This article is part 2 of 4 in a series discussing what it would take to potentially build a new ‘website for sale’ marketplace. If you haven’t already done so, please check out the first article here, to get some background on the series and to understand the references and models discussed in this post.
** Reading Time for this post – Approx 10 mins
If you’re short on time you may wish to
Skip to Model B Research and Analysis
Skip to the Stats and see how 90% of Flippa’s income comes from 20% of its listings
Marketing will be crucial to whether your marketplace achieves critical mass – the point where there are enough buyers for sellers and sellers for buyers. This section is not about grass roots SEO, Affiliate Programs and PPC but more the initial strategy behind defining what the marketplace is, and ideas for its promotion.
Model A – Target Market
Without identifying each marketplace’s potential user, it will be impossible to focus marketing effort and spend. Your target user for Model A is likely to fit into the following categories:
A – Internet Marketing ‘Romantics’
Individuals who have a full time job, but have flirted with the idea of internet marketing (including Ecommerce) to generate a second income, often by fuelled by the desire to live and work where they choose.
Typically, they may have created a blog or WordPress site, or joined some affiliate programs in an effort to get started but most likely lack the tools to make a full time income at this stage.
They will be familiar with internet marketing forums but are unlikely to be frequent users, and more likely found on Lifestyle design Blogs and Forums such as 4 Hour Work Week or Lifehacker.
B – Novice Small Investors
The Global financial crisis has left many who typically would have aspired to invest in property, looking for an alternative or at least an intermediate step. These individuals will often be new to using the internet for business, and looking for a small scale way of achieving a return, not to be confused with more long term investors who will primarily use Model B.
They may have already read some information on starting or even buying an online business, but are more likely to be unfamiliar with the concept and will require some education in both the technical and the practical aspects needed.
This segment represents the largest potential segment of new users and will probably not be found actively on the web with the exception of work at home and small-share investment newsletter subscriptions (e.g. Early to Rise Ezine). There is a high probability that they subscribe to (or previously did before using the internet more) Business Opportunity Seeker mailing lists (postal mail not email) and will put emphasis on what they see in main stream offline media such newspapers and magazines before making a decision.
C – Information Product Junkies and Internet Marketing ‘Followers’
Typically, individuals who have some knowledge of internet marketing and making money online, many of these users will have entered the industry as a result of word-of-mouth, or by reading stories of young companies that have had huge success in this space.
They may have an established site, but will typically lack all the skills required to repeat this process successfully, or even to grow and develop their first project. They would have also, most likely purchased at least one information product since starting and are likely to purchase more, often subscribing to the ideas of internet ‘gurus’.
Type Cs will often frequent IM forums such as the Warrior Forum, and will be the most likely to subscribe to other Internet Marketing mailing lists. This segment will also have the highest split in nationality with many of its individuals being from outside of the US.
Model A – Strategy
With model A, care must be taken not to falsely sell what the product effectively is – a template for a business and not an actual established business. This market will require a lot of education, and so there is some responsibility not to mislead people into thinking a starter site will make them endless riches without endless work being put behind it. The advantage however, is that revenue opportunities exist in educating the marketplace (especially Type C users), once you’ve gained enough trust and respect as an ‘Authority’ site.
Establishing a Gateway Product
Considering the target market, it’s highly likely that your potential user will not want to ‘jump into the pool’ and buy a site on their first encounter so ideally, offering a gateway product to gain familiarity and of course contact details seems like a sensible strategy.
The obvious answer is offering an ebook on something like the basics of website buying and selling websites (it will be quicker to licence one rather than create one from scratch – try Flipwebsites or Killer Flipping Secrets).
There is also the opportunity to think outside the box, and create something other than an information product such as a WordPress Plugin, Iphone / Ipad app or even a browser plugin (all can be outsourced for less than $500), which has the added benefit of high PR links from sites such as Mozilla or WordPress. Whilst the debate about Page Rank and its usefulness continues, my only conclusion is that having a higher page rank can never be a bad thing for a new site providing it’s done through stable, sensible link building a not earned too quickly.
