Comments on: Who's Worth What and Why

By: James Cogan

James Cogan — Sun, 06 Aug 2006 23:47:19 +0000

“Hi, anonymous.”
Whoops. I didn't intend to be anonymous. I filled out the contact info but it didn't put the info on the comment, although I see my name on it. I've now created a profile. My bad.
“We shouldn't allow BW to ruin 2.0 by giving the masses the impression that we are going down that path again.”
Actually, Kevin Rose should never have allowed that to happen. You never 'kiss the trophy' before you've won the match. It looks and smells terrible. Bad move. A real faux pas. Butterfield/Fake didn't get villified for their Newsweek cover, did they?
“I would rather have seen an article about 10 companies generating $1M in profit”
Totally agree with you on that.
“1 company that can now afford to pay the rent.”
By your above definition could Digg actually qualify? They might be pulling a $1M profit right now. But you are underestimating their market/brand influence, considerably, and what that could be worth to a potential suitor.
“You better decide if you're just having fun, or building a business of value.”
What about having fun building a business of value?

By: Anonymous

Anonymous — Sun, 06 Aug 2006 11:11:32 +0000

All good points Mark. I would be shocked if Digg attracted a $200M sale price. Having said that, who is to say what 'Digg' the brand is really worth? Furthermore, will the buyer of Digg be buying Digg because it makes X dollars in annual revenue, and/or will the buyer buy Digg because of the attention, community and brand awareness it has captured? When Yahoo bought Flickr, did they pour over their balance sheet and basically say to Butterfield, 'Flickr's making X dollars after 12'ish months in operation, so we'll give you Y multiple of current earnings'? Or were less tangible and quantifiable things like brand, human capital, market attention etc. also significant factors in the valuation? BusinessWeek's article is the journalistic equivalent of a National Enquirer piece, for sure. But I do feel that some people are missing the boat when they think it's all about the balance sheet when it comes to acquiring these 'web 2.0' type businesses/sites. In some cases, the acquiring company is in a much better position to monetize an existing web business than the founders. The acquiring company may be able to leverage an existing network of sites and/or advertisers, and thus it becomes a 'value added' play for them and their existing revenue base.
Kevin Rose hasn't made anything close to $60M and Digg isn't worth anything close to $200M until some large corp. comes along and writes that on a cheque. But do not discount the value of a brand. Especially as attention in the online marketplace gets even more difficult to aggregate as the space continues to mature and saturate. Ultimately, if you're not building a brand in the marketplace, you've got nothing.

By: AGORACOM

AGORACOM — Sat, 05 Aug 2006 21:29:25 +0000

Hi, Mark. Though the BW article was a farce, the subsequent firestorm may finally force a conversation to determine how we truly value such companies. In my old-fashioned opinion, the majority of the equation (Stage 1) has to come down to revenues and profits, especially the latter.
EXAMPLE: If ABC company is generating $1M in annual profits, you can give it a multiple of 15X and value it at $15M.
Only then, when ABC has proven itself to be a viable business, should we take into account the size of the market/eyeballs etc. leading to future growth and higher valuations.
If a company such as DIGG hasn't been able to turn a profit at this stage, then there is no point in discussing eyeballs, page views, growth and valuation because we're just spinning wheels.
Profits first. Everything else is just fluff metrics meant to hide the fact that we haven't figured out how to make a profit but look at these other cool things we can do
P.S. Have a look at my post on Kedrosky regarding the BW article that Jason from 37 signals replied to as “PRICELESS”.
Best,
George