course like “damn, rails is three years old. that seems longer than i thought” then i read on to see rails had its SECOND b-day and is now technically ‘stepping into its third year’. anything to get a 3 in there where a 2 is called for.

so when you have your 29th bday, watch out. you are stepping into your 30th year. dag so soon? sucks dont it.

plausible, basically true, but misleading.

then he goes into how rails sells a story not a puzzle. i wont even touch that.

whatever, an honest congrats to rails for its second bday. no doubt. but i found this ‘bubble birthday’ too hilarious not to get included here.

J 07 Aug 06

do you really see DHH in the top fifty people that matter and considering that 37 Signals is supposed to be about “keeping it real” their response to the article was anything but.

It doesn’t matter what I think, I didn’t write the article. In my world DHH is a lot more important than Oprah or Richard Branson. I don’t watch their shows or use their products. But I do use Rails and it’s allowed me making a serious living doing something I enjoy. So yeah in my world DHH is in the top 50. In your world maybe not.

But it doesn’t matter. Subjective is opinion. I have mine and you have yours and the editors of Business 2.0 have theirs. That’s what opinion is and that’s all that list is, their opinion. If you have a problem with that list don’t take it up with 37signals, Jason, or David, take it up with Business 2.0.

On the other hand, and for the 10th time, Kevin Rose didn’t make $60,000,000. That’s a fact any way you shake it.

warzan 07 Aug 06

Isn’t it funny that the more contentious the post, the longer 37’s keep it at the top of the list.

Nice marketing trick, contentious sells ;)

Sean Warburton 07 Aug 06

@j On the other hand, and for the 10th time, Kevin Rose didn’t make $60,000,000. That’s a fact any way you shake it.

And for the tenth time no educated human being thinks he did, that’s the whole point, why did Jason make such an obvious post in the first place.

Bill 07 Aug 06

He *did* make $60 million. You’ve made or lost money when your net worth changes.

It only matters what a VC is currently willing to pay for Digg. It’s NOT what someone actually did pay. It’s NOT related to cash in the bank (that’s a liquidity argument, not a valuation argument).

beto 07 Aug 06

Good catch…..I mean that is nothing. I have had a blog for 9 months and have made $30 on Adsense. Now top that Kevin!

Comments like this is what make me wish this blog had a “thumbs up” button… like, um, Digg.

J 07 Aug 06

He *did* make $60 million. You’ve made or lost money when your net worth changes.

Holy christ. Hasn’t this been covered a bazillion times before?

His net worth hasn’t changed. A mention of a $200MM valuation by “people in the know” does not change your net worth.

What qualifies this “person in the know” to know anything? That’s one of the key fundamental problems. If you can’t relate the person to the prediction then the prediction is empty. Anyone can say anything if there’s no accountability.

And so far VCs have only invested 2.5 million into Digg. Unless their multiple is close to 100, Digg isn’t worth anywhere near that much to even the VCs who put the money in.

Bill 07 Aug 06

J wrote:
“And so far VCs have only invested 2.5 million into Digg. Unless their multiple is close to 100, Digg isn’t worth anywhere near that much to even the VCs who put the money in.”

J, you lack understanding of basic finance concepts. If VC’s have $2.5m so far, there is no valuation multiple that you use and apply to the $2.5m number to derive a current valuation. What matters is:

- what % of the equity did they get with that $2.5m?
- what was the valuation of Digg when they made the investment?

Both are completely unrelated to the valuation a VC would place on the company right now. Is it “only” $100m? Fine, then the founder made $30m, not $60m.

Anonymous Coward 07 Aug 06

Bill, I’m sorry man, but you’re wrong on this one.

Want to see his net worth? Follow him to a bank or a financial advisor and let them evaluate it. You’ll see he’s worth no where near $60,000,000.

Owning 30% of an 18-month old break-even *private* illiquid company that’s doing $3MM in annual revenues would add barely anything to your net worth. This is especially true given that the company doesn’t even have any real assets other than some servers and potentially $2.5MM in capital from an investment (which is actually a liability since it’s likely structured as debt or it can be called back by the investor in the future).

Our bank would never take a “people in the know” figure into consideration when determining actual net worth. It’s fun to use it on a blog in the comments section, but it’s not real in any way.

Bill 07 Aug 06

Anon - WRONG! Here’s a lesson finance, VC, etc for everyone.

- bank’s lending criteria have nothing to do with a VC’s valuation criteria

- a company being “private and illiquid” has nothing to do with its net worth

- $3m in annual rev does NOT preclude a $200m valuation (or any valuation for that matter)

- the fact that the company has no real assets does NOT preclude a $200m valuation (or any valuation for that matter)

- banks don’t use “people in the know” figures, but VC’s do

Most posters in this thread are amateurs, and apparently have never been inolved in financing a startup

Matt 07 Aug 06

Bill,

Assuming the current 200m PITK valuation — if someone invests at a 100m valuation, has Kevin just lost $30m?

Bill 07 Aug 06

Matt - yes. Assuming the current PITK valuation is an accurate reflection of what a VC would pay today.

People In The Know 07 Aug 06

Banks don’t use “people in the know” figures, but VC’s do… Most posters in this thread are amateurs, and apparently have never been inolved in financing a startup

Hey Bill, I’m in the know. I really am. And I think Digg is probably worth about 20MM based on an 8x multiple of their initial $2.5MM VC investment. That seems about market rate. So since I’m in the know, just as in the know as the other people in the know, Kevin just lost roughly $50MM in net worth just from me posting here in the comments section.

Sucks to be Kevin.

Bill 07 Aug 06

PITK - you’re wrong on 2 counts. There is no “market rate” for a multiple of post-money valuation vs cash invested. It can be anywhere from 2x to 100x…. it all depends on what % of equity the VC’s purchased. Is there an average of 8x? Maybe, but it’s moot since that is an investment in the *past*. The *current* value is what is relevant.

Matt 07 Aug 06

Bill,

Assuming the current 200m PITK valuation — if someone invests at a 100m valuation, has Kevin just lost $30m?

Matt 07 Aug 06

Not sure about that double post, but here’s how I determine when you can or can’t lose something.

First, I make two categories:

1. Things you have
2. Things you don’t have

Then, realizing these are mutually exclusive groups, I decide that “things you can lose” can only describe one, and not the other, of these two groups.

Assuming a current PITK valuation of 200m, and a next-week PITK valuation of 100m which results in an actual investment taking place at that amount, I conclude that Kevin doesn’t lose 30m, because Kevin never had 60m. That is, Kevin’s 60m was in the “things Kevin doesn’t have” category (see above) — so an influx of 30m for Kevin results in a net increase of 30m actual dollars, and not a decrease of 30m fake PITK valuation dollars.

Bill 07 Aug 06

Matt… your post contradicts itself…..but assuming a VC would have invested at a $200m val yesterday, then today a VC invests at a $100m val, then YES, Kevin just lost $30m.

Craig 07 Aug 06

Bill, net worth is based on things that happen, not things that are said. The most a VC has invested in Digg so far is 2.5MM. And so far their revenues are $3MM. And so far they are only breaking even. That is all that matters.

Bill 07 Aug 06

Craig - no it’s not.

A company’s value is the net present value of FUTURE cash flows. Nothing to do with how much a VC has invested in Digg so far, and nothing to do with their current revenues and profitability.

Finance 101.

Karl 07 Aug 06

Is there a class in finance 101 where a “NPV of future cash flows equals an arbitrary number that people in the know made up” lesson is taught?

I missed that day.

Bill 07 Aug 06

Yup….when the ones making it up are the ones writing the VC checks, or at least know what the VC’s will pay

Mathew Patterson 07 Aug 06

Kevin Rose discusses the article and it’s contentious headline in this weeks diggnation podcast. He says he hasn’t made $60 million, doesn’t have $60 million, $1 million or even enough to buy a couch.

