Saturday, May 29, 2010

Website value calculators are not appropriate for all website valuations!

There has been a mushrooming of website valuation calculators that purportedly calculate the value of websites. Most algorithms claim that they use a host of freely available information over the web such as back links, page views, rankings and other similar information to calculate the value of your website. Then they also also claim that they "estimate" how much advertising dollars the website will generate on all of its pages and use that as the revenue measure. The issue with such a calculation is that the calculators are applicable only for websites that has advertising as its primary source of revenues. Websites that do not use ads as primary sources of revenues but rather to attract work or as an advertising in itself, which is what most websites are, cannot be valued this way. Over reliance on the use of advertising as the revenue source misleads people into thinking that their websites are valuable when they clearly are not. This also spawns numerous advertising only websites and contributes to plenty of junk redirects out in the Google search space. Upon a deeper look at the "automatic placements" by Google in our AdWords account, we found that 70% of the websites are junk websites solely created for the purpose of advertising redirects. What purpose do these websites serve? This is a main reason why we get a lot of what we call junk clicks. The reason many of these redirecting websites exist is because they are under the false impression that their websites or businesses are valuable based on a stream of Google AdSense dollars. Surely, traffic redirectors cannot be worth as much as traffic from quality websites. But I do not see any differences in CPC between clicks from redirectors and from quality websites. Of course, a click from a well vetted, reputable website is worth several times more than a click from a traffic redirector website that is setup solely for the purpose of capitalizing on the ad commission spread. I am not sure if AdWords can set up algorithms that reward authenticated, respected websites more than the others. Only very discerning customers visit our website and therefore our traffic is low but at the same time, the customers who come on our website are perhaps serious customers and if they click on an ad on our website, the probability of conversion is several times higher than on a redirector website. So, is the value of our website low? That's what the website calculators think and therein lies the problem with the ad model. We need to be paid out a higher cost per click than a redirector website. We qualify prospects better, yet perhaps we do not get rewarded for that. I hope Google introduces a system where quality information is rewarded much more than opportunistic, junk traffic.

No comments: