Re: How to value a web site?

From: Ray Taylor <taylor_at_nmcadplan.com>
Date: Wed, 13 Jan 1999 11:46:36 -0600 (CST)

CARL FLANSBAUM <CARL_at_PLANETCPUB.COM> WROTE:
>I am in a similar situation and have done quite a bit of
>research. However, I have yet to find any information that
>directly relates to evaluating a web site to determine a
>selling price. Business 2.0 had an article (Nov 98) that
>focused on evaluating a web site for investment, and I
>understand that this can be somewhat similar to a selling
>price. I tried to extrapolate some of the formulas they
>used and while the data is from sites like Excite,
>Sportsline, Yahoo, etc. at least it's a starting point.
>
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I have recently been asked to look at just such a project,
but from the buyer's, not the seller's point of view. In a
way, this process is much simpler because the main concern
is that the client does not make a costly mistake. The
process therefore includes due diligence work as well as
analysis of value.

I guess there are three main measures involved in a
valuation:

1. Revenue

2. Goodwill

3. Intellectual property

The revenue is easy enough to establish, and is the most
tangible of the three measures. It is far more important
than cost or profit, because both of these things depend on
how the site is operated, which is likely to change when the
new owner takes over. costs and profits need to be taken
into consideration, but both can be improved by new
management. Goodwill is the sum total of all the
relationships that have been established for the property.
Most importantly client and supplier relationships, but as a
secondary measure the visitors to the site. If you can
establish the approximate number of people that regularly
visit the site then you have a good measure of its potential
to generate advertising revenue, merchant sales, or whatever
the new owner plans to do with it. The number of impressions
is less useful in valuation because of the huge variation in
the value of impressions, even for banner advertising
purposes. If you stick to people and relationships you have
a far more reliable indicator of value than merely measuring
files that have been opened on a computer. If the number of
impressions have generated ad revenue, then you have already
measured that, anyway.

Intellectual property relates to the copyright ownership,
trademarks, etc. If you have a lot of original content
produced exclusively for the site and it remains current,
then there is quite a high value. Trademarks can be valued
in terms of recognition of brands and such. Alternatively
measure the amount of money that has been spent advertising
them. It would be easy enough to place a value on the Amazon
brand by establishing the amount of money they have spent on
banner advertising, although you might argue that some of it
has been spent extravagantly. Since the original question
was about selling a site, you can measure any of these
things or just pull a price out of the hat. If you don_t
have a buyer it_s academic anyway. And if you do have a
buyer then the value is no more and no less than they amount
they are willing to pay, which is a matter for negotiation.

Do use a range of formulae in a valuation and if possible
use more than one method and run each method independently.
If more than one method produces a similar result, then this
provides evidence of the reliability of the measures
employed.


Ray Taylor
NMC/Adplan
+44 181 639 0015


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Received on Wed Jan 13 1999 - 12:16:23 CST