Alex, the other host of the show calls it ‘a number someone just made up out of the air’. When even the guy that the headline is about is telling you it isn’t true, it’s a good indication that something has gone wrong.

Alan DeKeyrel 08 Aug 06

This article does a great job explaining why MySpace.com was purchased for $540 million with very little revenue stream. The article says, “Where there are a lot of users and a lot of growth, there’s a lot of opportunity.” This is what will make Digg money in the long run… active users and continued traffic potential. If you have users, you can find ways to make money (as 37s has done with this blog).

Jack Shedd 08 Aug 06

Matthew Patterson - you’re misrepresenting what’s said on the podcast. Alex actually says “a number someone just made up”. The actual words are Alex says are “it was like an estimated value of Digg, what people thought that it may possibly be worth.” I may be missing the quote you’re using, if you have the exact time he says that, please post it.

What Kevin specifically isn’t saying is true is that a.) he has millions in the bank (something no one is saying) and that he hasn’t cashed out of Digg (apparently, people interpreted the cover as meaning that, having not read the article itself).

JonD 08 Aug 06

Where are people pulling this “Digg is worth $200 million” bullshit from?

The Businessweek article says the 200 million has no source. Its basically a number they pulled out of their asses.

Fact is, right now, Digg is just breaking even on yearly expenses according to Kevins own words. And its breaking even at $3 million. Thats far from $200 million.

Digg isn’t worth anywhere near $200 mill till someone pays $200 mill for it.

Brian 08 Aug 06

JF, you should have known better. I agree that BW really stretched the truth on this one, but the media has been doing this for as long as they have been around. It is all about hype. Has been and always will be.

What you did wrong was not in pointing this out, but pointing it out when Digg was on the cover. Bad choice, man. There are a million other examples you could have used, but choosing the BW Digg story is making you look like a little hypocrite crybaby. And the Diggers out there are very protective of Kevin Rose. He’s their Jesus for crying out loud.

Sorry, but that is the truth. Think next time.

ajr 08 Aug 06

Kevin Rose and the dude who started Facebook should race around the world in their hot air balloons.

J 08 Aug 06

What you did wrong was not in pointing this out, but pointing it out when Digg was on the cover. Bad choice, man. There are a million other examples you could have used, but choosing the BW Digg story is making you look like a little hypocrite crybaby. And the Diggers out there are very protective of Kevin Rose. He’s their Jesus for crying out loud.

Brian can you list just 3 of the “million other examples” of covers with blatant financial lies on the cover? 3 should be easy if you know of millions.

Brian 08 Aug 06

Brian can you list just 3 of the “million other examples” of covers with blatant financial lies on the cover? 3 should be easy if you know of millions.

Don’t try to twist my words around. I didn’t say there were millions of covers. I said millions of examples he could have used to show how the media has distorted the truth for the sake of pulling a reader in. It happens everyday.

Like JF said, this wasn’t about Digg or the cover, it was about how BW lied in their headline and story. There are a million examples of that out there. You don’t need me to point them out. Go find them yourself if you want to question it.

Bill 08 Aug 06

Wow - the amateur financial experts on this thread are getting humorous:

“And its breaking even at $3 million. Thats far from $200 million.”

AGAIN: current revenue and profits do NOT determine valuation.

“Digg isn’t worth anywhere near $200 mill till someone pays $200 mill for it.”

AGAIN: FALSE - it’s worth what someone *would* pay for it right now.

LOL

Chris Carter 08 Aug 06

It’s easy to spout off that everyone else are “amateurs” when you’re posting anonymously on the internet. However, the bottom line is that we haven’t seen any valuation. We’ve seen an article in BusinessWeek, which caters to C level students who managed to make it past the bout of alcohol poisoning in college and into the business world. You can run your mouth about net worth being equal to some phony number printed in a magazine, but until Digg has actually gone through a valuation, some jackass VC talking about Digg over a beer does not a valuation make.