Bearing in mind where the majority of your potential customer base will be, promotion should be split between offline and online activity, with an almost even amount of time and resource being committed to each.
Work at Home List Rental (off and Online)
Working with existing Business Opportunity and Work at Home publishers will give access to a ‘primed’ new market probably unfamiliar with the concept of buying a site but familiar with the mechanics of making money online. In the final part of this post, I’ll try to cover urls of the most popular WAH mailing lists.
Back end ‘sales’ on other information products
This relies on forming partnerships with information product providers, mostly centered around making money online and aimed at new starters. This technically isn’t a sale, and you are giving away your gateway product but it creates value for the partner (possibly an affiliate) who can either bundle your product with their sale, or follow up shortly after with the opportunity
Offline PR with success stories
Offline Press Releasing to business publications aimed at first time and home based entrepreneurs, should be centred around telling a story such as an individual who has found financial freedom through the purchase of an online business (naturally, from you!). For example, "How a teenage Mom of four grew XYZ into a full time empire" is likely to receive coverage within pages usually covered with bad news and stories of closures due to the recession. This is unlikely to work with mainstream business publications, but their readers are not your target market.
Aim for smaller independent magazines and mid size newspapers with small business sections, tailoring the story to the location. (nb. whilst you may apply some creativity to help ‘teenage mom / 13 year old computer genius / homeless entreprenuer’ become established, ensure your story is genuine and will stand up to scrutiny!)
Model B – Target Market
There will be some crossover from Model A’s target customer, but Model B will have a distinctly different set of profiles
D – Professional Bloggers and Full Time Affiliate / Internet Marketers
Individuals or small companies who will probably use the web as a primary source of income, if not a secondary source soon to replace their primary one. Many would have achieved business or professional success in other sectors prior to entering ‘Web’ and currently have at least one successful online venture.
Buyers in this group will typically buy to add to a portfolio of existing sites, however some may buy to supplement existing businesses by providing a ready-made customer base or instant hit of traffic for less than the cost of a PPC campaign (see the post Website Mergers and Acquisitions for more info on this).Typically, purchases will be in the $450 – $7,000 category and will naturally be more thought out, researched and planned than a sub $450 option.
Buyers in this group will be fairly active in forums, but usually in reading and observing more than commenting, only posting when they can add something of value. They are also likely to have a bigger divide between their professional online identity (their site) and their personal one (their forum / social network profile) so targeting this user can prove difficult.
E – ‘Professional’ Website Owner / Investors
Possibly the closest fit to a ‘website flipper’, these individuals will have significant internet marketing experience, and will operate online with the sole intention of buying and selling sites. Many of these individuals will have invested before in either offline business or property, and may still do and would probably use traditional methods such as forum listings and classifieds (online and offline) alongside online marketplaces to source new potential website purchases.
Some of these buyers will also offer services as brokers, and hence this may be the simplest way to target them online. They will typically tend to be active on forums and blogs (commenting) and may maintain their own slightly off topic blog or personal project but not for financial reasons.
F - Medium – Large Established Companies
Whilst being the smallest segment of the current market, I believe this type of user will grow exponentially, not in number of users but in their total spend, with fewer transactions but much higher transaction amounts. These will typically be companies that know the online space, and are keen to expand through acquisitions and mergers. The most common type of company will be media and publishing (e.g. b5media) who have the intention of either increasing their ‘circulation’ or diversification into new niches.
Whilst the companies as a whole will be easy to locate, there will be an individual within that company who you’ll need to identify, make and maintain contact with.
Gain Community Support
Model B cannot thrive without support from at least customer types D and E in the existing community. Initially, before even completing the site, networking will provide the first opportunity to reach critical mass and attract the right people to your marketplace.
Buying and selling websites is still fairly niche and therefore the opportunity to find where groups of sellers gather is still easy to do. The community is fairly close knit with type D and E often having a heavy influence on one another through their blogs and forum discussions. This is also a point of entry for type A and Cs who eventually ‘graduate’ but seek the advice of more experienced users.
