Speculators buy up properties, erect attractive facades and flip them for a profit: It sounds like a local real-estate market, but the process also applies to websites.
Richard Parker, who gives advice on how to buy businesses, says that over the past five years clients seeking advice about Internet-based companies has doubled annually. He sees this upward trend continuing, but for those hoping to acquire the next Facebook in its early stages, he also advises caution.
“This is the easiest industry in the world to get scammed,” says Mr. Parker, president and founder of Diomo Corp., which provides online courses and personal consultation for prospective buyers. “In other words, a seller can go online and post that he or she has a website for sale, put up a façade of a website and let someone believe there's a real business.”
In uncertain economic times when access to capital is restricted, Mr. Parker says, online businesses are an inexpensive option compared with brick-and-mortar operations. They also offer buyers the opportunity to work from home, and to sell products globally. He built his expertise as a result of increasing interest on the part of his clients.
A Canadian living in Florida, Mr. Parker was tempted to buy a website that had digitalized the principles of yoga and was offering courses for sale. “I started to do keyword searches and discovered that this guy was selling the exact same product through eight different websites. So people have to be careful, the trend is that there are a lot more scam artists out there.”
Buying an online company poses other unique challenges.
“If someone is selling a (bricks-and-mortar) business … you can go meet the seller directly, have a chat, the opportunity exists to physically go see the place. When buying an Internet business it could be based in Wichita, Kansas or London, England, and so there's a component to it that's invisible, so what are you really getting, what are you really buying?”
Clinton Lee of Essex County, northeast of London, England, has bought several Internet-based businesses. For reasons of confidentiality he prefers to discuss his most visible purchase, www.experienced-people.co.uk, a website that offers tips on making money online. He found it using online filtering tools that in seconds show a site's age, how many other sites link to it, and a rough idea of traffic. The tools indicated the site had been stagnant for a while.
Experienced People before purchase
“It was targeting the right audience and it was established and ranked in many directories,” Mr. Lee says. “But it was not getting much search engine traffic. It also had an antiquated design. I was going to write content for it and boost it in the search engines.”
The website now features links to other sites, and it has participated in Google's AdSense program, in which advertisers are matched with online businesses. This revenue stream has tremendously increased value of Experienced People. Mr. Lee paid less than £200 for it four years ago and he says he was recently offered £120,000.
Experienced People after purchase
“My advice is to buy something based on a valuation you have come to and not that someone has imposed on you or convinced you about,” Mr. Lee says. “To assess a site see if it's an area that you can add value to, for example by writing articles. You then need to estimate how much you can earn from that site during the next year or two. Base your offer on that rather than what the seller's asking price is or what other buyers in the marketplace are willing to pay for it.”
