With layoffs and top execs gone, Digg needs to redesign its business, too

Social news aggregator Digg laid off more than a third of its staff Monday in the wake of a failed redesign, and its top sales and finance executives left — suggesting that more than just the website’s look and feel need fixing. In a post on the company blog, new CEO Matt Williams claimed the cuts, affecting 25 out of 67 employees, were needed in order to achieve profitability by mid-2011.

Digg’s chief revenue officer, Chas Edwards, confirmed his departure to AllThingsD, in a move he and the company sought to cast as voluntary. But much speculation surrounded the timing of his exit. Edwards, even before he joined the company, was the architect of Digg’s monetization strategy. At Federated Media, an online advertising agency which represented Digg, Edwards helped sign up top-tier advertisers for the site. Digg lured Edwards away as it attempted to bring more sales in-house.

At Digg, Edwards headed an internal sales team that focused on selling embedded ads that looked very similar to stories submitted by the community on Digg’s popular front page and elsewhere on the site. The ads were a big hit among community members. These popular ads disappeared from the site for much of the time that Digg redesigned its site in late August.

Edwards is joining a photo-labeling startup, Pixazza, as chief revenue officer. Digg’s longtime CFO, John Moffett, has also left the company for another startup, Vizu.

Some Digg community members speculated afterward that the severing of the relationship with Edwards was an attempt to scapegoat him for the loss of revenue that the company may have experienced after the botched redesign attempt, which is widely believed to have hurt Digg’s traffic and community participation levels. It’s an open question whether these layoffs would have been necessary had the redesign not been attempted in the first place.

Williams did not say which departments would be cut. A company spokeswoman promised more announcements Tuesday.

Digg’s most active community members have strong feelings about the site, which many rely on to drive traffic to websites they work for.

While the move towards profitability was greeted with hope by some, other Digg users expressed concern because of what some see as a decreased focus on quality of headlines on the site. In the last several weeks, dozens of “spam” sites have appeared on the front page, without Digg staff noticing.

“I could see it getting them to the point of profitability next year, but at what cost to the community and product if they don’t have the staff to stay on top of things?” said Cass P. Andersen, online marketing manager for Guyism.com.