How do you value a web site as an asset? If your company is closing down, what is the web site worth? Increasingly common questions, for which there are no standard answers. And there won’t be any “standard answers” for some time to come. That’s not how business works at this stage of the Internet development game. Oh sure there are sincere efforts underway to assign an estimated value to web properties, so that they can be sold and traded and perhaps most importantly insured, but that is not the same as assigning true values.
Estimating asset value is a process of managing risk through compromise and assumption and reliance upon safeguards via distributing the risk. As the system learns to manage the risk, it builds in the various factors needed to cushion itself against the various flaws in such an estimating process. Reward has to follow risk, and investment has to parallel that risk. The economic system where we work and play has to absorb the risk and pay out the profits. Our capitalist system seeks to externalize costs where risk is difficult to manage.. as painful as that may be for the uninitiated. Our system is getting ready to do that with web sites… but the real important number for buyers and sellers is the liquidity value – the price it would get if it were sold. Until we all have much more experience buying and selling web sites, no one can estimate what someone will pay right now for a web site. Only the buyer knows what he is willing to pay right now.
So you have this block of ice. And you are in Alaska. What is it worth?
A good salesman can sell ice to Eskimos, as the saying goes. Of course she can. In this case liquidity is probably a poor term to use (melted ice is no longer ice?) but the point is the same. The ice will sell for what someone is willing to pay. Otherwise, it has no value and may even come with a cost (it takes up space, absorbs heat, makes a mess, etc).
So if the ice has no value and maybe even comes at a cost, how does it get sold? The broker adds value by doing work. Find the buyer. Make the pitch to justify the value. Provide what is needed for the buyer to manage risk and see the potential. Help externalize the risk associated with disposing of the capital and assuming the asset. The key to selling a domain asset is selling, just as the key to selling ice in Alaska is selling. But selling is not simply talking. It is work. Due diligence. Technical work, market research, investigative work, legal work, and innovation. Did I mention innovation? Innovation is a form of risk…like an investment of time and effort. You remember that part I said earlier, where reward has to follow risk for the system to function?
Why is it that in Canada, almost every community ice arena is build next to a community pool complex? Build a community ice rink and you start throwing off heat into the atmosphere, because you draw heat out of water to make ice. Build that same arena adjacent to a swimming pool and you now have a heated pool for almost no additional cost. Why does the US keep building free-standing ice arenas and free-standing, unheated community pools?
A good SEO can turn a $9 domain into a $1000 month revenue generator, which some people say they can sell for 3-5 times annual revenues ($9 becomes $36,000). The amount of SEO work required probably has a real cost of $15,000 and a market value of $30,000. That’s why so many SEO talents build only for themselves (invest $15,009.00 and earn $36,000). There aren’t many investors paying $30k to build out a site that will sell for $36k at this time (there will be someday.. that’s a decent return if the risk is able to be managed). But there are so many other avenues for finding value that yes, many people are investing the $30k when they are able to see the value beyond that $36k market price — domain name appreciation, market leverage, added-value from a well-crafted portfolio, etc etc. And of course that broker issue – finding the buyer willing to pay 8.5x revenue instead of 3x revenue suddenly increases the profits by another $275,000. Scale these numbers as you see fit…
If you are holding a developed web site that has no value to the owners, hire a good domain broker and hire a good SEO consultant and start fresh in the business of selling that web site. Yes it requires an investment, because reward follows risk taking. But lucky for you, if the web site has potential, those players who can realize the potential for you (selling the ice to Eskimos) will do it for a cut of the sale (some of the ice). When you think about it, its like paying that ice salesman for her services, with some of the ice. Sounds like a no-brainer to me. The only real investment required is the time you spend mulling it over… while the ice is melting.