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A look inside Betaworks, the behind-the-scenes builder of Internet magic

You may have recently noticed that after a long hiatus, Digg is back. And it’s sort of cool again.

The once dominant website used to be such a commanding destination on the web people talked about the “Digg effect” where content went viral after it was featured on the site. But Digg didn’t remain an Internet kingmaker for long. The website saw its popularity plummet since its peak around 2006, and its elite sheen wore off as Reddit grew into the echelon of deep Web discovery. 

But Digg is on an upswing. Once valued in the hundreds of millions, a company called Betaworks bought Digg in 2012 for $500,000. After Betaworks dumped 14 million pages of content, traffic dropped even further, and people thought the it was dead in the water. But then something funny happened: Although people initially bailed on the site after Betaworks stripped it of familiar features, users started returning to this new, sleek, streamlined version of Digg. Traffic is on its way back up, and for the first time in years, people are talking about Digg as an influencer. 

This is the Betaworks magic at play. 

Now, obviously Betaworks is just a company, not the tech world’s Svengali, and at some point it’s probably going to have an out-and-out catastrophe in its docket. But right now the small New York-based “company that builds companies” has a winning streak that’d make 1992 Michael Jordan snap his fingers. 

The team would prefer to spend most of its energy creating services from scratch.

Here’s a brief rundown of Betaworks’ successful track record: founded in 2007 by John Borthwick and Andrew Weissman, two AOL vets, the company gained momentum after helping TweetDeck take off. “It was basically set up to be a new type of media company. With that kind of goal in mind, the focus was on building companies ourselves and doing seed investments in companies we believe fit in that new media world,” explains SVP Paul Murphy. Borthwick remains the CEO, overseeing the implementation of tons of spartan, sleek services. 

“We’ve done 75 or 80 seed investments in the last five years. We were the first investors in Tumblr, we invested in GroupMe, which was sold to Microsoft, we got a number of companies that were sold to other companies, so we’re shareholders in everything from Pinterest to Path to Airbnb and Groupon. A pretty healthy investment portfolio,” Murphy says.  

In the past year and a half, Betaworks has had some big wins buying companies. It recently pulled Digg out of the Island of Misfit websites and back into relevance, Betaworks also bought and revamped the popular Instapaper

Betaworks doesn’t have the financial resources that the biggest investors have, but it makes up for it with focused attention to the companies it chooses. “Over the last couple years at Betaworks, the brand has grown as a good investor and a good operator, so what happens a lot of times now is that start-ups will come to Betaworks – not necessarily for the cash, because there’s a lot of investors out there with a lot more money – but because they feel that we know how to build a company, that we can be valuable partners for them,” Murphy says.  

Betaworks could simply make its mark as an investor and buyer, but that’s not the master plan. Murphy says the company’s focus is on building services, rather than looking for projects to invest in. “They’ve been pretty good financially, but that’s something that we do to get smarter about the ecosystem, to help build the Betaworks brand within the start-up community.” 

The company has proven itself an adept builder that can go beyond investing – case in point, Web services it created from the ground up, Bitly and the much beloved Giphy. Despite lacking experience in mobile gaming, the company’s new mobile game, Dots, also quickly became a lauded hit. 

“We have amazing designers in house, and some of the best developers in New York. And we’ve got really good business operators as well. So I think that we provide some of that guidance, help, and coaching. So I think that does give the start-ups a difference reference point than what they’d get from their financial investors. But, honestly, we do that more as favors to these companies. It’s not something that we spend too much time with the start-ups we’re investing in because we’re focused on building our own companies.” 

While it’s had strong results in investing and buying, Betaworks is primarily interested in creating new platforms. The team would prefer to spend most of its energy creating services from scratch. “80 to 90 percent of our time and capital is spent building companies,” Murphy says. 

What exactly does Betaworks do to make all of these beautiful Web services? The company has a secret weapon: A coterie of hackers at its disposal. 

“The hackers in residence speak to how we build companies. We get really small groups of people on a team, we’ll spend time thinking through different parts of the media industry that we want to disrupt or try a different take on. We’ll refine that idea for a few weeks and then we’ll start building,” Murphy says.

And they don’t waste time. “We’ll build really quick early prototypes and get them out to a group of beta testers, and look at how the testers interact with that project. We look at that data and use that plus a little bit of our gut intuition to decide if we should scale something up or scale something back or try something different. The hackers in residence program is something that I led over the last year basically, it’s something that we’ve always done and just finalized it a bit more. We set up eight hackers in residence, we have a long list of ideas on the Betaworks side, the hackers had some of their own ideas – if you look at the Betaworks website, they’re all fairly successful entrepreneurs – they’ve bought and sold companies.” 

“With the hackers in residence program, they all set out on a path over three months to build different products and put them to market and see what happens. Out of the eight that we started, we created five companies. Giphy is one of them, Dots is one of them.” 

Betaworks hasn’t released an ugly project, which is the key to the company’s success – it makes beautiful, user-friendly websites. Will the Betaworks method, which comparatively looks chaotic – even haphazard – usurp the traditional VC model for start-up investment and creation?

Maybe – or maybe Betaworks is just a beautiful, crazy anomaly. As long as it keeps churning out the good stuff, Internet addicts aren’t likely to care. 

[Image via Mashable]

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