FlipFilter.com

February 2013

12
The A-List - February 2013




This Month's A-List is sponsored by Venforo.com

Venforo - Where Entrepreneurs Meet Opportunity
 

Welcome to the A-list!

For Comments, Questions and Feedback about the alist, get in touch via Twitter - @flipfilter or on the blog - flipfilter.com/blog/alist-website-acquisition-feb-2013/

Market Update - February 2013

Welcome back and Happy New Year!

Since our last A-List we've seen sales volumes from Flippa of  $2,563,169 in December 2012 and $1,893,344 in January 2013 (based on our own figures), giving a predictable but steady end to the year. Seeing January - typically a dreadful month, approximately $200K up on November 2012's adjusted figure of $1.6 million, means this could be a profitable year for the industry's current market leader.

It seems like it's not just Flippa who benefit from increased awareness of the industry. Several of my broker colleagues both here and in the US have seen some impressive new listings since the start of the year, and what would appear to be a surge in enquiries from first-timers wanting to sell their assets and move on.

I've seen a definite shift in activity here too. Since building Flipfilter in 2010, paid app subscriptions were steady for most of 2011 and the first quarter of 2012. Lately however, there's been a 'hockey stick' increase, not just in signups but also in user activity which prompted the creation of FlipFilter 3, due out in March this year.

New marketplaces like Venforo are reportedly finding it easier to attract quality sellers, thanks in part to not having to educate everyone on the idea of selling a website;

"On the whole people just seem to get it these days, so it's no longer a case of how to sell a site but more which marketplace or option will give them the greatest value".

Even Digital Point (...don't laugh) have decided to claim their (lost) share of the industry by revamping their forum into an actual 'marketplace' launched at some point earlier this year.

Whenever I speak to people who have just discovered the industry, one of my first questions is always how did they originally find me, and more importantly how did they originally discover the idea that sites are bought and sold freely. The answer is usually the same - Flippa, or a recommendation from someone about Flippa.

Oddly enough, many of the people who stand to profit from the increase in activity (through more buyers, sellers or both) are the same people who spend time debating how Flippa is nearest thing to evil personified. Like it or not, their investment in marketing, social and community outreach is generating a buzz that at the moment seems to be good for the industry. Let's hope this continues through 2013.

For Comments, Questions and Feedback about the alist, get in touch via Twitter - @flipfilter or on the blog - flipfilter.com/blog/alist-website-acquisition-feb-2013/


 

Top Sellers

1. Celebrity Photo Site
Sold for $311K
2. stockphoto.com
Sold for $250K
3. Lifed.com
Sold for $205K
4. zermatt.com
Sold for $200K
5. Checkpagerank.net
Sold for $100K


Most Active

1. Wordpress Based Product
176 bids
2. PickYourPrinting.com
166 bids
3. cnatrainingprogram.org
152 bids ** relisted

As there's no A-list in January, this section spans sales completed in both December 2012 and January 2013, and it yields a fairly impressive list of meaty six figure sales.

The top spot went to a celebrity blog which received 66 bids from approximately 11 bidders - typically unheard of in this price bracket, but proof that when a good listing comes along there's usually buyers out there watching and ready to spend.

Personally, what I felt made this site interesting, (apart from the 59 million monthly pageviews) were the various devices in place to monetise the site's users. Whilst most celebrity picture sites make do with advertising, this site had monthly subscriptions, Amazon affiliate revenue and mobile app earnings and managed to recruit traffic not just through Google, but also through Social and a 727K validated email list.

The number two spot went to a domain - stockphoto.com which sold for $250K adding some doubt to the rumour that the domaining market has already died a death. With litigation happy Getty Images owning the similarly named competitor "istockphoto.com", it will be interesting to see who the new owner of this domain is and how it plays out.

The trend of higher value sites receiving more bids seems to continue with the most popular listing of the last two months receiving 176 bids and ending on $19,502.

I'm sure this won't be the first time I've mentioned this but I'm naturally suspicious and have my doubts about the validity of number 2 - PickYourPrinting.com, despite it receiving 166 bids.

