Valuation = What Do You Want to Buy?

1. Team buy
2. Infrastructure buy
3. Market access buy
4. Movement attachment
5. Reduce your operating costs
6. Increase your potential

1 . Team buy
Pricing for a team these days ranges from $200 000 per member at the lowest level for $2M for rock star in recent deals we have seen. In our case we have attracted five rock stars from Asia and North America plus we are growing two almost-theres. So do the math.
2. Infrastructure Buy
For a web 1.0 company to design and build a new Web 2.0 site (with the correct look and feel ) might require an investment of six months of rock star planning ( $1500 per diem for 120 days ~ $180 000) with three months of rock star building (3 * $1500 * 60 days ~$270 000) and hardware costs (of approx $300K to find, build, test) for a net value ~ $650 000). Of course you still need the team to do this with.
Then you have unknown present data/content conversion costs to bring your members over to the new site.

This number has been validated recently by two different requests to us to build each client a single language Web 2.0 website. Cost was not an issue to them. Talent was.
3. Are you buying a Regional Market access?

Present individual, non integrated language specific small sites are being bought for a range from $10’s of millions through to $100 ‘s millions by all and sundry. If it is a large US site, valuations are ranging into the billions. Our site is the only unified platform based site n our segement. We already have 28 regional websites with domains in 17 languages in the can, ready to launch. Do the math.
4. Movement attachment
Attachment to the correct movement that has legs, emotion and the correct demographic is worth millions alone in free advertising and reduced lonfg term costs. Left to grow our site will only gain in value every day.
5.Reduction of operating costs
We know our operating costs are certainly 1/5 that of a “traditional” site. Perhaps even less. If you were a traditional mulit million dollar web 1.0 site, how would you reallocate 4/5 of your expenses next year? What would it be worth to you?
6. Increase your potential
There may be always a place for free and paid sites. Projection’s in dating expect that paid sites will grow about 4% 2007, while free site membership growth is in the double digits. Paid sites will no longer be a cash cow unless they move their infrastructure to a much lower cost model while ensuring a clear value definition to new members. If sign-up rates do not improve along with today’s 65% dissatisfaction survey results, then:

• churn will grow and
• revenues will fall.

So what is it worth to a Web 1.0 subscription model to ensure survival? Is this not a bet the company time? Live? Die? We think our model holds the future. Our model is simple, watch where subscription sites grow a market and then be a fast follower. There is always a market for a free product.

So what valuation would you put on this model? In our case we do not need to sell, since the model is a money machine today. However having more money could just help us make life more interesting for the competition.

Next: Responses to questions and comments on this series