The Website Investor

“No great man ever complains of want of opportunity.”

—Ralph Waldo Emerson

Dealing with a broker can sometimes be easier than communicating directly with a seller because brokers fundamentally understand what information is important to the buyer of a website. They can also assist you in the sales contract, escrow, and the transition process after there is agreement on price. However, brokers who interfere with direct communication between buyers and sellers or sellers who resist any direct communication are a problem.

It is very important to have direct conversations with a seller to get a sense for his or her integrity and willingness to provide support after a transaction is completed. Avoid brokers who don’t facilitate a direct contact.

Asking prices for websites are almost always higher at website brokerages than at website marketplaces. This is primarily because high-value sites are older, have more stability, and enjoy less risk in their business models.

Does buying through a broker reduce the risk of ending up with a failing website? Yes. It’s not that brokers frequently turn down opportunities to sell low-quality websites. It is more the case that brokers use a standardized process to collect and present a complete picture of website performance. Risks and opportunities are more clearly highlighted for potential buyers.

Marketplaces

Here are a few of the well-known marketplaces for buying and selling websites:

• BizBuySell.com

• BizSale.co.uk (UK focused)

• Businessesforsale.com

• eBay.com

• FlipFilter.com (aggregates auctions)

• Flippa.com

• Forums.Digitalpoint.com

• iMergeAdvisors.com

• Webmaster-talk.com

• WebsiteAcquire.com

• WebsiteBroker.com

Visit HeckYeah.org to get help finding buying opportunities.

Flippa

Flippa is by far the current leading marketplace. At the writing of this chapter in mid-2014, Flippa claims 2,275 open listings and $428,000 in sales over the past seven days. Although there may be a higher total sales volume at other brokerage houses because of the sale of high-priced businesses, Flippa is the undisputed leader in terms of raw numbers of sites sold. Many startups have tried to challenge Flippa’s dominance in the website buy and sell market and have thus far failed to unseat the giant.

The Flippa website boasts an excellent user interface and the management team continues to revise and improve it every year. The company has focused specifically on adding features to protect buyers and sellers. These include some basic due diligence tools, like links to Alexa, SEMRush, Copyscape, and others. It also has a deal with Escrow. com, provides sample sales contracts, sample non-disclosure agreements, sophisticated search tools, good customer service, new user accounts verification, user profile integration with feedback mechanisms to establish buyer and seller reputations, and feedback on post-sale website performance. Flippa also offers tools that certify Google Analytics data and Google Adsense revenue streams, which are very commonly used by sellers as proof of traffic and revenue.

This is not intended to be a sales pitch specifically for Flippa.com. However, it is obligatory to recognize Flippa’s position as the dominant marketplace in the space, especially for properties priced less than $50,000. I have personally done $170,000 in transactions with Flippa at the time of this writing. My fourteen-year-old son even browses Flippa, looking for gaming websites to buy.

Within the website investment community, Flippa has many critics and naysayers. Their principle objection is that many websites sold on Flippa are junk. This criticism spawns from the fact that Flippa sells thousands of low-end websites. Many of these websites are templates, copied and pasted content created for the sole purpose of being sold. Personally, I applaud entrepreneurs who have found a product that they can create repeatedly and sell consistently to a steady stream of buyers. However, those who increase sales by making false claims are another matter, and unfortunately, there are a fair number of those tricksters on Flippa as well.

A second criticism is that many sellers on Flippa are scammers. Although Flippa does its best to discourage illegitimate sellers, there are still sites for sale that do not actually receive the claimed level of revenue, profits, or traffic. Sellers may omit pertinent details or may, in fact, manufacture false documentation supporting sales expenses and traffic.

“Nowadays people talk about PayPal’s founders as prescient geniuses who would inevitably change the world. It was, however, not so obvious that PayPal would taste its first major success by helping people sell Beanie Babies on eBay. But they had a vision, a hope, and the perseverance to try multiple iterations until they got it right.”

—Eric Ries

Clearly this problem is not unique to Flippa, but because it has a large number of open listings and does not perform a manual review of each and every website, its listings are subject to the risk of being fraudulent. Of course, as an investor in websites or in any other investment opportunity, the burden is always on the buyer to fully investigate before a deal is reached.

Private Deals

In the past, it was often possible to find websites online and approach the owner by sending an email or filling out his online contact form with an offer to buy. The owner of the website might not have given any thought to making a sale previously. Nevertheless, many sites were sold because a buyer reached out directly to the owner.