P.S. Mr. Expert, here’s the definition of net worth:

The difference between an individual or companies total assets(what it owns) and its liabilities (what it owes). For a company, net worth is also known as stockholders’ equity.

Valutation != Net Worth

We had a near market crash because you MBA flyboys in Silicon Valley tried to rewrite the finance books and make new rules about what value really is. So glad you’re trying to do it again!

I think JF didn’t go quite far enough in his rant - this isn’t about just sensationalist journalism, this is about a culture of people trying to redefine capitalism and make a quick buck out of thin air.

Bill 08 Aug 06

Chris - you’re doing it too. Come on folks, this is basic stuff….has anyone here taken a finance class?

Assets - Liab = Book Equity

Book Equity (i.e. Book Value) and Market Value are 2 completely different things. Market Value is the NPV of future cash flows. That’s why most stocks on the stock market (even in boring/non-tech industries) have a Price/Book ratio of > 1.0

Don’t be a drama queen … no one’s trying to “redefine capitalism”. They’re simply trying to get ahead of the curve.

Karl 08 Aug 06

Sadly, reality operates on the curve.

Bill 08 Aug 06

Karl: “Sadly, reality operates on the curve.”

Not in highly speculative growth areas.

Chris Carter 08 Aug 06

How about YOU take a finance class (and a economics class and an accounting class) or simply point us to some relevant sources that validate your thought process, rather than just run your mouth on how everyone is an amateur but you.

Market value is not the same as Net Worth, and is determined when the market actually WORKS - nobody has purchased Digg for 200 million and from what I can tell from the Business Week article nobody has done a valuation, you’ve simply got some “dude” saying “Yeah, I think Digg is with 200 million”. Market value can be influenced by NPV, but is not the same thing.

Lets take an example - Bill Gates. Bill Gates is worth 70 or 80 billion (give or take 10 billion). That’s not because some armchair VC says that Microsoft is worth that much and Gates’ percentage equals out to that, it’s because Microsofts share price is ACTIVELY BEING TRADED at that amount. THAT’S market value.

When some slick looking guy in a fancy car says he thinks a company is worth something, that is not market value. That is an opinion. Now, if some moron VC actually ponies 200 million for a planless startup, well then, we’d have market value.

What’s sad is that some people actually think the way you’re describing. Anyone who would purchase a company like Digg where the purchase price is 100 times the NPV is an idiot. Unfortunately, as we saw with the original Bubble, we’ve got a lot of those in this country.

Bill 08 Aug 06

Chris - you don’t get it either.

It’s not what a VC actually ponies up. It’s what *ONE* VC is willing to pony up right now, but which might not actually happen (maybe the founder never wants another VC investment again, or just hates VCs period). That is Digg’s market value right now.

Chris - “Anyone who would purchase a company like Digg where the purchase price is 100 times the NPV is an idiot”.

Not necessarily true. VC’s make ‘high multiple’ investments all the time that pay off. But it’s irrelevant to this discussion anyway. If a drunken sailor feels like paying “100 times the NPV”, then that is what Digg’s market value is. It doesn’t matter that the drunken sailor is an idiot.

Mathew Patterson 08 Aug 06

It’s what *ONE* VC is willing to pony up right now, but which might not actually happen

This might actually be relevant if we knew who this mystery VC is in the Digg case. Are you telling me another VC would take into account a market value based on an anonymous source or a drunken sailor? That’s not a true market value unless there is supporting evidence.

Bill 08 Aug 06

Matt: “This might actually be relevant if we knew who this mystery VC is in the Digg case. Are you telling me another VC would take into account a market value based on an anonymous source or a drunken sailor? That’s not a true market value unless there is supporting evidence.”

REPLY: No, of course not. A VC certainly wouldn’t base it on an anon source or a drunken sailor. But it doesn’t matter. They *can* base it on those things if they feel like it. All that matters is what *ONE* VC is willing to value it at right now. That is its market value.