Before marketing should come support and acceptance from the few ‘sub’ communities that exist online; three fairly prominent forums in terms of the highest % of type D and E sellers include the Experienced People Forum, the Warrior Forum and Digital Point.
..But avoid ‘crowdsourcing’ your marketplace at all costs
Whilst i’ll advocate community support and many of the ideas here have been stimulated by discussions in forums, too many of those same ideas crammed into one site without any prior processing simply won’t work. As a marketplace, you’ll need to take a side and make choices that not everybody will love (angry people are still blogging about Flippa / Sitepoint making the choice to charge a listing fee, over year since it happened!).
Identify your core customer and seek to make them happy in line with your objectives. If it doesn’t fit with those objectives, don’t do it!
Find Sellers with Gravity and the 90:20 rule
Around the time of publishing this post (July 28th) there were
1,294 Sold flippa listings since July 1st 2010 (excluding private sales)
$1,502,851 in revenue from the sales of these sites
If we look at the top 20% of these listings only
This equals 1294 / 5 = 259 listings
These listings accounted for $1,342,653 in revenue from 202 different sellers.
This means that 90% of Flippa’s revenue is generated by just 20% of its users – Pareto would be getting deadwood at the very thought!
If revenue and profitability is your end game, concentrate your efforts on a few, preselected high earning sellers, to maximise your initial revenue without having to increase initial marketing spend or effort.
…then remove the potential risk
Convincing regular sellers to jump ship from what currently works (for them) is likely to be difficult without an incentive. As discussed previously, exclusivity clauses in most marketplaces’ terms of use, will prevent users from trying out your marketplace.
Initially, one option will be to offer a first-use deal to selected frequent sellers, where they list their site with you for a set period for no listing or completion fee should the listing sell, otherwise they are then free to use their usual marketplace. You could also offer them the guarantee that when traffic increases you can offer a fixed (but limited) period where they’ll still pay nothing to sell their site should it sell, in exchange for their early loyalty.
It would be naive to assume that every established seller will list their site in a marketplace with very few other sites for sale and very little activity, but as with direct sales, you will get the occasional ‘yes’, lots of ‘no’s and persistence will usually pay off. It will only take a few high quality sites to entice buyers with the idea that a quiet marketplace can mean hidden opportunity before it hits the mass market and more buyers will eventually mean more sellers.
The opposite is a final-use deal, listing sites that failed to sell on more established marketplaces free of charge as a way to increase inventory. There needs to be some caution if doing this as there is usually a reason why a site didn’t sell should all things remain the same, and new buyers visiting your marketplace for the first time could be put off by seeing ‘second hand’ listings that are arguably flawed in someway.
Adapting the strategy to change the marketing channel will prove to be a better strategy; with the owner’s permission and a risk free approach, enhancing and relisting higher tier listings from business for sale classifieds or forums, where a site may not have sold due to the target audience or way it was presented could provide seemingly fresh inventory to avoid ‘empty new site syndrome’.
Listing Syndication to Business Media
Most offline business sale agents achieve exposure for their clients through syndicating listings to newspapers and media sites (in the UK, Daltons Weekly or the Times / Telegraph for example).
Offering syndication of selected listings on your marketplace to media focused on general business and entreprenuership provides content for their readers, but wider exposure to your marketplace and a ‘killer-app’ reason for sellers to list with you. If you’re reading this post then you’re aware of and part of a very small community of people who buy and sell web businesses on a relatively informal basis. In relation to the business community on the whole, this is probably less than 0.01% and so a wider opportunity exists to generate awareness.
Spending First to achieve Critical Mass
Whilst discussing grass roots SEO is outside of the scope of this article, it seems relevant to talk about how your ad spend will relate to achieving critical mass.
People discussing marketing a new marketplace, or in fact any web business generally fall into one of two camps:
1) Spend little to no money upfront and grow organically, using revenue generated to fund activity
2) Spend all the money upfront, and wait to recoup that investment later down the line.