For a three month old site to be generating a net profit per unique user of $2.79, and acquiring each user for $0.32 (based on seller's comments) then this auction wasn't just for the golden egg - it was for the whole goose! Coupled with a very limited selection of products on the site, and many links that seem to go nowhere, something doesn't sit right with this listing and it troubles me that over 20 bidders seemed oblivious to that.

Again, this is a case for newbie education, as some simple mathematics on the numbers would have thrown up a red alert and should be the kind of calculation that anyone would do as part of their due diligence. That said, maybe I'm just bitter because I missed out on one of the best opportunities this year ... it's a cliche, but only time (and possibly buyer's remorse!) will tell.  




For Sale - Textbook Buyback Ecommerce Business

     

In 2012, a record 21.6 million students were expected to attend American colleges (universities for the rest of us!) with a fairly significant proportion being required to obtain textbooks as part of their course. Whilst the university libraries will often have a couple copies for the extremely quick, the majority will have to purchase textbooks which ultimately have no use just nine months later.

Established in 2009, the business for sale offers a buyback service for college students who no longer need their textbooks. Sellers can get an instant price by entering the ISBN of any book into the site and if they accept the quote, they print a postage-paid mailing label to send the books in.

The company operates a small warehouse where they check, repack and ship the books to an Amazon fulfilment centre. The inventory is then sold directly through Amazon as well as on the company's site and despatched directly from the Amazon fulfilment centre. Based on broker supplied accounts, last year the company generated a net profit of $72K on a revenue of $570K (before commissions) and has seen year on year profit growth since 2009.

The asking price is set at around 2.5X net; low for an offline business but average - high for an online one, but there are some very likeable qualities about this site that reinforce the price as being good value. First, there's the lack of reliance on any one source of traffic, which is usually the Achilles' heel of any small web company struggling to get over a 2x valuation.

The site receives just 30% of its traffic from Google, and the remainder is from affiliates and other sources. Not only does this remove the risk of fluctuations due to algorithm changes, but it also leaves scope to increase organic traffic from search whilst still staying 'safe'. Naturally, there's also the option to recruit  traffic from social ppc and media buys on sites with a heavy campus demographic.

The other likeable quality is the amount of time that needs to be dedicated to running the site. With textbook selling being seasonal (mostly at the end of the academic year), this is a business that would integrate well into an existing portfolio, as the owner could spend 6 - 9 months of the year running the site in maintenance mode, rather than having to dedicate full time attention all year round.

Despite a growing number of students opting for digital versions of textbooks, and attempts by larger book sellers (including Amazon) to enter the market, the business has managed to maintain year on year growth since 2009 and looks set to continue that trend through 2013. Analysing the company's position from a SWOT point of view, the biggest threat long term seems to be piracy. More and more textbooks are being made digital, and web savvy students are usually the first to experiment with downloaded versions on Kindle or iPads as a way of saving cash at the start of term. (In a choice between beer and books, books frequently win when there's a good enough, if not slightly immoral alternative!). A new owner would ideally embrace this change in the same way the more successful players did with music, choosing to compete in the digital space rather than just fight against it.

Being based in the UK, I can see firsthand that opportunities exist for global expansion providing a buyer would be able to partner with fulfilment and logistic warehouses they could trust to receive, check and reship the books. Very few English speaking markets exists that have both the scale and the academic setup that the US does, but operating a similar business in Australia and / or the UK where competition is almost none existent could be profitable for a buyer willing to take the company's existing model and apply it elsewhere. The ideal buyer for this site would be an existing textbook buyback operator, as for them, most of the site's $570K revenue would translate directly to bottom-line profit. This would also be the ideal acquisition for someone with a background in ecommerce logistics as cutting down on some of the company's overhead could instantly create value.




For Sale - DealFuel.com

     

Originally setup by Flippa's parent company Sitepoint, Dealfuel offers developers daily  discounts on software, books and courses offered by Sitepoint and other similar publishing companies. Established just a year ago, the listing reports an average monthly revenue of $32K and net profit of $26K based on 11,000 monthly visitors and a database of 50K registered customers

As far as tech companies go, Sitepoint is the all American (.. technically Canadian ?) Startup dream, organically grown into a publishing powerhouse that includes Flippa, 99 Designs, Learnable and several other sites. As far as trust goes, you could be forgiven for not using escrow on this sale, but the fact such a trusted company is behind the site also raises some issues.

