User-generated news site Digg has been working with influential investment bank Allen & Co. (the ones that recently got Slide a half billion dollar valuation) for a few months now, and pitching big tech and media companies on a sale.

And despite a number of false starts, this time a sale looks like it might actually happen, and soon. We hear from a source very close to the deal that four companies are in heavy due diligence with Digg - two media/news companies, and two big Internet companies - Google and Microsoft. And Google and Microsoft are on the verge of making their bids.

Digg is prepared to take less than the $300 million Allen & Co. were floating late last year. Google, our source says, will likely bid $200-$225 million, which Digg would likely accept.

Microsoft is looking at a somewhat lower price. That makes sense, since most of Digg’s revenue today comes from a three year advertising deal that Digg signed with Microsoft last year. That deal has revenue guarantees - and Microsoft may be hesitant to value Digg based on revenue that they supply.

Any sale is likely to give Microsoft an option to terminate that advertising deal, which means Google isn’t valuing Digg based on revenue, either. But it is a big slap in the face to Microsoft to steal Digg away, and Google can certainly generate revenue on all those page views.

More as this develops, but we may be looking at a bidding war between Microsoft and Google over Digg. Plus any late comers to the table.

Digg was founded in late 2004 and has raised $11.3 million in funding.

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Yahoo launches the much anticipated Yahoo Buzz tonight - a Digg-like site that takes stories from pre-approved news publishers (100 to start) and let’s users vote on stories and push them up to the top of the page.

To see it in action, click on the buzz button at the end of this, or any, of our posts (update: button functionality won’t be live until Tuesday). Like Digg, the more users that vote for a story, via the embedded button or on the Buzz site, the higher the story goes on Buzz. But user voting isn’t the only factor in how well stories do. Yahoo is also looking at their search engine logs in real time to determine hot or breaking news. Stories on that topic will get an extra boost in the rankings.

But there’s another part of Buzz that will get publishers excited - every day a few of the most popular stories will also be featured on the Yahoo home page. Yahoo has been experimenting with linking to third party news directly from their home page since last year. In one case, the Buzz team told me, 2 million visitors were sent to Wired for a linked article in the two hours it was on the Yahoo home page. 2-3 stories from Buzz will go on the Yahoo home page daily.

Buzz has categories including entertainment, world news, U.S. news, sports, business, health, and travel. Images and video are also separate categories.

Of course, many publishers won’t be able to handle that kind of traffic flow. But Yahoo is also prepared for that. Smaller sites will only be linked on a fraction of the total home page views - in effect, Yahoo is turning down the firehose for those that can’t handle it.

Yahoo isn’t the first large company to try out the Digg model. In mid 2006 AOL relaunched the Netscape portal as a Digg-like site. AOL eventually moved the service to a different domain name and renamed it Propeller. The service has about 3.8 million monthly unique visitors (Comscore), compared to about 12.5 million for Digg.

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Social voting outfit Mixx has taken $2 million Series A1 in a round led by existing investor InterSouth Partners.

Mixx offers a category based social voting service that competes with sites such as Digg, Reddit and Propeller. McLean, Virginia based Mixx was launched in September 2007 with talent including former executives from Yahoo!, AOL, USA TODAY and The Associated Press. The company has regularly launched new features in an attempt to stand out in a market place with strongly entrenched loyalties to existing players.

Mixx added the LA Times to its investor group in December. Total funding to date is $3.5 million.

(via VentureBeat)

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Half of the country’s tech bloggers and journalists, it seems, are under embargo around next week’s launch of Yahoo Buzz. Word has still leaked, likely from recently layed off Yahoo employees. We’re under embargo, too, so I can’t say much. But the posters up all over Yahoo give a taste of what is.

“We’re re-launching Yahoo! Buzz as a destination site where users determine the best stories & videos” - sounds a lot like Digg to me. The URL given in the poster - alpha.buzz.yahoo.com - can only be accessed by Yahoo employees. The launch URL will be buzz.yahoo.com. If you happen to be online, check out TechCrunch at 9 pm on Monday.

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Digg competitor Mixx continues to impress us with new features (although the exodus of Digg users to them may have been short lived).

A new feature launches this week on Mixx called Related Items. It solves a common problem found on Digg and other sites where multiple articles on the same story compete with each other to get to the home page. One person may submit a story from USAToday. Another may submit basically the same story but from the Washington Post. Those stories are tracked separately on Digg, and votes are split between them as users discover them. The result is that the story takes longer to get to the home page than it otherwise should. Or worse, both make it and the story is duplicated. Digg catches duplicate submission for the exact same link, but they are unable to determine if stores are related.

The Related Items feature on Mixx flags a submission when it thinks that a story is similar. A message appears that says “We may already have this story! Or at least one startling similar. Take a look at the stories below.” The user submitting the related story can then choose to submit it anyway, or add it as a related item to the previous submission. Digg also flags stories that may be similar to other submissions, but does not offer the ability to cluster the new story to the old ones.