JonD 09 Aug 06

From http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=google&guid=%7B0B88DE01-CCD9-45DA-83D4-39223851831C%7D&keyword=

On the latest “This Week in Tech” podcast, the founder of Digg.com says he’s broke and “can’t afford a couch in my new apartment.” Another statement in the Business Week article he disputes is that Digg is profitable. “Actually Digg isn’t even breaking even, so they got that wrong,” he said. “I’m not a multi-millionaire, I’m not a millionaire or even a thousand-aire.” Rose said that on the day the article was posted online, he got an e-mail from Goldman Sachs asking if he needed investment advice.

To all the idiots who were defending Businessweeks bullshit numbers—there you go. From Kevin Rose himself.

Sebhelyesfarku 09 Aug 06

This Bill guy here with his 20 bullshit posts is a moron.

Bill 09 Aug 06

Sebhelyesfarku = moron

Thinks cash flow and liquidity are the same as market value.

Take a Finance class.

Bill 09 Aug 06

JonD - still not relevant. Liquidity and market value/net worth are not the same thing….many times not even close.

Rich 09 Aug 06

All that matters is what *ONE* VC is willing to value it at right now. That is its market value.

My Mom said I looked like a million bucks the other day when I got all dressed up. Does that mean my market value is worth one million dollars now?

Let’s see, I own 100% of me, so do the math…carry the one…and… holy crap! I just made one million dollars!!!

I can BUY a finance class with that kind of money. Oh yeah, it’s gonna be a cra-zay party to celebrate this! Everyone’s invited! Except for Bill, he’s kinda a stiff, and he’s just going to go on and on and on about I need to diversify my liquor portfolio, or something.

JonD—thanks for posting that, I actually revisited here to do the same.

Bill 09 Aug 06

Rich - is your Mom willing to write you a check at a pre-money valuation of $1m? LOL, what a stupid analogy….

Rich 09 Aug 06

Bill, no amount of “LOLing” is going to make me think you’re funny enough to come to my party.

Anon 09 Aug 06

After reading 280 comments, I just want to state that “Bill” is the biggest moron on this thread.

That is all.

CORENTIN 10 Aug 06

Shoddy journalism is to not cross check your sources!

Why dont you start by checking out the Business week website?

Here is a direct link to the podcast about the article where they explain exactly what the artlicle is about. The answer to your question is there! They explain it very clearly. You don’t need to make false assumptions.

http://www.businessweek.com/mediacenter/qt/podcasts/cover_stories/covercast_08_03_06.mp3

go to 10:46s if you wont to listen to whole thing.


RS 10 Aug 06

@Bill - All your claims are based on “if” a VC is willing to pay, then it is so. All your financial calculations are based on this “if”. Without showing a VC that “is” willing to pay $200,000,000 or relative fraction for a percentage based on $200,000,000, then the claimed monitary figure of worth is just an opinion, not fact! Do you know of a creditable offer by a VC to back up your numbers?

@JF - I agree with you on this topic. I appreciate your willingness to at least get people to think about things like this instead of just accept them because “That’s the way things are done”.

CORENTIN 10 Aug 06

After listening the two podcast, the one from the Business week editors and the one with Kevin Rose, reading the content this blog thread really sounds silly and pointless.

undervaluating other people definitely dont make you sounds better at all.

kmilden 12 Aug 06

No way Kevin Rose approved that cover. He seems like a good guy and they made him look like a dork. Jason is right the whole bubble going on right now is bullshit.

“Don’t believe the hype”

Robert 18 Aug 06

If the Business Week cover isn’t amazing enough, check out Kevin Rose on the cover of People Magazine!

Eric 21 Aug 06

I find it ironic that you guys would blast Newsweek, etc, but at the same time you hype up your user #’s (500,000 … yeah right), and you also TOTALLY ripped off Apple iCal interface. Look in the mirror before you cast aspersions towards others.

me 05 Oct 06

Well this argument is easily solved.

What company has offered to buy 100% of Digg for $200 million?

If none, then it isn’t worth $200 million, if so, then there is a sucker born every minute and at the point that the sale is made the company is worth $200 million.

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