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February 14, 2006

Your blog isn't worth as much as you think

I've noticed several prominent bloggers using the "How Much Is My Blog Worth" tool. This engine is a good example of a common economic fallacy: accepting appraisals uncritically.

Valuation of many things: homes, companies, even things as simple as jewelry, is difficult. It can be summarized in one simple axiom, though: something is worth exactly what someone else is willing to pay. It's isn't worth any more.

If you can't find a buyer for something at its appraised value then that appraised value is wrong.

So -- to pick on a random blog -- RandomURL is listed as being worth $20,888. Is it really worth 21 grand?

Probably not. Someone would have to be willing to part with a new car's worth of cash for this valuation to be accurate.

The research behind the blog valuation is based on the $25 million purchase of Weblogs, Inc., and appears to extrapolate down based on links within blogs.

The best appraisals are based on comparable sales. In real estate, for example, if you can find a house similar to yours its recent sale price is a good estimate of your home. Restated generally, two parties just exchanged something very similar to yours. You can probably find a buyer for a similar price. (The new site Zillow will value your home using this method.)

In this case, the study's author is comparing a $25 million sale of a corporation with a (usually) one-man Web site whose actual worth is on the order of, at best, thousands of dollars. The values are widely divergent and the two entities are different. It means the study is fatally flawed.

A better appraisal would be based on someone's one-man blog being bought for cash. Does anyone know of such a transaction? If you do, post a comment or email me.

Finally, it's very difficult to transfer the value of a blog because a blog's worth is dependent on the author's ability to continue to attract an audience. If the site is sold, why would the author continue to write? They no longer own the site. If a blog author wanted to get cash from their site they would be best off advertising.

Posted by gsmith at February 14, 2006 09:15 AM

Comments

Well said brother - until that cold hard cash is in the hand, you have a dream, not a sale.

Thanks for the dose of reality.

Posted by: JR at February 14, 2006 11:42 AM