rogerd - 6:49 pm on Jul 5, 2005 (gmt 0)

It's kind of funny - nobody would say, "I have a business, what should I sell it for?", but people often ask a similar question about a website. There's no magic formula, unfortunately, since the real answer is heavily influenced by the specifics of the situation.

In the general business world, the discounted value of future earnings is often the key part of valuing an acquisition, and so it should be on the web. Unfortunately, as many have pointed out, the predictability of these future earnings may be quite low, resulting in them being discounted at a much higher rate. Perhaps the worst case (looking specifically at a site where the major source of revenue is Adsense) is a website that derives nearly all of its traffic from search engines; there's a significant risk of algo changes, link loss, penalties, etc. that could cause its income stream to falter. If that same site generated the vast majority of its traffic from repeat visitors and stable links, the income predictability would be somewhat greater. Of course, the very "black box" nature of Adsense itself offers a modest risk factor - a unilateral program change by Google could dramatically change the expected income.

In this kind of environment, other site characteristics come into play - superb quality content may have intrinsic value or at least provide the confidence that if something happens with Adsense there will still be advertising sales opportunities.

As far as high-multiple sales that have been referred to, in just about every case there's motivation beyond the current income stream. For example, if I have a high-traffic, thousand page content site that is making great money, folding in your thousand page content site may enable me to ramp up earnings overnight (greatly exceeding your projected earnings). Or, perhaps I've got five thousand pages of good content that I can plug into your Adsense site, and I'm confident that I can pay a high earnings multiple for your site and make it back very quickly.

The general problem with assigning a "normal" business multiple to the earnings of Adsense-only sites is that there's little goodwill associated with the business - by and large, such things as customer loyalty, brand name, vendor relationships, management expertise, etc. just don't exist.

So... if you want to sell a site, find a buyer for whom the site will have value beyond its current earning stream. Otherwise, you'll probably get offers that make it more attractive to hang in and collect your monthly checks.