2013 has been a busy year for the website buying and selling industry and has continued many of the themes I observed in my annual review at the end of 2012. Our deal volume has increased by 32% and we have seen some interesting trends unfolding this year which will likely impact the industry for some time to come.
Google started making major algorithm changes in 2012 (Panda, Penguin et al.) and this continued in 2013. This caused a number of websites with previously strong organic traffic to drop – increasing the risk of investing in sites with a strong reliance on search (particularly Google) traffic. On the flip side, it has meant that quality sites with years of history have become more valuable and trading at higher net income multiples than before. We have also seen an increasing demand for distressed assets with savvier buyers looking to acquire a website hit by an update or given a manual penalty by Google. Opportunities exist to buy these sites on the way down for a relatively low multiple, recover the traffic and bank the upside. In the currently competitive buyer landscape, those who are willing to be creative deal structuring can buy sites that would have been previously overlooked.
Successfully structuring deals
Seller financing has remained steady for six-figure deals whilst the majority of transactions sub $100k are still all cash. Some transactions benefit from a held-back portion of the total sale price (usually 15-20%) in order to ensure the delivery of post-sale obligations (such as training). This is something we actively encourage on certain deals and proactively work with buyers and sellers to structure deals that are fair for both parties and keep everyone as safe as possible during the transaction and beyond.
Changing competitive landscape
Flippa continues to lose market-share in the industry. Approximate data shows a drop of 22% in listings this year and a 30% fall in the number of sites sold. It should be noted that Flippa have gained ground in the domain space – which I believe to be their most sensible move going forward as there are minimal due diligence considerations when buying an undeveloped domain. I expect Flippa will continue to drop in the website selling space but will gain traction selling domains.
Website sales are complex and scams are rife on unregulated marketplaces. This drop should not be mistaken for decreasing industry demand however as this continues to increase with many new buyers looking for legitimate online business opportunities. I believe buyers have begun to get frustrated with Flippa and are beginning to realise there are other sources to buy sites in the five-figure range and up – through brokers and alternative platforms. Our friends over at EmpireFlippers have started to sell regularly at the $1k-$10k level and I assume are benefiting from Flippa’s relative demise in that space. I believe there to be significant challenges in sourcing safe deals below $10,000 (scamming and misrepresentation is extremely common at that level and sites rarely have strong fundamentals), so Justin and Joe’s model is not without its challenges, but certainly is better than buying from an unregulated marketplace with a flawed process not suited to the purchase of a business.
Demand on the up
Following on from a strong 4Q’12, buyer confidence has continued to grow in 2013. In 2012, we completed 58 deals, whilst in 2013 we are on track (at the last count) to close around 77 – a record number across all established brokers in the industry. We continue to sell a range of sites in a variety of niches and verticals and do not predict that changing in 2014. The year has ended on a positive note for us with a successful rebrand to FE International and the addition of David to the brokerage team.
Supply vs. Demand
The main issue faced by buyers is sourcing legitimate sites to buy. I believe 2014 will see buyers becoming more flexible with their initial buying criteria, especially those purchasing as an investment rather than a hobby. The most imperative aspect of any deal of course is due diligence – this should never be overlooked even if a site does seem to perfectly match investment criteria. It’s interesting to note that some web professionals have recognised the needs for this with the launch of more specialised due diligence services, such as Centurica. I hope to see due diligence become a more common practice (albeit still very specialised), especially for buyers who come from an offline background and are looking to invest in an online business.
Quality will always win
The online space is dynamic with constant changes and trends to keep up with. Those who are successful in the long run, whether they be buyers, sellers or even brokers, know that quality always wins. There is no short-cut to success in business, no matter what the industry “gurus” tell you. Sites that are built on a solid foundation: a good domain, well-written content, a scalable platform, organic link-building, etc., will continue to perform well and be widely desired by buyers. Regardless of what new trends emerge in 2014 – the fundamentals are not going to change and the industry will continue its growth with websites becoming more widely accepted as standalone investments/business opportunities, and not just as hobby or for a side project.