If your aim is to achieve critical mass, which arguably is essential for the success of either model, you will only achieve this predictably by option 2. By predictably, this means excluding things that are possible but not statistically likely to happen such as a cover story on CNN, endorsement by Barack Obama or exclusive viral footage of the Second Coming.
The conventional process is to ‘test the water’ and spend a little of your total budget upfront, making changes and spending more as more revenue comes in and the concept is proved viable. Unfortunately, marketplaces will never be proved viable without establishing critical mass first as buyers need sellers and sellers need buyers.
You will need to commit a majority proportion of your year’s total marketing budget to the first three months to maintain momentum and avoid stagnation experienced by so many new forums.
Next Section – Financial Models and Creating Sources of Revenue
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{ 12 comments }
Getting back as promised, Justin.
I agree with you that we need another marketplace, but I don’t believe you’ve made your reasons clear. If you believe Flippa is doing an incredible job of serving the niche, why are you arguing that we need another marketplace?
Now I’m going to pick out a few comments from your post and reply to them. Please don’t see this as a personal attack – I love your work.
“Needless to say the market does exist, and is likely to grow at a much quicker rate than selling established sites will, simply due to all the new people looking for alternative ways to supplement their income in 2011 and 2012.”
Why? I don’t think it will. There are a lot of people who want to earn money online. Millions and millions of them. But the horde/dribble of folk interested in buying “wannabe” sites is hype driven – it lives because Flippa together with site flipping course and ebook sellers convince people they can buy a template and make a business out of it. If you want to predict the future growth of the industry, I suggest you look at how many of those template buyers went on to make successes of their purchases. Most of them – may 95-99% of them – fall by the wayside, abandon their “sites” and write off their investments. The future growth in the sale of wannabe sites is almost entirely driven by marketing efforts of people who stand to gain from more wannabes coming to market, and that’s sustainable for only so long. Why do you think the bottom fell out in the first place? Because the number of people buying the dream didn’t keep up with the number of people selling the dream. That will continue… till someone finds a way to con more buyers into believing.
“Although the bottom fell out of the market in May / June this year seeing average starter sites prices drop from $349 to $127 to $whatever-you’ll-give-me, there is still a market for a cheap and quick solution to people wanting to start in internet marketing ..”
Internet Marketing? This is a pet peeve of mine. Too often the making a living online is confused with online marketing. Online marketing comprises only a small part of how people make money online. From domainers to link sellers to virtual assistants to forex traders – there are thousands of ways of earning a living online that don’t involve “online marketing”. When you say people who want to start in internet marketing, do you mean “running an online business”? It’s SO not the same thing.
“The two models will need different policies but with either sitting on the fence and allowing the marketplace to self govern will not be an option”
As I’ve said in the thread on my forums, sitting on the fence is EXACTLY what the marketplace should do! The marketplace getting involved in valuations, due diligence, protecting buyers/protecting sellers etc., is a very slippery slope. As we’ve seen with Flippa, they spend a lot of money to lull people into a false sense of security – they call it “educating buyers” – to keep the market for junk ticking away nicely (and making them listing fees). The marketplace should, similarly, not get involved in mediating, verifying seller ID, putting some nonsensical feedback score to member names etc. Especially not if as we’ve seen the marketplace operators are buyers and sellers themselves and have full access to private and confidential information exchanged between other buyers and sellers via PMs.
“try buying a $15K site through a forum and see what happens to your bank details!”
I’ve done it frequently and for sums much larger than $15K. What are you suggesting here? What happens to bank details? Or are you saying that Flippa is a safe place to buy and anywhere else is risky? I found it to be the other way around. Flippa is the place where you have a lot of skunks, con-artists and small-time crooks who fiddle figures, fake traffic and falsify earnings. That’s not Flippa’s fault, it’s the price level of the average “business for sale” at Flippa and the type of people that price/profit level attracts. Some of my best acquisitions were made outside of Flippa and they went very smoothly, thank you.
