Once a high-flying web property, Digg was sold Thursday for a paltry $500,000. The sale to Betaworks, maker of an iOS news aggregator app and an URL clipper, Bit.ly, was a fraction of the $45 million lavished on the venture by Silicon Valley money lenders since its founding in 2004. Why did Digg fall on hard times? Here are seven reasons.

Design Arrogance. Digg redesigned its website in August 2010. It was a disaster. Not only was the redesign buggy, but it removed popular features, like "burying" stories. The impact of the design mess was swift. Digg experienced a 24 percent drop in traffic and within months, it was laying off people. At its height in 2008, Digg was attracting 30 million users a month. When it was sold, that had dropped to seven million.

Digg redesigned its website in August 2010. It was a disaster. Not only was the redesign buggy, but it removed popular features, like "burying" stories. The impact of the design mess was swift. Digg experienced a 24 percent drop in traffic and within months, it was laying off people. At its height in 2008, Digg was attracting 30 million users a month. When it was sold, that had dropped to seven million. Biting the Hand the Feeds Your Feeds. Digg had millions of users, but the popularity of news on the site was driven by a couple of hundred "power users." Those users kept the site lively. Instead of encouraging activity by those power users, Digg treated them like lepers.

Digg had millions of users, but the popularity of news on the site was driven by a couple of hundred "power users." Those users kept the site lively. Instead of encouraging activity by those power users, Digg treated them like lepers. Failure To Look in Rear View Mirror. While Digg was alienating members, a viable alternative emerged to what Digg was offering. That alternative was Reddit, which allowed news hounds to determine news trends on the Web but to take action, too. For example, Reddit was a key forum for protestors that brought down legislation that opponents maintained would undermine freedom in cyberspace.

While Digg was alienating members, a viable alternative emerged to what Digg was offering. That alternative was Reddit, which allowed news hounds to determine news trends on the Web but to take action, too. For example, Reddit was a key forum for protestors that brought down legislation that opponents maintained would undermine freedom in cyberspace. Cannibalization by Competitors. The ideas underlying Digg -- including recommending news to others—were absorbed by rivals like Facebook and Twitter. That erosion of Digg's preeminence in its niche began even before its design disaster. In 2009, for instance, Twitter passed Digg in popularity and never looked back.

The ideas underlying Digg -- including recommending news to others—were absorbed by rivals like Facebook and Twitter. That erosion of Digg's preeminence in its niche began even before its design disaster. In 2009, for instance, Twitter passed Digg in popularity and never looked back. Show Me the Money. Like many social websites, Digg had trouble making money. Online advertising couldn't generate the kind of cash it wanted to make and supplemental schemes, like sponsored, in-stream links, just didn't work.

Like many social websites, Digg had trouble making money. Online advertising couldn't generate the kind of cash it wanted to make and supplemental schemes, like sponsored, in-stream links, just didn't work. Founders Fled. The tandem behind the site, Kevin Rose and Jay Adleson, moved on. As they did, so did the site's verve. Rose is now with Google's venture captial fund. Adleson is an adviser at SimpleGeo.

The tandem behind the site, Kevin Rose and Jay Adleson, moved on. As they did, so did the site's verve. Rose is now with Google's venture captial fund. Adleson is an adviser at SimpleGeo. Cover Jinx. In sports, there's a superstition about an athlete appearing on the cover of Sports Illustrated. Do it, and something bad is bound to happen to you. While there's no similar hoodoo for business magazine covers, you have to wonder if Rose's flaunting of his success with his "How This Kid Made $60 Million in 18 Months" Businessweek cover may have jinxed Digg.

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