Jason Calacanis Says Digg Needs An Advertising Sales Team, Is He Right?

In a word, yes, Jason’s right in his blog post when he suggests Digg may need a sales team of 20 people to reach the amount of revenue they need to justify their latest investment valuation.

His post suggests Digg can’t break out of the technology (young male) demographic with their current brand, and he references another post wondering if “vertical niche” Digg-like sites will eat away at Digg. While I suspect Jason is right about Digg struggling to break out of their young male community, I’m not sure the vertical niche sites will really damage Digg at all. Either way, the thing that was most interesting to me was this paragraph:

The real challenge for Kevin and Co. at digg now is that they probably raised their $8.5m round at 60-80M post-money. That means that the latest round of investors are going to look for 10-20x that amount as an exit. That’s a 600M -1.6B exit. That means they have to get to $30-50M in revenue. That means that Kevin is right when he says they have no interest in selling the company–they’ve got 4-5 years of work to get to those revenue numbers… start building the sales for now because to hit those numbers you need a 20-person sales team.

So, to satisfy the expectations they need to be generating $30-$50 million in ad revenue per year, which is a healthy order. Not only do you potentially need a lot of sales people as Jason suggests, you need a heck of a lot of good traffic as well. I think it will be a struggle for Digg to reach the amount of revenue and profit to justify that valuation, but crazier things have happened.

Another question is the role that Federated Media can take in this, as they are currently acting as the hired sales arm for Digg’s advertising. Jason has theorized in the past that Federated is in a tough spot for a site like Digg because they’ll help Digg grow and get bigger to the point where they can hire their own sales team and not need Federated anymore. There could be some truth in that, if not, then Federated has to be looking forward to the opportunity to keep scaling their sales operations and advertiser relationships to be able to sell the amount of advertising required to make their publisher sites like Digg reach their goals.