Thursday, May 3

Digg says, "bury me with my users"

Digg's Kevin Rose decides: together, we fall!

Digg has reversed an earlier decision and will now allow users to post codes used for cracking the HD DVD copy protection. The decision almost guarantees legal action from the copyright holders that could bankrupt the business, which is by far the most dynamic and popular news and culture reference for the Web 2.0 generation.

In a digg (post) from Digg founder Kevin Rose, he explains the company has decided that its first and only loyalty is to its users. That's the kind of decision only a privately-owned company can afford to make, and highlights one of the fundamental differences between Web 1.0 and Web 2.0.

Web 1.0 companies used venture capital to get to the point that they could realise their value in an Initial Public Offering (IPO) - selling shares in the company on a stock exchange (most commonly NASDAQ.) That made the owners of Web 1.0 companies worth millions in paper overnight, but also made them responsible to shareholders and at risk of hostile takeover. Organised shareholders caring only for the short-to-medium value of their shares would never stand by and allow Kevin Rose to risk it all to make a point. And destroying shareholder value by making such a decision would leave the company at risk of a hostile takeover as the market reacted to the news.

VC-backed firms like Digg aren't immune to investor pressure, of course. Digg's backers, including VC firms Greylock Ventures and Omidyar Network, must be sweating bullets and melting phone lines trying to make sure they understand and approve of Rose's decisions on this issue before he announces them to customers and the industry.

Unless Digg makes pulls another 180, the future of Digg probably includes a big shoot-out at the Supreme Court Corral with the federal government, DVD manufacturers and media industry. Talk about David and Goliath! I can only guess that Rose feels like he has no choice in this decision: if he buckles to the industry and removes copyrighted material from the site, he loses because his audience will choose a competitor to post their news on; but if he keeps his audience and keeps his business alive for long enough in the battle against Goliath, perhaps Goliath will realise that this is a fight that it will never win. Once Digg goes down, another Digg will take its place, and encrypting copyrighted media will never stop people cracking it.

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