I hope you don’t now regret me coming to post!
Hey Clinton,
Hope you had a good time away with the kids. For a minute, I thought you might of been lost trekking somewhere in the British Outback (i.e. Slough) – I was about to send the British Huskies (i.e. Pitbulls) to look for you
Firstly, I hope you don’t mind but I’ve moved your comment from the first post to this one as it was published just after you left your comment is this current part of the article.
My intention here isn’t to debate the existence of starter sites and whether they are a valid thing to sell; In fact, the overall aim of part two, was to highlight that there are two very distinct markets and they don’t necessarily agree (I think you would be Type E?). Regardless of whether or not starter site buyers are driven by hype is irrelevant to the fact that the market still exists and will be driven by an increase in the type of buyer being the most common to enter the market. I know you have problems accepting the ‘value’ in starter sites (‘value’ is in quotes to avoid debate on that issue
); think of it as a marketplace for templates or wordpress themes with a little extra thrown in if it makes it easier to digest. The problem was in the way they were mis-sold and not the actual product.
To be technically correct, yes, marketing plays just a part in an online business as a whole (but on the internet, I would argue a majority part) so marketing isn’t the whole business. But people seem to get the term “internet marketing” nonetheless, in the same way you use Hoover for Vacuum Cleaner or Cellotape for Sticky Tape; it’s not technically correct, but easily understood.
In writing these posts, I’m personally not sitting on the fence – as stated, these posts are my opinion and I hope it will provide a sounding board for further discussion. Regarding having the marketplace step aside and allowing the users to self regulate I’m actually being won over to this idea and I do see your point. I do however think it would need some validation first, as your example of offline business brokers has many similarities but also many differences that make it difficult to draw a direct comparison.
“try buying a $15K site through a forum and see what happens to your bank details!” – This was an (unfair) statement made in jest to prove a point that Fraud exists everywhere, especially in the wild west of Forums. Without figures, neither of us can say where the highest % of fraud exists – we just have opinion, but I retract that statement all the same. No offence intended to all the GOOD forum owners
Thanks for dropping by; I always appreciate your feedback even when we don’t agree. It’s discussions like this and those we have on your forum that helps ideas become more rounded.
Justin
Had a fantastic time, thanks. It was a bunch of eight year olds… so they’re still at the age where they do what they’re told
“Regardless of whether or not starter site buyers are driven by hype is irrelevant to the fact that the market still exists and will be driven by an increase in the type of buyer being the most common to enter the market.”
That’s exactly what I addressed. I don’t believe that this buyer is entering the market of his own volition. He is entering because of the hype and the IM poured into convincing him that this is the way to enter (rather than by starting from scratch themselves…or buying a proven business), so the “demand” is entirely an artificial construct.
“But people seem to get the term “internet marketing” nonetheless, in the same way you use Hoover for Vacuum Cleaner or Cellotape for Sticky Tape”
In my experience, the only ones who’ll “get” that are the ones in the incestuous world of internet marketing itself. I know and talk with various online entrepreneurs, businesses and business groups who would make no such connection. You need a wider circle of friends, my friend
I didn’t take the forum fraud comment personally. In fact, I wasn’t thinking of my forums at all but many reputable forums where the honour levels are significantly higher than you’d expect in DP and Flippa. The “wild west” isn’t in the forums, it’s in Flippa.
Coincidentally, I did my own categorisation of buyers yesterday in this post on the forum thread discussing your article: http://experienced-people.net/forums/showthread.php/1184-Building-a-new-Marketplace?p=8154&viewfull=1#post8154
Under your Model A Target Market, I believe needs of A and C are similar, but the novice small investor is not looking for the type of information you describe in your “Model A Strategy”. His ebook wouldn’t cover topics typical to the flipping crowd, he wants to know about analysing prospective online businesses, outsourcing work in managing the site, offshore location opportunities to minimise tax etc.
