Google and Microsoft Bidding on Digg?

Is Kevin Rose in for a well-deserved payday?

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.

Personally, I hope Google wins. The synergy is clear: Digg would provide a human complement to Google’s bot-driven news. Microsoft, on the other hand, would just be trying to buy a clue.