Re: How to value a web site?

From: Mark J. Welch [Adbility] <MarkWelch_at_Adbility.com>
Date: Mon, 11 Jan 1999 18:55:52 -0600 (CST)

JONATHAN CORBET <CORBET_at_EKLEKTIX.COM> WROTE:
>We are considering the
>sale of one of the sites that we run. The site (the Linux
>Weekly News, http://lwn.net), has been quite successful over
>the last year, with a steeply increasing rate of traffic.
>We believe it is one of the premier Linux-related sites.
>My question is this: how does one put a value onto a web
>site? Are there any formulas or rules of thumb which people
>use to arrive at a starting point for such a valuation? Any
>resources out there which can help with this task?
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The notion of any kind of rational valuation system existing
in internet properties is probably itself irrational. Here
is my rant on the subject, with some brief analysis of the
LWN site.

In traditional markets, one would expect to pay some figure
based on past or running-forward revenues or profits. But
in this business, the sky is the limit, although there does
still seem to be some minor effort to link profit potential
and sale price.

Some deals might be valued per "member" (MSN/Hotmail) or per
"affiliate" (MSN/LinkExchange). For example, I estimated
that at one point just before its acquisition, Hotmail was
paying more than $10 per new free web-based email account
signup.

If you assume that LinkExchange had 250,000 active
affiliates (in the LinkExchange and ClickTrade networks) and
sold for $250 million, that's $1,000 per active affiliate
(but of course, that's not all Microsoft bought when it
acquired LinkExchange's many components).

Other deals might be priced based on site traffic based on
unique visitors per month. And a premium should certainly
be expected for web sites in a strong "market" position in a
niche that's expected to grow rapidly (like Linux).

Ironically, a site might be sold because its domain name or
trademark has value to someone in a completely different
business (e.g. the sale of the art.com domain name by
Advanced Rotorcraft Technology to an art vendor).

I see that a Linux consulting/programming firm is currently
maintaining the site/publication. It may turn out that the
most viable buyers would want to also buy the whole company,
if we assume that there is huge value to being recognized as
Linux experts by the existing audience base. Or maybe one
of the current owner's loathsome competitors might want to
buy the site in order to buy instant credibility (or even to
try to trash the credibility of the seller's firm).

If you want to try to value the site based on its current
visitor activity, you need more information than just raw
numbers: you may also need decent survey data or actual
results information. (For example, if the publication wrote
a glowing review of Red Hat Linux 5.2 and included a link
that immediately triggered 2,000 downloads of the software
package, that's useful info. If the publication has done a
survey showing that it has 10,000 corporate users who each
spend $1 million per year on outside Linux consultants,
that's tremendous value.)

Maybe someone out there will base the value on some fixed
dollar amount per "warm body" (visitor, subscriber,
whatever). How you count these warm bodies is anybody's
guess; some people count unique visitors only within a
24-hour period, while others count each visitor only once
during the whole month. And I suspect that a lot of
valuations are done based on total "registered" members,
even if some huge portion are long dead, duplicates, or
inactive (such as Amazon affiliates, or LinkExchange and
Hotmail members).

Another figure I often hear quoted is the "inbound link"
numbers: how many web sites link to the site being sold? Is
the site linked from a good category in Yahoo? Is the site
linked from key industry sites? There is some value if
substantial traffic can be expected just from these pre-
existing links.

So where does that leave us?

Looking at the LWN.net site, I could find no information at
the LWN.net site about advertising or about traffic, or
about the visitor base (other than indicating that the site
is for Linux "users"). It appears that LWN is not
distributed by email, but an email notification service is
available to remind people when the site is updated
(accompanied by a pledge never to use the email list for any
other purpose, ever).

At first, inbound links didn't seem to be a strong selling
point for LWN.NET (Alexa found ZERO inbound links), but a
search in Alta Vista turned up a fairly decent number of
inbound links from other Linux-related sites.

I see that LWN is currently running Burst ads, so I assume
ad revenues are VERY far from optimal, probably under $1 CPM
average (net to LWN after Burst commissions). I didn't see
any ads that appear to be targetted to a Linux or even a
computer-related web site. But since I'm not a Linux user,
I could be wrong: maybe the site has lined up some great
deals with Caldera or Red Hat or other Linux industry
players who are paying $5 CPM or even $50 CPM for ads at the
site, but only served to visitors using Linux (e.g.
targetting by browser and OS).

Burst lists Linux Weekly News as the 36th largest site out
of nearly 800 in its network in the "Computers & Internet"
category.
(http://www.burstmedia.com/gallery.asp?q=13&s=trafficup&d=0)

(I would GUESS that LWN receives something like 150,000
pageviews per month, plus or minus 300%, and I would guess
that it has about 30,000 unique visitors per month -- again,
plus or minus 300%).

It is unclear to me what the editorial costs are, and what
deals or relationships that LWN might have with Linux
industry players.

So what price would I put on Linux Weekly News? It all
depends on a heck of a lot of information I don't have,
including a bunch of data I think LWN should probably have
posted at its site (such as an ad rate card and some traffic
figures for prospective advertisers and agencies to see),
plus a lot of other information that LWN should not share
publicly. I would guess that on the low end, it may turn
out that the site is only worth a few thousand dollars,
based on its current advertising income stream. Without
some demographic information about the visitors (are they
Linux programmers? users? consultants? home users? corporate
staff with buying power?), I doubt any real upside value
could be assigned.

-- Mark J. Welch, Web Site Banner Advertising [Adbility]
-- http://www.markwelch.com/bannerad/
-- Ad rates: http://www.markwelch.com/bannerad/baf_spon.htm
-- (925) 462-8483 voice - Pleasanton, California


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Received on Mon Jan 11 1999 - 20:27:29 CST