There is a benefit to the submitter in adding the story to the previous submission because the new story will be added, too (and traffic will flow). Users benefit because they get more information and perspectives on the story. Here’s a screen shot of how the clustering will look (click for bigger view):

The clustering that will occur from this will very much resemble TechMeme, which is a great way to quickly find multiple perspectives on the news.

Mixx, which is backed by Intersouth Partners and the LA Times, is still a tiny blip compared to competitors like Digg and Reddit. Comscore says Digg has 12 million unique monthly visitors, compared to about a million on Reddit. Mixx? They’ve got just 45,000. That’s probably a low count, since newer and smaller sites are much harder for Comscore to measure. but they have a long, long way to go before they are even no. 2 in this market.

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Silicon Alley Insider reports that Ask has just launched a news site called Big News in partnership with Digg that, from the looks of things, only partially incorporates social news functionality.

There were rumors just earlier this week that Digg was white labeling its technology for Ask. However, Big News is more akin to Google News or TechMeme than to Digg. The bulk of the news items collected and displayed from around the web are identified algorithmically, not socially.

Digg’s only clear influence on Big News shows up in the footer of the site, where you can view the current top five Diggs and five stories collected by Big News algorithmically that haven’t been Dugg yet. This real estate will help drive traffic to Digg and encourage the identification of interesting news stories. What does Ask get in return? That’s not altogether clear, although SAI hears that “Digg ratings factor into the site’s algorithm.”

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Is Digg not satisfying your desire for political news on this Super Tuesday? A newly launched site called VoteOften wants to step in and fill the void.

VoteOften is a social news site like Digg but with additional features that set it apart. In addition to user-submitted stories, the site algorithmically pulls in the top political stories from several reputable news sources. Stories are not only voted up or down but rated for their liberal or conversative bias as well. They are also tagged as relevant to particular candidates or issues, so you can view all stories related to, say, Barack Obama or national security.

More advanced features include the ability to rate candidates based on how they are portrayed by a particular story. You can indicate whether you got a good or bad impression of the candidates mentioned in a story, and the site will generate a bar graph showing how everyone felt about the candidates in aggregate.

Since this site just launched, the homepage stories are not terribly fresh yet; this will hopefully change once site activity increases. Check it out, participate, and go vote.

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Following ongoing criticism from users that Digg doesn’t consult nor listen to its user base, Digg’s Jay Adelson has announced that Digg is to commence holding Town Hall meetings.

The meetings will consist of Adelson and Rose giving an update on “what’s happening at Digg, discuss topics you propose, and answer your questions.” Digg Town Hall meetings will be webcast live and made available for download from Digg after the show, with the first show kicking off January 25.

The Digg team is also planning on holding some more face to face meetings as the year progresses, details including dates and cities to be advised.

It’s good to see Digg’s management team appreciating its user base in this way. Far too often successful startups forget that they didn’t get to their positions alone, but with the help of their user base. No doubt that Digg’s rabid fan base will tune in and actively participate in these meetings.

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The last time Digg officially announced how many registered users it has was back in March when it passed the one-million mark. Now, programming sleuth John Graham-Cunning extracted registration dates from Digg user profile pages to come up with an estimate of 2.7 million registered Digg users. Some of the key inflection points came in June, 2006 when Digg expanded beyond technology to cover world news and entertainment, and in December, 2006 when it added video links. The makeover in August, 2007 seems to have helped as well. At this rate, Digg should surpass the three-million user mark by March, 2007.

Here is Graham-Cunning’s unofficial chart of Digg registered user growth:

These are just registered users. And we don’t know how many are active, but you need to be a registered user to participate in the Digg community (i.e. to submit stories and vote them up the page). Digg’s overall traffic is higher. According to comScore, it peaked in October, 2007 at 6.3 million unique visitors in the U.S., and came down a little to about 6 million in December (this dip might be seasonal due to college students being on break for the holidays). Worldwide traffic in December was about twice that number in December.

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Kevin Rose has posted details tonight of a major change to the Digg Algorithm that would seemingly put an end to group voting up stories.

According to Rose, the changes are focused on ensuring that “the most popular content dugg by a diverse, unique group of diggers reaches the home page.”

Rose gives an example of the new algorithm keeping a story with over 100 votes in the upcoming list based on a diversity rank, essentially saying that group voting amongst friends will now work against a story. Rose was not clear as to at which point a story with a low diversity score can break out of the upcoming stories, but at the time writing some stories in upcoming show over 140 votes, higher than the previous levels required to make the front page.

The Drill Down show tonight suggested that the changes would mean that new members without Digg friends would have a better chance of stories making the front page than established users (as friends usually vote for stories from friends), and that the changes would result in massive fraud attempts using fake accounts to try and manipulate the new diversity system.

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