Related Links: “It’s All in the Family”
A very important lesson in due diligence around buying websites lies beneath.
When a creditor or investor is analyzing a company, one metric that is commonly looked at is the concentration of revenues - typically via customers. This information can tell the investor, lender, or buyer of the firm some very important risk related information. For example, if the firm derives 75% of it’s business from a single customer - the risks associated with losing that one single customer come into play when evaluating the business. All else constant, if the firm’s income were spread evenly over more customers, the firm would have less risk and therefore more value.
We’ll get to a real example related to buying websites in just a moment but there is typically one additional information tidbit that makes the scenario many times more risky…and downright scary!
Lets assume for a moment that you were considering buying the firm in question above. Then you find out some information that was not disclosed in the sale terms: The single largest customer (75% of business) was related to the current owner…by ownership, relative, or whatever. Would that change your mind about the risks associated with buying this firm?
When buying websites, it’s always important to consider the concentration of revenue…but another less obvious piece of data is the concentration of incoming links. Generally, concentration in revenue and traffic should be examined and considered. What may be overlooked is one of organic search traffic’s reason for being: incoming links. If the website you are buying has a large amount of organic traffic that’s great. But what if it’s coupled with high concentration of incoming links from a few websites? Further, what if those few websites were owned and operated by the same owner as the website you are potentially buying and this was never disclosed?
Here is the incoming link data at a site I looked at over the past week:
Including the top two sites on the list, I counted over 100 of the total 144 of the listed incoming links were from a couple websites also owned by the seller (via whois data). When you take out the marketplace sales links and some other noise almost 80% of the links to this site come from the owner’s other sites.
Do you think the owner will have any incentive to keep those links after he unloads the site?
Better negotiate that…or move on!
