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Income generating websites as investments

I’ve been looking into websites as an asset class from an investment point of view lately. Given I’ve dabbled around with public companies, private companies, real estate and consumer loans previously, I wanted to make some notes on what I’ve learned about websites as an asset class until now.

In this post, I’ll start with saying a few words about different asset classes to set the scene and give some frame of reference. Then I’ll dive into websites as an asset class, their risks, opportunities and so forth.

Overview of investment types

Bear with me for some background, I’ll dive into the specifics about websites in a minute.

One of the best investment advise I’ve heard is to only invest in assets you understand.

If we’re talking about companies, this means you should understand that company’s business. Because when you do, you understand what makes a company strong or weak and thus better grasp the threats and opportunities it’s facing.

At the end of the day, the better you understand what you’re investing in, the better you can pick your investments and the better you understand the risks.

I’d venture a guess that publicly traded companies and mutual funds that are investing in publicly traded companies, are the most common investment people have.

If we’d count people’s own homes as investments, this would come in as number one. But I won’t, since it’s not a pure investment. Given this limitation, I’d imagine real estate coming in as number two, measured in popularity.

(Site note: Robert Kiyosaki of Rich Dad, Poor Dad fame writes about owned homes being liabilities since they cost money. I’m not that strict since (a) a home can appreciate in value giving its owner a return and (b) in many cases owning is less expensive than renting, thus giving its owner a quantifiable saving which can be paralleled to an investment generating cash flow used to pay rent.)

Both public companies and real estate are well understood and mainstream investment vehicles for both big and small investors. There are huge amounts of money, people and focus in both asset classes and thus markets are generally pretty efficient.

This means it’s difficult to find investment objects that are priced really, really wrong, if you do even a little bit of background research and comparison.

Because of efficient markets and because of regulators forcing availability of information, we can invest in both public companies and real estate without really understanding those investments without huge risks.

(Side note: I don’t recommend investing in anything you don’t think you understand very well. Just saying…)

The same does not hold for other types of investments, such as the asset class known as SWAG. SWAG is short for silver, wine, arts and gold.

I can imagine a thousand ways for how things can go wrong if I’d try to pick pieces of art to buy as investments. I’d give it a 90% chance of failure, since I wouldn’t be able to just pick up a Picasso and hope things work out 10 years from now.

From my point of view, investing in websites is much more like investing in art than investing in the S&P500 stock index. It requires expertise and things can go horribly wrong really quick, unless you know what you’re doing.

Taking this train of thought further, the best parallel I can draw is to acquiring a small or medium sized business. This type of investment comes with huge risks compared to public companies, are much less liquid and usually require a at least moderate involvement by the owner. Actually, most small and even medium businesses are build around the assumption of major owner involvement whereas public companies are designed around absolutely no owner involvement whatsoever.

Websites as investments and my background in this game

Since websites require expertise as investment objects, I’ll just call them a “concierge asset” like small businesses or art. Something that you should only buy if you have the proper knowledge to grasp the risks.

As for myself and my background in this field, I’ve been working with digital marketing and digital services since the late 1990s. So even if I’m not the best at everything, I’d imagine qualifying as a “concierge” of developing and growing websites in general.

I’m not an expert in SEO, but I know the basics. I’m not an expert copywriter, but I’ve written all sorts of content including books. I’m not a developer, but I have handcrafted both websites and apps, coding line-by-line. You get the gist of it.

I’ve built hundreds of websites over the years. I’ve subcontracted work, I’ve build things myself and I’ve even bought one ready-made, income-generating site. Still, I feel there are a lot of things to learn about the affiliate marketing kind of sites.

