Thrudigital

We hear it everywhere: online shops, websites earning from AdSense, websites being sold for millions of dollars and so on. But for every business activity one needs investments. In this article let’s analyse the two options depending on what you plan to do.

The first option of investing in a website is a share-based business model, when two or more people put together a large sum of money and start a web business. It necessarily doesn’t have to be a website built from scratch since it is possible to buy (or invest in) pre-existing projects. For example, I have seen some websites with unique ideas which could generate a lot of money, but they are lacking in some respects. The first of such aspects is a lack of content. Even though it is easy to create content in a timely manner, webmasters often stop developing their websites due to insufficient volume of required investments, or because of a lack of financial return on their time investment. Let’s ignore all possible reasons and take a look at what we can do there:

1) We can buy a share in such websites (there are inherent risks in this kind of investment, which we will cover later);
2) We can buy entire websites (as an individual or a group of investors).

A share-based ownership of websites brings one big stumbling-block: the attitude of “I do this, you do that. If you don’t it, I don’t do it either”. To be honest, I have had a terrible experience with this problem. A few years ago I started two websites, investing both my time and money into them, and even though I got a return on my investment, the growth of these website has stopped because my business partner isn’t doing anything. Naturally, I don’t do anything either. The best thing that you can do when running an investment with more than one person is to sign some kind of legal agreement in order to protect you from such situations. These websites are earning enough to pay for their hosting, plus they generate some extra cash each month, but it isn’t anything impressive. Apart from this horrible experience, I am also planning to invest a few thousand dollars, in order to boost their growth and achieve an acceptable level of revenue from them.

Buying a share in websites can be tricky. Firstly, you must be sure that there is a plan of further growth (if there isn’t one yet, undertake the responsibility yourself, perhaps for an additional share) of such a website. The plan must contain these points at least:

1) What is your target audience?
2) What kind of time-frame are you working on?
3) What are your expected results?

Logically, this should explain the way to achieve satisfactory results. Your development strategy is also very important and should be included within the plan. In addition, the plan must contain at least two different strategies, so that if one fails, you have a backup to help meet your goal. None of this would be possible without a clear plan of further development. Features make the difference between successful and ordinary websites. Websites which contain only plain content are worth investing if only you add some extra features to the core. For example: would you buy an article directory? I wouldn’t. I’d do it if only I had a plan of adding extra value to such a website.

Bear in mind that we are still analysing the first option (buying a share in websites), so it is always wise to discuss your plans with your business partners, unless you own the majority share. The original owner or majority owner doesn’t have to share your feelings and thoughts.

In my opinion, the better choice is to buy an entire website (either alone or with business partners). I’d even recommend investing alone rather than sharing the revenue with others. This, however, depends on your skills and available funds. Sometimes you need a programmer who will work for 10% or 20% of the revenue. In essence, any situation when you own more than 50% is preferable, because you can do what you want.

There may be some problems with investing bigger amounts (say, more than $50,000) into websites. It’s all about ROI (Return Of Investment): a reasonable ROI in a web-based business is up to 4-5 years, although many want their money back in 20 months or less. I wouldn’t mind buying a website that earns $5000/year for $35,000-45000, if I saw a chance of growth, a potential, a plan. This is why some websites are worth millions, and others aren’t worth a penny. The plan and the potential make the difference.

If you don’t know how to increase your ROI, or if you have no idea of what to do later with the website, then do not invest. I’d also like to recommend that you try to diversify your income sources. Selling ad space is a good idea, and using more ad-serving programs is good for this purpose. If one fails, another saves the business.

If you have any particular question, feel free to post a comment.

By the way: now, with the financial crisis ruining many businesses, is a good time to make an investment. It may sound weird, but these days things are cheaper than they were five years ago, or will be in five years time. Revenue from advertising hasn’t peaked yet, due to the unwillingness of advertisers to spend money there. They cut unnecessary bills, and many fire employees. When the crisis ends, online advertising will surely increase, and everything will become considerably more expensive than it is now. Many websites may be having problems staying online these days, and fewer new websites are created every day (meaning fewer competitors.) Only the strongest will survive.

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