OK, let's stop the bubble machine right now

Om... you know I love you, but this is absurd. Like really, really crazy. Weblogs, Inc. was bought by AOL because of revenue and revenue growth. Eyeballs and pageviews had nothing to do with it--zero. No one in the marketplace is buying things based on eyeballs--no one. It's all based on revenue. Well... we also had an amazing management team and systems in place--those are very important too.

However, no one--NO ONE--is paying $38 per web user because no one--NO ONE--has any hope of ever making that kind of money back! I can't comment on specifics of our deal, but let me just say this is really, really flawed.

How much money does Boingboing, Gawker or Weblogs, Inc. make off of a user? Well, if they were to read a blog every other day and read two pages each time that would be a total of 350 pages a year.

1,000 pages = 1 CPM (cost per thousand). Blogs prob. monitzie on avererage at $2 to $5 per 1,000 pages. So, what you would make off an a really loyal who came back all the time is around $1-3 per year or 1/10th of the $38 a user number.

Boingboing, like any other web property, is worth 1-10x revenue and 5-30x earnings. So, if BB does 30-50k a month/360-600k a year (which seems possible to me based on the ~5m page views a month) it would be worth between 500k and $3M (based on revenue since with five mouths and server hosting to pay for it doesn't really have earnings--yet!). Those numbers fall into line with my calculation of a really loyal user being worth $1-3.

Paying much more than that amount wouldn't make much sense unless you were an affinity buyer or buying the talent (which is all part time and spoken for on other projects anyway). You would be much better off putting the $3M to work on hiring a staff of 10 writers @ $100k, putting 1M towards a management team, and $1M towards marketing. That's how these deals tend to go down.. people look at the cost of buying vs. building, and the numbers you're putting out Om puts out are so absurd it's laughable.

Nov 29th 2005 12:24AM
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1. It's amazing how people tend to calculate valuations based on any data that's available instead of sticking to the fundamentals of how the business actually works. Good that you are calling things by their names!

Posted at 5:42AM on Nov 29th 2005 by Julio Alonso

2. Shhh! don't tell big companies not to overpay for web firms. Let them make their own mistakes...again (anyone got stock in Herman Miller?) What'd be BB's growth rate? As you say its only been 5 months, bound to be based on projected growth and you know how web companies like to skew that figure with unsustainable growth rates. Then you have the old legacy media firms feeling they 'missed' the internet golden age and need to start buying big traffic sites to quieten the stock analysts, so off they go overpaying for high traffic sites when they could easilt build their own sites with their own brand value. As soon as they get the sites, the traffic begins to dwindle as the new management has no clue what users will tolerate, a new startup emerges and onward goes the cycle of ill-planned buyouts :)

Posted at 7:45AM on Nov 29th 2005 by Adam

3. Jason- I just started to think about Om's piece (so my thoughts are preliminary) and agree that a single yardstick for all visitors is on the surface is ridiculous. However, in valuing a business, you're presumably capitalizing your$1-3/yr. for a number of years-and I don't know what the capitalization rate should be. I expect internet advertising to grow over time as well, at more than the GNP. You bring up a good point about talent- you're buying the part-time efforts of a bunch of people-but one that is already functioning- the question is how long the folks (and their audience) will stay. At some points, other projects may draw them away.

Posted at 10:24AM on Nov 29th 2005 by Kelley Ritchey

4. Shhhhhhhhh! Keep it quiet until I monetize my 200k monthly uniques ;-) I could use the $10M.

Posted at 11:24AM on Nov 29th 2005 by Randy Charles Morin

5. Jason, 30x yearly earnings may be common for corporate buyouts but unheard of if you buy/sell sites among mom/pops (that too if the web property depends on search engine traffic)� Many SE traffic dependent adsense content sites can sell for 1-2x earnings max

Posted at 12:18PM on Nov 29th 2005 by Gopi

6. I would sell in a flash if somebody offer me 30x earning ,heck even i will sell for a 10x earning , take that 8 digit figure and just run :)

Posted at 12:53PM on Nov 29th 2005 by Gopi

7. Jason, It was so refreshing to see your post today. Like you, I love Om's blog and much of what he writes for Business 2.0, but I believe he let the popularity of his own blog and the commensurate number of eyeballs cloud his assessment in the most recent article. I tried tracking back a reference I made of your post in my own block, but didn't see the option. Here is the link if you're at all interested... http://woodrow.typepad.com/the_ponderings_of_woodrow/2005/11/paying_for_eyeb.html

Posted at 1:01PM on Nov 29th 2005 by Jason Wood

8. I agree. $38 is absurd, but it generates tons of inbound links to whoever reports it.

Posted at 2:27PM on Nov 29th 2005 by Allen

9. Any advice on getting $2-5 per 1000 page views? I'd say I get more like $1.00-1.10 by using adsense.

Posted at 4:48PM on Nov 29th 2005 by Tim Dierkes

10. "if they were to read a blog every other day and read two pages each time that would be a total of 350 pages a year." it would be 760 pages/year, rite? must be a typo.

