Important Terms Website Business Buyers Need To Know
Buying a business involves a lexicon all of its own. Accounting concepts jostle with business buzzwords to create the rich vocabulary necessary for professional communication between interested parties. Experienced business buyers eyeing Internet businesses, however, often come across terms they may have never encountered before. This article aims to address the relevance of the main terms to the buying decision.
It would be reinventing the wheel to explain abbreviations such as ccTLD, WFH, PPC and MFA. Or terms such as Raw Logs and Bots. They are defined in numerous webmaster glossaries including my own here, techtarget, thefreedictionary and others. I recommend the reader refer to one of those sites for help with any unfamiliar terms. This piece will stick to explaining some background to a few of the main terms and their place in due diligence .
Wayback Machine: The WM, also called the Internet Archive (IA), is a reference tool allowing a glimpse into the past. IA has an active robot that routinely takes snap shots of web pages and stores them for posterity. It's useful to research past (illegal?) use of a particular domain name ...and content the site hosted in years gone by, or even to get contact information from a site that has recently deleted its "contact us" page.
Caveats & Tips: Some sites block the IA robot and therefore have no snapshots stored for viewing. There is usually a several month lag between IA crawling a page and making that copy available in their archive. Tips on leveraging the IA tool.
SERP: A Search Engine Result Page is the page searchers get when they type a term into an SE and hit "Search". Featuring high in the SERPs for a particular term often means a lot of free traffic for a website which is a Good Thing. Web site sellers often make a big deal out of their position in SERPs and expect a premium for their businesses based on the fact that they attract a lot of free traffic / customers.
Caveats & Tips: Sites ranking #1 in Google for a particular search term typically get more SERP clickthroughs than all the sites ranking from #2-#10 get collectively. And sites ranking past #10 generally get very negligible traffic. It is not recommended to factor in a premium for SERP rankings because they are highly volatile and completely at the mercy of a fickle SE algorithm. When/if taking SERP rankings into account, it's also worth examining the surrounding circumstances. A term that attracts only 10 results in Google is obviously a lot easier to rank for than one which throws up 10 million results. Further, whatever the level of competitiveness, it's worth testing the popularity of the term - the number of people searching for it in the average month. It doesn't pay to rank #1 for a term that's very, very competitive but one that nobody's interested in. There are other reasons why SERP rankings are a poor measure of success.
Programming: Many web sites exist because they provide a useful automated service, online tool or facility. Even for those that don't, the custom programming in the adapting of standard templates, off-the-shelf forum software or the CMS often adds substantial enough functionality to make the site virtually useless should the code "fail".
Caveats & Tips: All modifications need to have detailed accompanying documentation. The technical team taking responsibility needs to carefully study all code to assess their ability to manage, bug fix and continue development. Even the hosting platform and requirements bear careful evaluation as some programming languages and tools are esoteric; finding qualified and experienced technicians/programmers could prove difficult.
Traffic Stats: Some web businesses, strange though it may sound, don't need traffic to make money. An example: Web businesses involving high PR sites whose sole revenue comes from selling text links. Most online businesses, though, rely heavily on traffic. Examining the source of the traffic and sustainability of the traffic streams is key in site evaluation.
Caveats & Tips: Sellers often refer to the number of "hits" they received. Strictly speaking, each image or other page component counts as a hit and some pages have a hundred or more components. This makes "hits" an ambiguous measure. A more useful figure is the number of "unique visitors". However, there is no exact definition of unique visitors. A visitor returning within a week is sometimes considered a new visitor whereas one returning after a month is considered a repeat visitor. To further complicate matters, stats packages aren't very good at excluding bot visits - automated visits by bots such as the ones search engines and IA send out - from their count of human visitors. Analysing traffic logs may prove a useful link.
Domains: The domain is at the heart of every site and a good domain can sell for millions of dollars even if there isn't a revenue generating business behind it. Domain portfolios can be "parked" with no content on them and still generate millions in ad revenue.
Caveats and Tips: Ownership of certain ccTLDs (domains) are restricted to residents of a particular country. Some domains are a lot more expensive for their annual renewal than others. Domains that infringe on the Intellectual Property rights of others are liable to be reclaimed. Sub-domains in the form of subdomain.domain.com can only be created by the owner of the main domain and exist solely at his pleasure. Buying a sub-domain or directories/folders within a domain owned by a third party is usually extremely risky. That said, there is an active market for the buying and selling of web pages at well recognised UGC sites such as Squidoo.com.
If I've whetted your appetite, there's further reading on due diligence for Internet businesses here.
About the author: Clinton spent several decades starting, running, buying and selling businesses. The hard way. Then the Internet took off and made making money a small piece of cake and a big chunk of fun. He's now 45 and semi-retired but does share some of his knowledge and experience on profiting from web businesses at http://www.experienced-people.co.uk/