Fall from grace – former Silicon Valley darling Digg reportedly sold to Betaworks for just $500,000

How the mighty have fallen. Digg, the social news site that was once the hottest company in tech and scouted by Google for more than $US200 million, has now been sold to Betaworks, the company behind bit.ly – and The Wall Street Journal pins the price at just $US500,000.

However, there are new reports that put that price into question, with Digg chief executive Matt Williams telling All Things Digital the “overall consideration is significantly larger”.

In any case, it’s a dramatic fall from grace as the company has stood by and watched primary social networks become a hub for people to share news and interesting links – especially after its controversial “version 4” update.

The writing has been on the wall for some time. Last year, founder and chief Kevin Rose left the company and, earlier this year, 15 of its employees headed off to The Washington Post.

Betaworks, which was founded by prolific entrepreneur Andreesen Horowitz and has invested in several start-ups including TweetDeck, announced the acquisition on its blog, saying it will be turning Digg “back into a start-up” with a low budget and a small team.

“How? We have spent the last 18 months building News.me as a mobile-first social news experience. The News.me team will take Digg back to its essence: the best place to find, read and share the stories the internet is talking about. Right now.”

Digg was founded by entrepreneur Kevin Rose back in 2004. The primary purpose of the site was for users to post news, and then vote on whichever ones seemed most interesting at the time. The links that received the most votes, or “Diggs”, went to the top of the page and thus, were most likely to receive the most hits.

Getting to the top of Digg was considered an achievement for plenty of news sites and blogs back in 2007-08, and the company was heralded as one of the bastions of the Web 2.0 movement.

Rose became a celebrity and, according to a 2006 piece in Business Week, the company was turning over $3 million a year with a rumoured valuation of $200 million. Google reportedly scouted the company for around that price in 2008, although no deal was ever made

However, Digg has raised at least $45 million since it launched, and most recently scored $5 million in another series last year. But, at that time, its valuation had fallen to around $35 million.

Kevin Rose left the company last year, making way for current chief executive Matt Williams. But now, Williams won’t stay with Digg – he’ll join Andreessen Horowitz as an “entrepreneur in residence”. Digg will just become another part of Betaworks.

He’s told TechCrunch the company considered “many options”.

“And frankly many of them could not live up to the reason Digg was invented in the first place – to discover the best stuff on the web. We wanted to find a way to take Digg back to its start-up roots.”

No other staff will join Betaworks.

The company has failed to keep up with social networking trends. Over the past few years, more users on Facebook have become used to sharing links with their friends, and relying on their own small network to find content that’s interesting to them specifically. The same applies to Twitter.

The controversial Digg update in 2010 also fuelled its decline, as users criticised it for being too complex and unintuitive.