The popular social news-aggregator website Digg has been sold to New York-based tech development firm Betaworks for a reported $500,000 US, much less than the $160 million US at which it was once valued and the $45 million in venture capital it had reportedly raised.

The company announced on its blog that its service will be combined with Betaworks-owned News.me, a rival news aggregator that compiles news according to what users’ friends are reading and recommending on Twitter and Facebook.

All of Digg’s staff and its CEO, Matt Williams, will leave the company. Williams wrote on his blog that he plans to take up a post as entrepreneur in residence at venture capital firm Andreessen Horowitz, whose co-founder Marc Andreessen was an investor in Digg. He will be replaced by Betaworks CEO John Borthwick.

Broke Paris Hilton cellphone hack

Digg is a site that aggregates news stories from other sources according to recommendations made by users. Since it was founded in 2004 by former cable television talk show host Kevin Rose, it has had 28 million story submissions and 350 million “Diggs,” the thumbs-up or down recommendations registered users give stories, according to the company.

One of its first breaking and most attention-grabbing stories came in 2005 just a few months after it was founded when users picked up the story of celebrity socialite Paris Hilton’s cellphone being hacked.

“Google and Yahoo indexed us as the No. 1 search result for ‘Paris Hilton cellphone hack,’ so you can imagine our servers were down for the next two days just because we only had, like, two servers at the time,” then-CEO Rose told CrankyGeeks.com in 2006.

“But it really showed us how putting together a huge mass of users and sifting through this information can break news faster than a lot of traditional news organizations.”

It also drew media attention in 2006 when Rose made the cover of BusinessWeek under a headline that read “How this kid made $60 million in 18 months.”

Rose left the company in March 2011 after a failed redesign led to an exodus of users that halved the site’s unique visitors from about 16 million to around eight million, compared to Reddit’s 14 million at the time.

Users down

As of May 2012, Digg’s unique visits were down to 3.8 million compared to Reddit’s 15 million and Facebook’s 148 million, according to Quantcast, although comScore reported seven million visitors per month for Digg.

Although the company has attracted high-profile investors such as LinkedIn founder Reid Hoffman and reportedly raised $45 million US, its popularity has waned in the last two years as other sites such as Facebook, Reddit and Twitter have replicated and improved upon its model.

Last year, the company tried to catch up to its competitors by launching a Facebook app, which reportedly has slightly less than one million monthly active users.

In its own blog post, Betaworks called Digg “a pioneer in community-driven news” and said it plans to make Digg relevant again by turning it “back into a startup. Low budget, small team, fast cycles.” Its new strategy will be focused primarily on the mobile market, the post said.

The Wall Street Journal reported that more than half of Digg’s staff had already left the company in May to work for Social Code, a subsidiary of the Washington Post Co.