The first and most important is related to profit. I assume Dealfuel was originally created as a way to market Sitepoint's educational material; As there are no real costs with digital material, prices can be discounted heavily without any real damage towards profitability. This is only the case when you own the material being sold.

It's highly unlikely that a new owner will enjoy the 81% net margin currently
reported
, as the typical commission in this space is 20% for an unknown operator or 30 - 50% for someone with a relatively large list. If we adjust the claimed net profit accordingly, the figure is now around $9K assuming a 30% margin.

The revenue averages are also misleading (... Groupon accounting style misleading) asit includes an anomaly month which is feasible, but highly unlikely to reoccur if a new owner sent the same frequent email volume every consequent month. Taking a 12 month revenue average, the monthly figure is now closer to $17K and 30% net profit on that would be $5K per month. Still a great digital business, but not the same opportunity we started with.

It's difficult to assess the opportunity without having all the relevant data to hand, but potential buyers should pay close attention the model and cost of user acquisition. As much of this site's sales are done by email, it's reasonable to assume the same list deterioration and email blindness that all Daily Deal companies experience, so being able to consistently and cost effectively acquire new users is crucial to the long-term success of the business.

Again, this is perhaps a problem in that previously, most of Dealfuel's user acquisition would be from the Sitepoint portfolio. Even SEO which at present would be relatively easy, would become difficult when all the links from Sitepoint assets are removed and the site loses 95% of the weight behind its existing link profile.

Dealfuel certainly isn't the first or the most popular site of its kind. I couldn't get through this write up without talking about App Sumo which should serve as a scary sliding doors style glimpse into the (possible) future for the site. Despite a lot of media coverage and the site becoming an almost household name in tech circles, the owner has often spoke openly about the challenges this model has that include low margins, email deliverability issues, and frequent problems with partners (mixergy.com/noah-kagan-appsumo/).

The ideal buyer for this site would have existing relationships with publishers and software creators in order to source inventory and keep the existing list hooked. Following the lead of similar companies which sell bundles of Mac applications, the key seems to be getting the partners involved in promoting the sale which not only creates revenue, but also helps drive down user acquisition costs - key to making this business work.




Why leasing rather than selling no longer sucks

     

Website leasing is one of those ideas like mobile gaming or video calling before smartphones and faster broadband came along. It’s been possible for ages, but has failed to take off without certain key elements all coming together at the same time.

The benefits to the lessee are obvious – leads or customer acquisition at ‘wholesale prices’ less than their current PPC costs, the tax benefit of capital allowances (UK companies at least), reduced risk of traffic loss versus owning the site and no responsibility for SEO and marketing.

To you as the seller / lessor you have the overhead and risk of operating the site, but this is usually more than offset from the benefit of being paid for the asset on a monthly basis and still owning it at the end of the term, hopefully with some capital appreciation to boot.

Leasing hasn’t really taken off in a big way so far but that seems likely to change. For the idea of leasing to work, we need three things that are all just starting to come together:

1) Public awareness and education. Ten years ago, if you owned a company with a telephone number, the chances are you’ll have been cold called from someone trying to sell you a website. Over the next five years, pretty much everyone already had a site so now it shifted to selling website marketing. At one point we had three companies call on the same day who all promised to get us to the ‘top’  of Google – highly entertaining if you’re bored and the person calling has no idea you’re a web company.

Originally, small businesses were just coming round to the idea of needing a site, but now their understanding has become about getting traffic to it. On the whole, businesses now understand the power of the web, and accept that they need traffic so there’s little educating that still needs to happen. Many companies also have some form of online spend, usually in PPC so it’s easy to make a quick ROI comparison when offering a site that delivers qualified leads.

2) Increased PPC costs – remember when you could buy clicks for pretty much anything for like £0.05? PPC costs have continued to rise year on year as demand increases quicker than supply, and will probably continue to do so until people find viable alternatives. Companies who spend on PPC usually fall into two camps – either they want to reduce their spend, or their campaign is converting profitably and they want more clicks. The leasing option satisfies both criteria.

