My New Project (No. 2) – Valuing Websites


My second project, the one that doesn't have a ton of long-term potential, actually grew out of personal necessity. It's a group of tools for valuing websites based on historical website sales. About 18 months ago, when Businesspundit had a pagerank of 7, I realized that I could bump up the pagerank for a really low site just by linking to it. I got the bright idea that I could monetize this by buying websites with low PR, linking to them, waiting for an update, and selling them off. Initially, I bought what the internet marketing community calls Made-For-Adsense sites. These sites have several pages of content or some sort of free tools, but are primarily constructed so that you find them through a search engine and then click on an ad. (Don't confuse these with parked domains that only have ads, they are two different things) Many web marketers set up thousands of these sites. They may only make a few cents, or at best a few dollars a day, but multiply that by 4 digits and you can make some decent money.

After buying and selling several of those websites, I became interested in other types of sites. I bought directories, tutorials, ecommerce sites, and I went through a VERY steep learning curve. The website market is not very liquid or transparent. The seller has a massive information advantage over the buyer, so much so that websites typically sell for 10-12 times monthly earnings, which would be a steal for any other kind of business. But they sell so low because of the risk you take on when you buy a site. I was burned a few times early on, but I stuck to sites in the $100-$300 range, so it was money I could afford to lose and chalk it up to a learning experience. I also did really well with a couple of sites, making some easy money for doing very little work.

As a quick aside, I need to tell an interesting story that I think accurately reflects the stupidity of the average person. If you search for making money online, buy and sell websites, and stuff like that, you will get a lot of these wild pages with red text, yellow highlights, letters that say "From the Desk of…" and always start with "Dear Friend." It's really pretty ridiculous. Well, several months ago I bought one because it sold a video series of How to Flip Websites. The videos won't make you rich, but if you like to write and build simple sites, they really can show you how to make $50-$100 with a few hours of work. Knowing that I was going to build this website valuation tool, I wanted the videos as an add-on, and I wanted the list of previous customers because they are good candidates to sign up at my new site.

I had never owned one of these crazy text sites before, so my first thought was that I would clean it up and make it look more professional and mainstream. But I like to experiment, so I decided instead to put up two new sites – one with a blog format and one built on Joomla with a professional looking business template. I spent a few weeks getting the Google Ads right so they had a good click through rate, then I changed them weekly to point at the different sites. All sites had similar levels of traffic, yet the cheesy sales page site outsold the others 5 to 1. I was shocked.

The other sites came down, and I'm trying to figure out what I can do with the existing site because honestly, I feel somewhat uncomfortable owning it in it's current form. Making money online is all fine and good, but with this site I feel like I'm part of the web underworld. Anyway, if you find the internet marketing world interesting, I would encourage you to check out the extremely funny blog at Internet Marketing Sucks.

So back to my story…

I am fascinated with how things get their value, and over time, I started watching sites that went for surprisingly high and surprisingly low amounts. I started thinking about how random factors affect the sale of websites, and I started recording the data for some sites in a notebook. I spent 10-15 minutes a night just writing down the key variables that are often disclosed during a website sale, for a few sales I found interesting. After doing this for awhile, I wondered if there were any patterns to the sales, so I entered all this data in Excel and did some regression analysis. It was pretty interesting, because I started to see which variables mattered for which types of websites. I thought that if I was fascinated by this, then surely there are some other people buying and selling websites who would like this information too, and that it could be very useful to them – so useful that they may pay for it.

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I wrote a spec and put the site up for bid. But I did something that I had never done before on a programming freelancer site… I took the very highest bid. It sounds crazy, I know, but the guy sent me a note saying that he really loved this idea (he had a math degree) and that he couldn't meet the price of the other coders, but that he would do a better job. I bought it, because I do believe that intrinsic motivation matters. And this guy delivered. He build the site, with my shifting spec and all, in several weeks.

I spent a few weekend nights filling the database with data from old sales, scrolling through forums to pull out the content and piece it together. Once I got a feel for the work flow, I hired some data entry help (I highly recommend Odesk). They are still going part-time, adding several hundred records a week.

I approached a few heavy website buyers and sellers and cut them a really good deal if they would sign up and give me feedback. They did, and it was helpful (and none of them have canceled yet, which is good). By this time I had dozens of new ideas about how to expand the site, add new tools, etc. But I haven't yet gotten around to those because I also realized that some people don't know how to do advanced searches, and that the site needed some help guides. Of course, I have to write those, because I understand the site better than anyone else. It isn't fun, but it's one of those things that has to be done.

I started a blog about website valuation that is attached to the site. I use it to illustrate interesting things I find when analyzing the data inside. I quickly discovered other uses for the data than just analyzing sites up for sale. For instance, since monthly revenue figures are normally given for websites for sale, I can look at what sites similar to the ones I own are making, and figure out if I'm undermonetized. I can look at things like my defunct Jotzel domain name that still has a PR of 5, and figure out what kind of site makes the most money among PR5's at a given traffic level. Then I know what to build at that domain name. I can buy a site now and analyze similar sites with more traffic or a higher pagerank, to figure out where best to invest my marketing money – links or traffic? I've found a ton of great uses for the data. It's the kind of tool that an analytical guy like me can get lost in for hours.

On a personal level, this idea really demonstrates the changes that I have undergone in the last few years. I used to be very marketing focused in my ideas. I went for business ideas that had strong branding possibilities and could send good messages. Later I became more management focused, thinking that was the most important thing in a well run business. Now, in the last year or so, I've made a transition to the point that I think the underlying economics are the single most important thing about a business. I tend to think about how to accumulate proprietary assets, and how to use those assets to generate cash. It's an "old school" way of thinking about business, but it has served me well when I buy and sell websites.

So that's business number two. It's more of a side project that will make a little bit of money without taking up too much of my time. And maybe as buying and selling websites becomes more popular, I will be there to catch the growth wave that comes with it.

I doubt that much of my readership is interested in this kind of business, but for the one or two of you who might be, I set up a promo code "bpundit" that lets you sign up for $12.95 a month instead of $29.95. It's a paypal subscription that you can cancel whenever you want to.

In a couple of days I will write about my third project, the one that takes up the most of my time, the one that accounts for endless headaches, the one that is extremely unpopular with the investors we have approached, but the one that I think is the best thing I've been a part of so far in my business career. I hope to get it up by Tuesday, but it will be a long post, I'm sure, so it may take a little bit longer.