I’m currently somehow involved in running the following Finnish sites:

  • Kuono.fi, a site for dog owners. The site was purchased in 2017 and I run it together with a business partner. Income is based in advertising and content marketing partnerships.
  • Talousviisas.fi, a site about personal finance. The site was built together with a business partner in 2018 and has not been monetized yet. It generates about 1/10 of the traffic compared to Kuono.
  • Parasblenderi.fi, a product review site for blenders. The site was built by me in 2016 to test if I can still get a site to rank properly in Google. It generates very moderate affiliate income.
  • Verokuitti, a site to exemplify how tax money is spent. It’s neither maintained nor monetised, but won our project team some awards.
  • Kotisivubisnes.com is also worth mentioning, even though it doesn’t exist anymore. It was a content site around building website creation. It generated affiliate income, but given a competitor to my employer acquired the main affiliate partner, I didn’t feel comfortable getting income from them anymore and so I closed down the site.

After buying Kuono in 2017, I’ve been looking for other sites to buy. It seems like most Finnish sites are either minuscule or already properly monetized and sold to bigger media companies.

Since not finding proper sites to buy in Finland, I’ve started looking abroad.

The most commonly sold type of website from an investment perspective is one that’s doing affiliate marketing and generating income through referral based sales. There are some sites monetised through ads and lead gen out there as well, though.

This type of affiliate marketing website is a species on its own.

There are several marketplaces like Flippa, Empire Flippers and Investors Club that post sites for sale. These sites publish content in English and usually make a majority of their income thought the Amazon associates affiliate program.

Most sites seem to be priced around 30 x monthly profit, although prices commonly vary from 25-35x.

It seems like small, <$10k sites get sold in days. Once pass the $30k threshold, demand drops and >$100k sites seem to have much less buyers already.

If you want to start small, you’ll have to accept more risk, since the few day turnaround time doesn’t allow for proper due diligence.

Even if you do proper due diligence, there are still many inherent risks to these type of sites, like:

  • The traffic is usually based on Google searches. If Google changes their algorithm, you might lose tons of business.
  • Many sites make money on the Amazon affiliate program. Amazon has previously decreased the commissions they pay their affiliates and if this happens, you can lose tons of business.
  • Previous owners might have used black hat SEO tactics that haven’t yet been discovered by Google. Once discovered, your site can get punished, resulting in losing tons of business.

It’s also worth noting that new sites pop up every day and thus competition is fierce. If you don’t develop your site, it might hit a decline and eventually get worthless. This isn’t something that happens when you buy Apple stock. Then you can just sit back and wait, time will probably help appreciate rather than depreciate the stock you hold.

Growing the investments you’ve made

Once acquired, I’d assume both you and me want to grow our sites in order to generate more income and appreciate in value.

There are some basic measures that help almost any site, such as:

  • Publish more content on the topic of your site
  • Publish content in neighboring topics to what your site is about, in order to expand the niche
  • Improve content already published by updating, expanding and optimizing it
  • Get quality backlinks from other sites
  • Improve click-through to affiliate sites
  • Improve site speed
  • Add more revenue streams such as display advertising on an affiliate site

The best way to buy a site is to already know what can be improved before you purchase the site. This requires both research (to find the opportunities) and experience (to understand how easy or difficult it will be to do).

Sites that have already grown large, meaning at least 6 or maybe 7 figure price point, almost certainly have the basics covered. They are fairly authoritative, have good content, have broad content, have a lot of backlinks, have multiple revenue streams etc.

Smaller sites usually have much more room to expand and be optimized.

My goal is to learn how to take sites generating some revenue and grow them by 10x in a few years. This would let me grow much faster than starting sites from scratch. It would also require less capital than buying high 6 figure sites from the start.

Future topics and opportunities

The more I learn about this business, the more I understand I still have things to learn.

To be good at growing sites, you need to have good freelancers or the willingness and skills to do the work yourself. I’d rather outsource since, that enables more growth than making everything dependent on the availability of my time.

While running a digital agency in the past, I learned the value of good freelancers. They’re easy to work with, reliable, decently priced and very good at what they do. Like the dream employee, but without the downsides.

Once running, I believe the best deals are made with off-market opportunities, but I don’t yet know where to find them. The same holds true for real estate, privately held companies etc. If you’re the only bidder, it’s easier to get a good deal.

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By Pär Österlund

Pär is a generalist interested in marketing, innovation and personal growth.

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