How To Evaluate a Internet Property Part 2 - Rate of Growth
shoemoney
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5 min read
This is part 2 of an series of posts of how to evaluate an interenet property. You can read the first post here which is about the financial aspects
The rate of growth is a pretty easy concept to understand. Either your company /business has been growing or its not. Rate of growth is not always measured in profit. For instance a website growing in users at the rate of 50,000 per day but slowing in revenue is much more attractive then a company gaining in revenue 10% per month but slowing in users by 150% per month.
One important word here is hockey stick growth. It’s when you look at a chart of your website/company and see a hokey stick in the shape of the chart for the metric you are measuring. But as mentioned earlier this growth is not always just about profit. For instance if you are just buying a simple domain. Lets say the domain is iphoneusers.com. Being the only asset for sale is the domain name it makes it fairly simple to figure out the main metric should be the amount of mentions and news this niche has been getting and if that trend is up or down. As you can see below the iphone niche has seen “hockey stick” growth.
But lets go a bit further and say that iPhoneusers.com is a forum or social network. Now the rate of growth valuation for this web property has a new component to measure… human equity. Yea… it sounds a little harsh to phrase it like that but that is exactly what it is. We will get into the valuation of human equity later but for now lets lets keep it to rate of growth. For this forum/socialnetwork – iPhoneusers.com there are a few tools to measure its rate of growth. By far the best indication for this site would be site statistics from Google Analytics or some other Javascript based tool. A javascript based analytic tool is important because it reports true hits to the website and not just remote loads. Another tool most websites do is webalizer or a similar log-parsing tool. This will show a lot more information because it logs analytics that javascript ones do not. Let me give you an example. On my blog- Shoemoney.com I have a picture with me and a Google Adsense Check for $132,994 for one months revenue. I also freely give permission for people to put that image on there site as long as they give a link back to the source site (my blog). Now this image has the most loads on my site then anything else but 95% of those users are not actually hitting my site. They are simply loading it from my site but visiting someone else’s site. Other things like that mixed with browsers that just do not parse the JavaScript are examples of why there is such a discrepancy between analytic programs. There are other 3rd party analytic programs like alexa.com, compete.com and Comcast to name a few. These use toolbars and ISP data to measure traffic. A good combination of these mixed with the server logs and JavaScript based analytics will give you a good idea for the rate of growth metric for human equity.
But that is not all. You can have all the traffic you want but if you are not measuring the rate of conversion growth then you are missing a valuable part of a website valuation. Keeping with the iPhoneusers.com example being that it is a forum/social community you will want to be sure to measure the rate of growth that pertains to new users. Rate of growth in this area is important and can play a very big part in your valuation of the site. The site might have a ton of traffic but is failing to convert those people into users. This is generally measured by the user signing up for the community or forum and being active. This is often where the gold is found in buying websites. Most people just do not understand how to convert traffic into users. I love to see a site with a hockey stick growth in traffic but a poor rate of growth in conversions.
For typical business selling products online the rate of growth can be measured many ways. For one you have the site analytics as mentioned above and you also have user conversion but there are other things to look at with user conversion. A user conversion is generally measured by a purchase but there is also in just acquiring that user to market to in the future. The of course there is just the obvious net and profit margins rate of growth to measure.
A blog or news site rate of growth is measured by site analytics but with blogs and news sites there is also something called RSS. RSS (really simple syndicaion) basically makes it really easy for people to keep up with the news from the site by including it in there news readers. RSS is a up and coming thing. Currently on my blog I have about 15,000 RSS readers. It’s very powerful. Measuring the rate of growth of RSS subscriptions is one of the few good metrics of conversion for a blog or news site.
So you see the rate of growth is a very important factor in determining a sites valuation. And as shown by many examples above what matters to you in that rate of growth could be different then what matters to someone else. Some people buy sites purely for niche traffic… others to aquire more users to their existing communities and businesses often buy compeditors purely for the database of customers. Whatever your reasons are the rate of growth is a very important factor.
Tune in next week as we cover chapters 3, 4, and 5
But lets go a bit further and say that iPhoneusers.com is a forum or social network. Now the rate of growth valuation for this web property has a new component to measure… human equity. Yea… it sounds a little harsh to phrase it like that but that is exactly what it is. We will get into the valuation of human equity later but for now lets lets keep it to rate of growth. For this forum/socialnetwork – iPhoneusers.com there are a few tools to measure its rate of growth. By far the best indication for this site would be site statistics from Google Analytics or some other Javascript based tool. A javascript based analytic tool is important because it reports true hits to the website and not just remote loads. Another tool most websites do is webalizer or a similar log-parsing tool. This will show a lot more information because it logs analytics that javascript ones do not. Let me give you an example. On my blog- Shoemoney.com I have a picture with me and a Google Adsense Check for $132,994 for one months revenue. I also freely give permission for people to put that image on there site as long as they give a link back to the source site (my blog). Now this image has the most loads on my site then anything else but 95% of those users are not actually hitting my site. They are simply loading it from my site but visiting someone else’s site. Other things like that mixed with browsers that just do not parse the JavaScript are examples of why there is such a discrepancy between analytic programs. There are other 3rd party analytic programs like alexa.com, compete.com and Comcast to name a few. These use toolbars and ISP data to measure traffic. A good combination of these mixed with the server logs and JavaScript based analytics will give you a good idea for the rate of growth metric for human equity.
But that is not all. You can have all the traffic you want but if you are not measuring the rate of conversion growth then you are missing a valuable part of a website valuation. Keeping with the iPhoneusers.com example being that it is a forum/social community you will want to be sure to measure the rate of growth that pertains to new users. Rate of growth in this area is important and can play a very big part in your valuation of the site. The site might have a ton of traffic but is failing to convert those people into users. This is generally measured by the user signing up for the community or forum and being active. This is often where the gold is found in buying websites. Most people just do not understand how to convert traffic into users. I love to see a site with a hockey stick growth in traffic but a poor rate of growth in conversions.
For typical business selling products online the rate of growth can be measured many ways. For one you have the site analytics as mentioned above and you also have user conversion but there are other things to look at with user conversion. A user conversion is generally measured by a purchase but there is also in just acquiring that user to market to in the future. The of course there is just the obvious net and profit margins rate of growth to measure.
A blog or news site rate of growth is measured by site analytics but with blogs and news sites there is also something called RSS. RSS (really simple syndicaion) basically makes it really easy for people to keep up with the news from the site by including it in there news readers. RSS is a up and coming thing. Currently on my blog I have about 15,000 RSS readers. It’s very powerful. Measuring the rate of growth of RSS subscriptions is one of the few good metrics of conversion for a blog or news site.
So you see the rate of growth is a very important factor in determining a sites valuation. And as shown by many examples above what matters to you in that rate of growth could be different then what matters to someone else. Some people buy sites purely for niche traffic… others to aquire more users to their existing communities and businesses often buy compeditors purely for the database of customers. Whatever your reasons are the rate of growth is a very important factor.
Tune in next week as we cover chapters 3, 4, and 5