The Model B type D customer you describe is not someone I recognise at the $450 – $7K end of the market, and I know a lot of them. Those who’ve “achieved business or professional success in other sectors” typically have six to seven figures to invest. I have a few of them on my forums. And I know several others on forums like asmallworld. They are a LOT different to the $450 spender.
Interesting stats on the 90-20. When you talk about revenue, are you talking about Flippa revenue or “claimed” turnover by the sites that were listed? The reason I ask is because a marketplace owner is concerned with the revenue/profit he books, not whatever crazy unproven figures come up in listing threads.
Clinton´s last [type] ..More on Where to Look for Sites for Sale
Hi Clinton,
I dont fully agree but understand your point of view all the same. A few points though
1) I agree about the “incestuous world of internet marketing” and I’m a proud and fully paid up member. I also believe a large % of people who read this blog are in that community also, so whilst I’m not trying to exclude a wider community, I’m writing with a specific reader in mind.
And my friends unfortunately have no idea what I’m talking about for anything work related – have you ever tried explaining how Page Rank is calculated to a financial controller or engineer! This is why I blog
2) The 90:20 stats are the sale amounts on Flippa…i.e. the winning bid, or the amount any fee based marketplace would derive their percentage from.
All the best
Justin
Justin, if you’re writing with Internet Marketers in mind then, I’m sorry, I’m in the wrong place. I may have misunderstood the purpose of this article. It seems to me that any serious discussion about a new marketplace would appreciate that IM constitutes just a small part of the marketplace (most IMers don’t realise just how small!), IF that.
I’m an investor, not a marketer. The best businesses I’ve invested in were the ones started by hobbyists passionate about a subject who put together fantastic content, entrepreneurs with a great idea well executed, ardent networkers who assembled loyal communities, good programmers like you who built kick-ass functionality as you’ve done here, whacky types who came up with a viral concept …. etc.
Not Internet Marketers.
That’s what most buyers want – solid, profitable sites built to last (not, as you seem to believe, “opportunities to build a business from scratch” – template buyers are, comparatively speaking, few and far between).
Successful businesses use IM just like they use other services like Google Analytics …or hosting, but not all online businesses need GA, or even hosting. Not all of them need IM either and for those that do, IM should be but a small part. If this discussion is going to be from an IM perspective, with an IM bias, catering to IMers, I’m neither qualified to take part nor have the slightest interest in contributing in any way, shape or form to a marketplace that evolves from the discussion. The last thing the world needs now is another web business marketplace built with internet marketers in mind. We already have one of those …and it ain’t pretty.
But I do love your site and stats and do enjoy your posts, so I’ll return when all this marketplace stuff is behind us, your sanity returns, and normal service is resumed
Clinton´s last [type] ..Looking for Good Websites to Buy- Out of the Box Ideas – Part I
I admire what you have done here, as well as share good stuff with good ideas and concepts
nufebe´s last [type] ..Indonesia Furniture Handicraft Wholesale Marketplace
What the heck happened to Flipfilter? You have been down for a month and there is no notice, news, updates or anything else for that matter. Why not blog about it — update us on your status. I hope this site wasn’t another *fly by night* service that bit off more than it could chew. I like this service and hope you guys come back — QUICKLY.
Hey Celleek,
I feel terrible about the lack of communication but I did hope to solve the problem before it became too big a problem!
All the same, there’s a full explanation on a post being released here today.
Thanks for missing us!
Justin
For me, the benefits of internet marketing outweighs its flaws. It can help an enterprise go global without even going out of your house. This is the reason why I encourage it myself on my site.
Ah, Justin, I look forward to this post!
Clinton´s last [type] ..News- Flippa template seller type conman jailed for four years
So, why don’t some of us partner up and build this thing already? Looks like you have conducted a very detailed market analysis. I’m in for marketing and start-up capital.
Jeff Palmer´s last [type] ..Top Internet Marketing Forums
Hey Jeff,
Thanks for stopping by.
I think for many people who I’ve spoke to time is the biggest factor, but considering what’s potentially at stake (I’ve done a financial run down in the next post in this series) it’s certainly worth some thought.
J
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