September 28, 2007
Website Valuation - what is a website worth?
If you are a small business owner who’s company is primarily internet-based, especially in eCommerce, trying to determine the value of your web business can often be a daunting and very challenging task. A fundamental question that challenges traditional thinking pertains the tangible and intangible value of a website. For pure play web companies, the website is their building and the internet is their real estate. When a traditional company is sold, often times the building and land go with it. Is web real estate and property being valued in the sale of a web business?
While fundamental methods can be applied using income-based, market-based, and asset-based valuation modeling, there appears to be a significant void in identifying the overall value of a web business. The concept of re-creation value is applicable, but that is merely book value. The site’s design, functionality, content, brand, natural traffic, partnerships, domain strength, conversion rates, industry growth, and many other elements are being overlooked when valuing web companies. To date, most VCs or investment banks are using rules of thumb such as a multiplier of revenues or profit. While these simple multiples have worked in the past, it is a very general way of determining value of a web-based business. In addition, simple domain appraisals are only surface level deep at best and are more suited towards those trying to capitalize on domain trading.
Should a website and its internet reach be calculated as a tangible asset in valuation? Is there is a difference in valuating a traditional brick & mortar business versus a web business? How about valuing a traditional businesses’ web presence as part of the overall package in a pending acquisition? While net presence and web functionality will impact financials, which can be analyzed using an income-based approach, what about the “real property” of a website and its ability to generate revenue in the future?
If you own a web-based business (such as eCommerce, lead generation, or content-based site), what do you think?
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3 Comments on Website Valuation - what is a website worth? »
October 15, 2007
Cath Hoffner @ 11:17 pm:
I wholeheartedly agree with your points made in the value of a website and maximizing its full potential. My biggest dilemma is the narrow, genre dictated theme for my business and the difficulty of translating it to a professionally done website with all the “bells and whistles”.
With a set budget and limited personal website skills, it’s daunting.
December 14, 2007
Bahman @ 6:48 am:
You raise some interesting questions. Coming up with a value for a web site can be tricky especially when a site does not have any revenue. One needs to also look at many different factors to come up with a value for a site. I wrote an article about website valuations back in 1998. I recently updated the article and interestingly not much has changed in terms of the factors you need to consider when valuing a website. Many of the same principles still hold and a few new ones have been added. I have also put together most of the information into a free online website valuation tool for anyone that is interested.
FMV @ 11:50 am:
Bahman - Thanks for your comment and recommendation to our readers. Looks like an interesting tool you have put together for a quick website valuation. Human touch and professional insight is still important to add to such an approach, for larger sites when transactions would potentially exceed six figures.