3) Massive distrust in Google traffic. With all the ranking and algo changes happening over the last couple years, building a marketing site and getting it to rank isn’t only difficult – it’s risky, as that top spot can be snatched away at almost anytime leaving you with little return for all your investment. Non web based companies who are savvy enough to have previously built their own feeder sites are now thinking twice about the effort and risk involved and seeking alternatives.

 

So it seems that if you’re thinking of selling and your site meets the criteria, now could be a good time to consider this as a viable option. I usually make a point of staying away from writing about things I haven’t done personally, but for this article I managed to pry some good advice from a pro – Kenny Goodman, thanks to a cheap lunch and a (broken) promise of beers.

(n.b. - If you’ve ever googled “Website leasing”, you’ll probably be fooled into thinking it’s something that it’s not, thanks to the majority of the search results being from web design companies trying to sell more sites. Leasing a site, in this context, refers to leasing an established site with a significant amount of traffic for a targeted niche. The real idea behind leasing a website (for the lessee) it that you still maintain your main source of marketing whether this be your own site, or a bricks and mortar storefront. What you gain from the leased asset should be complimentary to what you already do and not something your business depends on.)

- The best business models for leasing are lead generation sites, followed by dropship ecommerce closely followed by affiliate sites where offline vendors for similar products exist. Leasing won’t work with every type of asset but this doesn’t mean you can’t convert what you already have to make it ‘leasing friendly’. The key is to make sure your site has a clear ‘action’ to which someone can assign a $/ £ value. This is usually an enquiry, sale or customer sign up, but in some cases lessees are willing to pay for signups to mailing lists and social actions well.

 - The concept is probably still too immature to discuss ‘standard’ terms, but what’s common amongst finance lead gen is usually leasing over 24 months with an option to buy or renew. The agreement between you and the lessee will usually be based on the site meeting some minimum monthly performance target – for example, generating a minimum of X leads. A sensible approach is to pro rata payments above or below a benchmark amount. This way, the lessee is protected should your rankings drop, and you have the added bonus of not feeling trapped in an unprofitable agreement should the amount of leads / customers the site generates significantly improve.

 - To find potential lessees, the idea is to look for people high enough in the chain to be generating enough net profit to afford what you offer. Start with offline competitors for whom doing what you’re offering online isn’t their core business. For example, if you own a dropship ecommerce store, it makes sense to approach a non-dropship retailer rather than a direct dropship competitor, who is more likely to build or buy rather than lease (and their business model probably has insufficient profit margins to support higher customer acquisition costs).

Likewise, if you’re selling mortgage leads, look for an offline mortgage broker with an online presence rather than a competitor who also only sells leads rather than servicing them in-house.

- When working out how much to charge you need to have a good idea of how much the companies you’re approaching typically pay for new leads / customers and roughly how much volume you can generate for them.

You can research this using typical cost per click figures for main keywords, working out an approximate conversion rate based on your own site and multiplying this by the number of monthly enquiries your site can generate. From experience in selling advertising, the best strategy is probably to just ask – “what do you currently spend to acquire a customer and what would that figure need to be to get you to commit to leasing the whole site and ultimately buying wholesale”. If the figure is too low, advise them you’ll consider it but you’re shopping around so if you find a better offer you’ll go with that as a priority. You’ll often be surprised when that same person gets back in touch with a better offer, especially if they know the value of what you’re offering.

Leasing shouldn’t be seen as an easier alternative to selling a site outright; apart from the legal docs required you’ll also need to do your own hard work in finding a buyer and I guess that creates an opportunity.

With companies looking for a way to increase conversions and to reduce spend, while sellers are actively trying to get a better return from their investments, maybe there’s scope for a new marketplace to put the two parties together (…Fleaser.com doesn’t have a great ring to it, but I’m sure it would catch on eventually). If you decide to take the gauntlet, I’d love to know - @flipfilter




For Sale - thecrims.com

     

Now we have the ability to create games on almost any platform, that feature rich 3D graphics and gameplay previously only found on consoles, you might wonder how text based MMO games still exist (… or maybe how Fifty Shades of Grey still sells millions of copies worldwide when there’s already porn on the internet ... the mind boggles).

