I had just read latest post from Problogger on an offer to buy Digital Photograph School for nearly $1.0 million and why I think the valuation need to be look carefully.
In accounting and before the internet, determining your business value is somewhat simple because everything is in hard tangible assets and hard cash profit.
But when dealing with in-tangible but hard cash profit, the view angle and possible determination of business valuation will be different. And forget about those online blog valuation tool, but not entirely though because some factors still contribute in determining the valuation.
The two approach in determining the value of a business
The assets approach
The assets approach look into how much tangible assets you have and multiple that with your PE ratio.
In blog business, you don’t have actual tangible assets. Most of our assets is Intellectual Property assets which are intangibles and hard to measure in term of their final value. A lot of qualitative consideration need to be considered when we what to assign a numerical value to it.
So what is intangible property?
I can think of the following, and you can add if I had missed something:
- Blog contents
- Existing subscribers
- Blog authority, as determine by third party, for example Technorati, Alexa and Google.
Blog contents should fall into the definition of Intelectual Property, of which any content that we produce and rightfully belong to us.
The profit approach
The profit approach look into the possibilities of making money from your’s blog. One good example is Steve Pavlina when he post a month to month graph of his adsense income and Al Carlton.
The higher the potential of your’s blog of making money thus the higher the potential value. You need to multiple this value with your PE ratio.
And the most important factor: The PE Ratio
What is PE Ratio?
By simple definition, the length of time required to get back your investment. If your PE ratio value equal to 10, then you will required about 10 years to get back your investments. For more scientific definition, you can look it in wikipedia.
In practice, to determine the PE ratio you have to relied on market price of your stocks traded in Wall Street, which seem impossible, unless your’re a public listed company. Another way, you could look into a similar industry or almost similar that traded on stock market. So far I can only find online gambling company manage to float their company at London stock market.
So what is the final value?
I find that arriving to the final value based on one approach is not conducive. You need to consider both approach and take the value as minimum maximum. I also think that would be more fair approach.
This lead me to think the estimated value of Digital Photography School could be more than that $1.0 million or could be less. May be someone can add to his? Or may be we can compared DPS with Flickr?
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There are a wealth of options available on the Internet. From professional online photography schools to free online photography lessons, there are truly more study at home digital photography classes available now than ever. Given that digital photographs are so widely distributed on the Internet, it makes sense that so many online resources are available.