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Huge challenge to monetize the Digg audience too

Eric Schmidt and company could have a $200 million check waiting for social media site Digg. Google shareholders may be wondering why.

After missing earnings expectations a little with its second quarter 2008 numbers, Google has been hotly rumored to be in pursuit of Digg. A buzz-worthy acquisition of a property mentioned many times in connection with the search advertising company may excite the Google fan base that holds shares of GOOG for a few minutes.

Until someone confirms the TechCrunch speculation, the deal remains firmly fixed in the realm of possibility rather than likelihood.

But there's a more significant question about Google and Digg: why buy it? At Hitwise, analyst Heather Hopkins looked at Digg's traffic, compared it to existing Google properties, and found it lacking.

Digg would rank #13 among Google's top 20 properties behind Picasa.

In June, Digg ranked #35 among News and Media websites compared to Google News' #5 ranking (Yahoo! News ranked #1). Google News received 6 times more traffic than Digg last month, at 2.08% of US Internet visits to News and Media websites compared with 0.33% to Digg.com. Digg received 43% of its traffic from Google.com last month. The #3 downstream website after Digg was YouTube.

In June, Yahoo! Buzz overtook Digg in share of US Internet visits.

Once upon a time, when Digg came into being and simply dismantled Slashdot as the go-to source for breaking tech news, a Google pairing could have been a beautiful thing. A hot search tech startup with a sizzling news site to match, Digg may have become Google News, a property that outperforms it easily today.

That $200 million looks like money best used elsewhere.