{"id":90,"date":"2008-04-23T20:09:18","date_gmt":"2008-04-24T00:09:18","guid":{"rendered":"http:\/\/blog.websitebroker.com\/?p=90"},"modified":"2011-12-11T22:46:59","modified_gmt":"2011-12-12T02:46:59","slug":"introduction-to-buying-selling-and-valuing-websites","status":"publish","type":"post","link":"https:\/\/www.websitebroker.com\/articles\/website-valuation\/introduction-to-buying-selling-and-valuing-websites","title":{"rendered":"Introduction to Buying, Selling and Valuing Websites"},"content":{"rendered":"

I. Buying and Selling Websites<\/h1>\n
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  1. \n

    The Problem<\/h3>\n

    So. . . you’ve worked hard at building a web site from scratch. You started back in 1995 in the web’s “early days”. You built content, built the databases, designed graphics, and wrote software. You promoted your site every chance you got and added e-commerce to generate revenue. The last years seem a blur of staying up late nights, midnight snacks, working odd hours, tweaking code. However, now all the hard work has paid off and you are getting 50,000 visitors every day viewing about 15,000,000 pages the month. One day you get a strange e-mail. It is a well known publicly traded company that wants to see if you are interested in selling your web site. They ask you to name your price. You smile. Wow. Someone wants to buy your web site. Then the smile disappears as you realize that you have no clue as how to value a web site. After all, this is not just like any other business. What do you compare it to? It isn’t like real estate where you can easily check to see what the market is like or what comparable properties sell for. How do you measure your hours or hard work, sweat, frustration, and money that you have poured into the web site?<\/p>\n

    <\/p>\n

    There is no established formula in determining the value of an existing web site. A wide search of the Internet shows that very little has been written about the actual subject of existing web site valuation and the process of selling or buying websites. Even today there are still only a handful of web site brokers on the Internet.<\/p>\n

    There are many reasons to want to value a web site. Whether it is because you want to sell your site or you want to buy an established web site you need to know what factors should at the very least be looked at when determining the value of a site. This is even more important for those who may be investing in various sites or creating a network of sites.<\/p>\n

    While we realize that ultimately, the value of a web site may come down to the simple “what is the buyer willing to pay” and the seller “willing to take” we nevertheless want to offer a roadmap and somewhat of a checklist \/ laundry list of things to consider.<\/p>\n

    Some of the components are obvious. They include: value of hardware, value of software, value of content, etc. Some of the components of a web site’s value may not be so obvious. For example a web site that costs $500 to run every month and does not produce any income of any kind may not seem that attractive at first. However, you sometimes need to look a little deeper beneath the surface. What if the site offers something unique which is of value to someone else; such as a constant amount of traffic with certain “attractive” demographic characteristics? What if the site includes custom software that can be easily ported to other areas or to another site? Certainly such type of traffic or feature has a value that may not be easily calculable, but needs to be included in the valuation.<\/p>\n

    Naturally, both the seller and the buyer need to be aware of what should at the very least be included in the valuation of a web site.<\/li>\n

  2. \n

    The Solution<\/h3>\n

    There are many elements that must be included in the valuation of a web site. Both the seller and buyer must remember that an important thing to be considered in valuing a web site is the “traditional” methods of business valuation. Basically, you always still need to look at the “bottom line”. You need to determine what the return on investment is going to be and if the acquisition of a site is ultimately going to be a worthwhile investment. However, for web sites, you can’t just look only at the traditional valuation methods. You will find that many sites are not making money, but that does not mean that these sites are not worth anything. In fact they could be worth millions of dollars in what can be best described as “dormant money”.<\/p>\n

    Therefore, to properly value a web site, we need to look at both traditional valuation theories and other elements specifically relating to web sites, the web in general and the Internet.<\/p>\n

    Someone could argue that ultimately, all these components lead to one thing. Traffic to the site. They would claim that just by looking at traffic alone you can determine the value of a web site. After all, they would argue, a site with 5 MB of files and data using a “virtual server” \/ hosting service (i.e. sharing space on a server with many other) serving 5,000,000 visitors a month would be worth more than a site which owns 3 servers and has 1 gigabyte of files and data serving 4,000,000 visitors a month. That is not necessarily true. You may need to also look at the “smaller” sites capacity to handle more traffic, more data and more. The infrastructure becomes very important too.<\/p>\n

    It is interesting to point our that there are not many places like the web where a very small amount of investment and infrastructure can generate far more traffic than sites that have poured millions of dollars in equipment, software and development. The college student’s site that started as a school project has the potential to generate more visitors than the site which cost some company funded by a lot of venture capital which invested several millions of dollars to create a “high tech” site (for an example we don’t need to look farther than the currently very popular “facebook.com”). In some discussion circles this is called the small dog being able to outdistance the big dog. Very little investment can create a lot of value. In the “outside real world” a start up company that wants to look good to it’s potential clients needs to make a substantial investment just to open it’s door’s to the public. Even the office space or the furniture can cost hundreds of thousands of dollars a year. Yet on the web the “Small Dog” can look as good (or even better) than the “Big Dog”.<\/p>\n

    In looking at the more detailed discussion about each component of a web site valuation, you will soon realize that there is more to it than simply pure traffic or just simply revenue.<\/li>\n

  3. \n

    The Past<\/h3>\n

    Between 1995 and 1998 there had been several acquisitions of web sites and web related entities . Some of the details are easily found (if you know exactly where to look for) and some of the details are much harder to come by.<\/p>\n