Website owners today are often inundated with unsolicited email. As a result, very few unexpected emails are opened, read, or given the slightest consideration. However, some people continue to use this technique, focusing particularly on sites that seem to have potential because they are under-monetized. If you want to try it, make sure that your initial letter explains who you are (anonymity won’t help your case) and why you are interested. Ask questions gently and respectfully to assess the owner’s potential interest in selling.

I do send email inquiries expressing interest in buying websites, but I rarely receive any responses from the owners.

One tactic to find websites for sale is to simply enter a Google search for phrases such as “this website is for sale” or “website for sale.” If you take this approach, be prepared to sift through many sites that are not remotely interesting. But you never know when you might stumble upon a gem at a good price by going direct and avoiding competition.

Networking

Once you let it be known that you buy websites, word starts to get out. Attending conferences and building relationships with buyers of your sites and those you’ve bought sites from generates more opportunities to find sites for sale.

Deals spawned from relationships are often the most valuable. There is less competition and potentially more authenticity. There is less time pressure and may be more trust.

Of course, these deals happen by chance, so they are fewer and farther between. But the serious investor will advertise his interest in buying websites wherever he goes, and deals will eventually materialize.

Website Buying Groups

Much like stock investment clubs, groups of investors have begun to ban together to buy websites.

Below are a few of the advantages of buying websites as a group of investors:

1. Diversification: a group can own afford to own more properties.

2. Education: investors in a group can share experience and knowledge.

3. Buying power: high-priced websites are often unavailable to the new investor who can’t afford them. Pooling resources allows investors to buy high-performing, less-risky website businesses.

How do you find a group to join? Network at Internet marketing conferences, or start your own group.

Case Study: Abracadabra

I’ve always loved magic. Even though I had never seriously considered being in the magic business, getting in on the act would be, for me, like finding a job as an ice cream taster. So when I found a magic website for sale that was actually making money, I was instantly interested in finding out all about it. The website was the personal brainchild of a prolific magician who had performed more than four thousand shows before the age of twenty-nine. He was worn out and looking to get into a business that didn’t require him to travel thirty days per month.

Visitors to the website were looking for a magician to perform at birthday parties for children, family gatherings, or corporate events. The site described the magician himself and the content of his shows; it also had some sample videos of his act. Visitors could fill out a form or call an 800 number to request a performance.

The magician had created the site to market himself and create bookings for his shows. As the site grew in search engine rankings, traffic picked up, and soon he was getting a lot more requests for shows than he could handle by himself. He began to send the extra leads to some of his magician buddies, who were grateful for them. They would pay him a cut after they did a show and received payment. They usually paid him, that is. It became a hassle for him to follow up with them, and he also started getting requests to do shows in faraway cities where he had no magician friends to whom he could give the leads.

Soon the magician decided to find another way to profit from the leads he was generating. He approached an entertainment broker who had given him leads in the past, and the broker was more than happy to buy the leads. The broker began paying him $4 per lead. Whether the visitor filled out the form on the website, sent an email, or called the 800 number, the magician received $4. In his peak month, he sold one thousand leads and made $4,000. His monthly costs for the website were less than $100.

This website met almost all of my criteria, so I dug in, looking for a catch but hoping that I wouldn’t find one. The first obstacle was that he wasn’t going to let it go for as little as I would have liked. (Keep in mind that I am on the cheap end of cheap.) But the package was so compelling I wasn’t ready to let a little thing like price derail my plans to be in show business.

I kept thinking, “If that broker is so willing to pay $4 per lead, he is probably making a great deal more than that.” The magician had provided a letter from the broker stating he would continue buy leads from the new website owner. Plans started developing in mind to keep more of the profits by managing my own network of magicians and eventually cutting the broker out. Shoot, I might even learn a few tricks myself.

The seller provided access to all kinds of information. He showed me phone logs, invoices, and emails. He gave me access to traffic statistics and showed me his PayPal account over a Skype screen-sharing session. I spent about three hours on the phone with him over the course of the auction. I was becoming very confident that this was going to be a winner.

Then came the red flag. While the magician was sharing his screen, we were looking at his Google Webmaster Tools account. The bad news came in the form of a message from Google that said they had levied a manual action against the entire website due to “unnatural links.” The message was recent, and it meant that the website would get far, far less traffic from Google until the manual action from Google could be cleared.

After further research, it was apparent that traffic had begun to slow dramatically. Because it was a low season for magic shows, the impact on revenue had not yet become apparent. Although some of the website’s traffic came directly from other websites, the impact of not having traffic from Google was severe enough to cause me to stop pursuing the opportunity.