3 Ways $15 Million For A Blog May Impact You

Johns Wu, the 22 year old creator of Bankaholic.com, recently sold the blog to Bankrate for $15 million. He had only been at it for two years. In a world where many great companies can’t get a decent valuation, much less equity investment due to the downturn, what does it mean that Wu got $15 million? Was he lucky? Right place, right time? Can others do this too?

Chris Crum interviewed Wu for Webpronews.com shortly after the sale to get a first hand version from Wu about the transaction. Having worked in these kinds of transactions for online and off-line businesses, I think it is important to examine what this means for your blog or your company.

Blogs will attract more third-party investment. When YouTube sold for $1.6 billion even though it had no clear path to a profitable business model, investors took notice. Social networking became the label that exempted many businesses from the customary rules of return on investment. If you had eyeballs on your site, you did not have to have money in the bank - the eyes were the money. Of course, Wall Street didn’t see it that way. I cover that subject in “SNL Cast Clears Up Business Issue, Really?”

While they were successful at creating profits from worthless contracts like Credit Default Swaps, Wall Street never figured out a way to pay investors back in eyeballs. Entrepreneurial investors and venture capitalists were intoxicated with the potential of social networking, and the YouTube deal was the catalyst for that stupor. Wall Street yawned and declined to take the companies public, because they couldn’t see the path to cash. Even with that mixed market reaction, social networking has risen to a new level of awareness and wealth creation for many company founders.

In this economic climate, there may be little third-party capital to be had by anyone. That means it is a great time to look at your own situation and see if you should invest in your blog or have others around you invest in your blog.

Companies will target blogs for acquisition just like any other valuable asset. Blogging, branding and connecting with customers have all fused to the point where blogs are now becoming mainstream media. Therefore, companies will watch - and likely already are watching - the blogs in their market. They will look for competitor threats, new products, and market reactions when conducting their intelligence gathering activities. They will also ask internally, “Should we build our own blog or buy someone else’s and integrate it with our offerings?” It is just the new version of the old buy vs. build question.

Blog valuation is changing. When Wu’s transaction occurred we were putting the finishing touches on “The Coming Economic Boom For Bloggers” eCourse and had just written the module on how blog valuation is changing. What a great visual aid for that point! If someone tells you this was just a one-off deal and Wu was lucky, they have just confessed their ignorance on valuation and the blogosphere in general. While impressive, this deal will look like a steal in time. Bankrate did not make a 1999-style irrational purchase that turned Wu into a lottery winner. Bankrate made a deal that benefited them. How they calculated that answer is what is undergoing change in the market right now.

What Are The Take-Aways For You And Your Blog Today?

1. Think of your blog as an asset in your overall investment portfolio. Whether you are an individual working from home, an entrepreneur trying to advance your business, or a corporation trying to stay in touch with your audience, the basic investment questions are the same: “Does this blog make economic sense? If not, why not? Do I need it to financially return something for the resources, time and money I am committing to it?

Remember your blog probably exists in a market category that a company has already defined as their target market. If you don’t want to make money from it, fine. But they do, and they may look at purchasing your competitors’ site(s), and then deploy strategies to draw your readers away. If you aren’t going to monetize it, prepare to work harder to keep your readers. Companies will raise the bar to attract your readers to them. Consider investing in your blog like you do any other investment, and treating it like an asset.

2. Start planning to sell before the buyer starts planning to buy. Whether your goal is to personally retire someday or sell the company, your blog, if treated like an asset, may be an attractive purchase for a company. Whether the price is $25,000, $250,000 or $25 million, start planning for the acquisition now. Know the companies that sell products that relate to your blog. Know their weaknesses and build something that strengthens their weaknesses. That was a big part of why Wu got $15 million. Wu figured out the weaknesses of those around him before they did and he responded before they did. When they realized they needed something immediately and there was no time to build it, he was there.

3. Create measurable results. Valuation is changing but it won’t decrease what it measures. It will increase the number and sophistication of the metrics used. Avoid the YouTube syndrome and hoping that the eyeballs by themselves will create the payday. Eyeballs are helpful, but there has to be a business case for converting eyeballs to cash, because companies will buy blogs to drive revenue from a target market. As the blog valuations increase in complexity, they will become more focused on how the blog creates cash for the buyer. Wu wasn’t making $15 million when he sold it. He created measurable results that helped Bankrate figure out they could pay $15 million and get that back in a reasonable amount of time.

Wu’s deal sent a shockwave throughout the blogosphere. I stand by what I say in our eCourse, “The Coming Economic Boom For Bloggers,” - the best deals today will look like a steal when people realize how valuable blogs can be to their business.

What’s your plan for making your blog a financial asset of your family or your company?

If you enjoyed this post, make sure you subscribe to my RSS feed!