Posted at 7:02AM on Nov 30th 2005 by steve

11. Mmmmm Boing Boing seems to be more like 25 million page views per month (not the 5M you are mentioning). Check the public stats at http://boingboing.net/stats/

Posted at 7:20AM on Dec 1st 2005 by Alvy

12. $38 for a member seems about right, assuming a company has been 1 and 3 million uniques and is growing rapidly. After you pass a 100 million valuation that multipul will start to drop if you don't have rapid growth to sustain it. Hosting costs for boing boing must be peanuts, 25 million pageviews a month? Thats like 1 server & maybe a db. I'm doing 10 million user generated pageviews a day, and 40 million pageviews generated by users polling the site. That only requires a whole 3 servers. According to hitwise i'm in the top 100 sites in the united states for pageviews/day. I'm also in the top 10 sites in terms of pageviews in canada. I can't see how the hosting costs & hardware/software costs averaged over a year could possibly be more then 2-7 grand a month. If they really are getting $5.00 a cpm they would make $125,000 a month. I can't see total expenses exceeding 10-15k.

Posted at 4:49PM on Dec 1st 2005 by Markus

13. >> $5.00 a cpm they would make $125,000 a month 1. they are not doing 25m pageviews.. more like 5-10M 2. when i estimated $40k a month in revenue back when they said it wasn't close to that. My guess is 30-40k right now.

Posted at 9:00PM on Dec 1st 2005 by Jason

14. Yes, I'm going to charge more for the car I'm selling sitting by a more trafficked road than the one sitting in my driveway. That makes sense, right? Never mind the one by the road is a Geo, and the other is a Porsche. Pretzel logic tastes so good.

Posted at 4:26PM on Dec 2nd 2005 by Victor Agreda, Jr.

15. all based on revenue not eyeballs ? Like Newscorp's aquisition of MySpace for $580 million. Facebook being valued at around $200 million. Google buying up many start-ups still in beta with limited users. In other areas we see Skype valued at $4 BILLION....

Posted at 9:32AM on Dec 3rd 2005 by carl

16. I am not sure I got the concept in the number's you mentioned above. If I understand it correctly, this is the way you have calculated per user revenue: 1 User comes every other day and sees two pages. So total number of pages per year per user = 1 (User)*.5 (visits every other day) * 365 (Days in a Year)* 2 (Pages viewed per Visit). This comes to approx 350 Pages/User as you mentioned. I am with you till here. The CPM rate is $2 to $5 so the revenue per user is approx .7$/User/Year to 1.75$/User/Year. You had mentioned $1 to $3 per user/year approx. I am with you here as well. However, you had mentioned that rates are anywhere between 1-10x revenue for overall valuation, so if I multiply at the high end of the rev/user metric (i.e. 3$/Year/user) with the high end of the valuation metric (i.e. 10 times revenue). So, if you multiple both the high end of the ranges out you get approx 30$/user (3$/User * 10 Time Revenue). This is in the ballpark of Om's estimate... I am just using your assumptions to arrive at the total valuation. Am I missing something? However, while I briefly glanced through OM's article, I think he should have atleast put a range in the table instead of an absolute number, it atleast gives a more accurate picture and gives some room for Om to cover his a$$.

Posted at 7:32PM on Dec 3rd 2005 by Peterson

17. I admit to being on Om's side. In late September I wrote a blog post titled "Back to Monetizing Eyeballs". However what is really interesting about all this is that the New York Times is commenting on blog discussions. In which case, why read the newspapers when you can go straight to source? References and more meat on all this at: http://www.rossdawsonblog.com/weblog/archives/2005/12/the_debate_on_m.html

Posted at 7:57PM on Dec 8th 2005 by Ross Dawson

18. I am a spammer: info@worldbusinessforsale.com

Posted at 4:24PM on Dec 30th 2005 by Business for sale

19. Check my site out http://www.jason-calacanis.com

Posted at 10:07PM on Feb 5th 2006 by jason calacanis

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