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Slashdot has no need to compete because they have a very narrow focus and have succeeded at this for years. They invented what's now called the "Digg effect", the only thing Digg has over Slashdot is more categories -- and much more unintelligent users although that's not a plus for Digg. If you read programming.reddit (the closest thing reddit has to Slashdot), it's like a cesspool for people who think Digg's tech sections are overrun by knuckle-draggers and for the most part, they're right. Neither Digg nor Reddit command the geek respect that Slashdot has earned over the last 10 years or so and probably never will. Slashdot invented what we call social news, they're very set in their ways and it's always worked. What works for both Digg and Reddit do not work for Slashdot because the user focus is entirely different.
You make it sound like Slashdot is losing a fight it never started and war it was never losing. Remember, Slashdot was first.
Regular users of Digg know all too well how often such a simplistic rating system pushes up some of the worst and pulls down some of the most insightful stories/comments. Digg has degraded into a site where the hottest 'news story' is a link to a LOLkat image or a video of an episode of Maury Povich. Their 'tech' section is littered with CSS tricks and the latest Apple 'rumor'. People who care about REAL tech news do not rely on Digg. Slashdot's moderation system may not be perfect, but it's better than Digg's rating system. I like that Slashdot tells me why a comment is buried or promoted (Information, Insightful, Funny, etc...) Karma also means people don't abuse the system. You only have moderation powers when the system gives it to you, so you make sure all your mod points count.
Slashdot's addition of Firehose shouldn't be looked at as a Digg 'clone'. Digg was created in response to Slashdot's elaborate and mysterious moderation system. The benefits of a simpler rating system cannot be denied. If this help editors more quickly find stories worth promoting to the front page--that's great!