Updated: Betaworks Acquires Digg (For Significantly More Than $500K)

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Betaworks, the company behind bit.ly, news.me, Chartbeat and a number of other successful products, has acquired the social news site Digg.com for an undisclosed amount. Betaworks’ founder John Borthwick will become the new CEO of Digg. The site’s current CEO Matt Williams will join Andreessen Horowitz as Entrepreneur in Residence after the Betaworks transition is complete. Digg’s founder Kevin Rose joined Google a few months ago after the search engine acquired his latest startup Milk.

Update: Rumor has it that the price was just $500k, but that number doesn’t really make a lot of sense, given that the site still gets enough traffic to make more than that in a year by just selling ads. Talking to AllThingsD, Digg CEO Matt Williams confirmed that “the overall consideration is significantly larger” and includes a combination of cash and equity. Another source close to the negotiations tells us that the price was indeed not $500k. We haven’t been able to pinpoint the exact price yet.

Betaworks promises to turn Digg “back into a startup,” with low budgets, a small team and fast update cycles. None of the remaining Digg employees, it seems, are moving to Betaworks. Instead, the News.me team will take over the management of the site. Betaworks, says Digg, will soon unveil a new “cloud-based version of Digg” that will complement News.me’s iPhone and iPad apps.

According to Digg’s outgoing CEO Matt Williams, his team “considered many options of where Digg could go, 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 startup roots.” Betaworks says it’s planning to “build Digg for 2012.”

Once a poster child of the Web 2.0 revolution, Digg slowly faded into the background over the last few years, especially after its 4.0 update alienated many of its users. After that, Digg never quite found a niche for itself as content sharing moved to social networks like Twitter and Facebook (and the competing social sharing site Reddit). It still has a sizable amount of users, but it’s really just a shadow of its former self today. While an announcement like today’s acquisition would once have received hundreds of “diggs” and comments within a few minutes, the fact that today’s announcement has only 16 diggs and four comments so far is rather telling.

Earlier this year, the Washington Post Company hired 15 of the site’s engineers to power its own social products. Ever since, it was pretty clear that the site was likely going to be acquired sooner or later.

In 2008, Google was reportedly interested in acquiring Digg for around $200 million, but walked away from the deal. That deal would have been a nice return for the service’s investors. In total, Digg raised $45 million from a number of SiliconValley most prominent investors since its launch. The last funding round – a $5 million Series D round – closed exactly a year ago. At that time, the site was still valued at around $35 million and TechCrunch founder Michael Arrington reported that without that round, the company would have had only had about 6 months of runway left before it would have had to close its doors.