TechCrunch notes along with others the possible bidding war brewing between Google and Microsoft to acquire social bookmarking service Digg, which sounds probable given the relentless march for each of these companies to build market share. I wonder whether the prices will really accelerate that much off of last year's earlier possible bids for Digg, though, given the soft ad economy and the stabilization of Digg's audience. Mind you I am sure that either Google or Microsoft would love to have 20 million monthly visitors but the real issue is how one of these majors can recover from the flattened prospects of a Facebook deal in a down economy.

With Facebook seeming more interested in improving their platform as of late than cashing in their chips perhaps to some degree both Google and Microsoft have been played off against one another by Facebook via their high asking price to keep either of them from getting stronger through another social media property acquisition. Certainly the stock buzz has been off of both of these properties since the Facebook deal went cold, so perhaps with quarterly earnings calls looming around the corner both Google and Microsoft are eager to have at least some social media story to tell.

Google's Orkut platform was always an also-ran in traffic and is suffering from declining traffic, in part perhaps due to losses to new local-market social media platforms in India and other regional markets, so it's about time for Google to pony up for a bona fide social media community. From the Microsoft side its ad deal with Digg would go away in all likelihood with a Google acquisition so a Microsoft deal would help to shore up momentum for its still-young ad network, but with only a tiny finger into social media via MSNBC.com's Newsvine property it has a lot of catching up to do as well

On balance, though, Google's needs would seem to make this deal a "must do" at this point to ensure that it can get some flesh-and-blood "wisdom of the crowds" that's been managed largely through their search algorithms to date. Search is still an important tool, but as the word "curate" begins to trip off more and more tongues this year Google needs to step up its ability to curate content with a human eye as well as through machine intelligence. While its audience doesnt' stretch down deeply into specialty topics Digg's ability to lend weight to what really interests people on the most popular topics for a younger audience that starts and ends their day with social media is an important factor for Google to address. Combine that with the potential to marry Google search algorithms with Digg's increasingly sophisticated curation of bookmarked articles a and there could be some very interesting news products in the offing.

The other factor that Google seems to need to address through such an acquisition is a cultural issue. Google's presence to the world is friendly oftentimes but not very conversational. A brand like Digg is by its very essence a conversational brand, one that creates most of its value through people interacting as a group. Google needs that more open approach to brand building in its DNA more deeply. It's good to at listening to geeks and getting a bit better at listening to real-world people, but folks in the Web 2.0 world like Kevin Rose who are just far more accessible can become effective bridges to that more open collaborative culture. Microsoft could certainly benefit in similar ways, but the cultural divide between most of the Web 2.0 world and the corporate culture of Microsoft would seem to be a pretty wide gap to fill in.

This could be just one more social media deal that goes sour after the earnings calls but somehow this one has a heft to it that may lead it to completion. The prices being bandied about are far less steep than Facebook's earlier numbers - USD 200 million or so - and as fine a job as Digg has done with refining its platform it's not clear that it can go much further as a standalone product. Social bookmarking is still an important social media capability, but the future probably belongs to those services which can blend generic platforms such as Digg with services that can use that technology to build enthusiast communities that may carry a publisher's brand or a product brand. We'll see where this goes but hopefully one of these players finally gets off the dime and starts embracing social media communities more fully in an open Web environment.

Labels: Deals Partnerships and Sales, Digg, Google, Microsoft, Social Media