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Valuating A Web 2.0 Startup

By: Dan Morrill

Getting any kind of value on a startup is difficult to begin with, but the CEO of eSnips, Yael Elish had a great idea, and created an incredible graphic to give it a start, based on those companies that have already been bought and their alexa traffic.

Alexa traffic is not known for being totally accurate, really the only really accurate stats are going to come off the web server logs, not through many of the analytic services that are available, the difference alone between Alexa, Google and Extreme tools for the web sites I run is already an approximation.

Using alexa through,, even if it is not accurate, the companies reviewed all start with the same basic handicap, the data is known to be flawed, maybe not flawed equally but at least flawed within a standard margin of error.

Using the data, he generated this graphic.

(Graphic and comments Courtesy eSnips, Business 2.0, techwag, and web worker daily).

So using what the known prices of companies were, against the alexa traffic that they had, the valuations of the companies given a standard margin of error, this is a lot more entertaining than any graphic you would see in a power point presentation.

Now for the Fun Part, web worker daily hits it right on the head when they state:
Let's pause for a moment. If you buy that premise, you're putting an $8.5 billon price tag on a dozen Web 2.0 sites. That's around the market value of Pepsi Bottling, number 192 on last year's Fortune 500 list. I don't know about you, but equating a batch of cool social web sites with a company that delivers 200 million servings of soda pop every day seems just a bit out of whack. Source: WWD

Another issue pointed out in Business is:
For instance, it is possible that social network Hi5 may be worth more than Facebook, but is Google-owned Orkut really worth more than either one of those? I doubt it. And Wikipedia might get a lot of traffic, but it is really not worth as much as YouTube since it is a not-for-profit that has no intention of ever displaying ads. Source:

While people are trying to put a value on a company, the only real value that a company has is what is has in cash and equivalents, or what someone is willing to pay for it. Was YouTube worth 1.65 billion? It was to Google, it was not to Microsoft. Therefore, the valuation of YouTube is really what Google was willing to pay to acquire it. Even though, the graphic is cool, and will probably show up in a number of presentations, or be used by entrepreneurs to determine the value of their companies when meeting VC's.


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About the Author:
Dan Morrill has been in the information security field for 18 years, both civilian and military, and is currently working on his Doctor of Management. Dan shares his insights on the important security issues of today through his blog, Managing Intellectual Property & IT Security, and is an active participant in the ITtoolbox blogging community.

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