For sale is thecrims.com, a text based MMO game created by Swedish studio Popcode, whose listing claims 228,225 unique users in more than 27 countries. The game generates revenue through selling game credits, which to date average a claimed $8K revenue and $4K net profit each month. Aside from credits, other revenue streams include banner advertising displayed to non credit buying users.

Games are not a typical route for investors, especially if you're not from this industry; the dynamics can be difficult to figure out and development often requires skilled programmers already in this sector. I've covered this listing because browser based games, maybe due to less competing buyers and maybe due to higher perceived risk, offer an ROI that trumps most other online business models and so could add some much needed diversification to an existing 'traditional' portfolio.

Games tend to grow their user base through word of mouth and cross promotion rather than conventional SEO, so potential buyers will need to conduct a different kind of due diligence to assess its long term potential. Fans of Eric Ries' Lean Startup will already be familiar with a site’s viral coefficient – the rate at which a site is growing virally.

To calculate this you’ll need to know how many game invites, social shares or how many pageviews a new user creates (pageviews can be traded for advertising impressions on other platforms which in-turn recruit new users), and what they convert at to work out whether the site is still growing virally. It would also be important to establish trends in time spent playing per user, returning users and in-game purchases.

Despite all the noise surrounding studios moving from browser based games to cross platform gaming (that also works on mobile), there’s still a large enough market for a potential buyer to see a return even if that market has entered maturity.

There’s recently been an increase in similar businesses being listed on Flippa (e.g. flippa.com/2882220) , but  this could be a sign of reduced confidence as much as it could simply be a case of more games being created, meaning more game related listings. Amazon’s in game payment API Simplepay is probably a good sign that the market for gaming on the whole is likely to continue to grow, and services around it will develop, creating more sophisticated ways for game developers to monetise apps.

Naturally, the ideal buyer for this business will need to understand BBGs as well as the social gaming market on the whole, but would probably benefit from some business development experience, striking deals with online music and media vendors to offer further ways to monetise the business through selling unique in-game content.




 

For Comments, Questions and Feedback about the alist, get in touch via Twitter - @flipfilter or on the blog - flipfilter.com/blog/alist-website-acquisition-feb-2013/


The Disclaimer and other related small print

This A-List aims to provide subscribers with information in relation to particular websites offered for purchase. The information contained in the newsletter is intended as general information only and is not a recommendation or statement of opinion that is intended to influence any person in making a decision in relation to a particular website. The newsletter does not, and does not purport to, contain all the information that you may desire or require in reaching decisions concerning the matters set out in the newsletter.

The newsletter contains information provided by the website owner, which has not been independently verified. South Development  T/A Flipfilter.com ("FlipFilter") does not undertake due diligence on these websites, their owners or information provided by them in sales materials. This newsletter may also contain opinions of FlipFilter in relation to the websites and the potential opportunities presented to a prospective purchaser (“Opinions”).

The Opinions are based on FlipFilter's subjective criteria in assessing websites and the opportunities related therein. They are not necessarily based on any objective metrics or methods of comparison.

FlipFilter does not make any warranty or representation (express or implied) in relation to the accuracy or completeness of the information or Opinions contained in this newsletter, or in relation to each website. [In particular, no representation or warranty is given as to the accuracy, completeness or correctness, likelihood of achievement or reasonableness of any forward looking statements or forecasts contained in this newsletter. Such statements and forecasts are by their nature subject to significant uncertainties and contingencies and the actual results and performance may vary materially.]

You should conduct your own independent review, investigation and analysis and obtain your own professional and legal advice before making any decision based on your own financial and/or investment objectives. You agree not to base your decision to purchase any website described in this newsletter or rely in any way on the Opinions or the information contained in this newsletter.

To the maximum extent permitted by law, South Development, its directors, employees and agents disclaim all liability howsoever and whatsoever occurring, including without limitation any liability arising out of fault or negligence, for any loss arising in relation to the Opinions or other content of this newsletter.



•
•
•

*|IFNOT:ARCHIVE_PAGE|* *|LIST:DESCRIPTION|* *|END:IF|*

*|IFNOT:ARCHIVE_PAGE|* Our mailing
address is
*|END:IF|*


*|IFNOT:ARCHIVE_PAGE|* *|LIST:ADDRESS|* *|END:IF|*