Mogul Calacanis Disses Per-Link Valuation

The man behind Weblogs (and its recent sale to AOL), Jason Calacanis, weighed in (below) on using links as proxy for the value of a blog network.  His verdict?  Links are irrelevant.  Today's deals are priced based on good old-fashioned revenue, earnings, management, etc.--at least for companies mature enough to have them.

Jason can't discuss the details of the deal, but here's a question for him.  Given the young age of this and many other companies, as well as the hyper-growth rate and wild uncertainty of any future projections, which revenue/earnings, etc., are used for a valuation benchmark?  2004?  2005?  2008?  And are the projections a "conservative," "best-guess," or "aggressive" case?

In Tristan's defense, he was simply looking at links as a proxy for value, and he acknowledged the importance of technology, management, and financial performance.  There is also probably a near-direct correlation between links/traffic and the revenue and earnings potential of the network, although it obviously takes strong management to max out this potential without overdoing it and wrecking the user experience. 

At the conference, I was also struck by how many companies were being formed not as businesses, per se, but as independent product development groups, with the planned exit being a quick sale as soon as the (free) product got traction.  This has always been the case in Silicon Valley--in fact, it's one reason the area is so fertile for entrepreneurs--but the density of such companies at the conference was startling.

Tristan is a smart guy, but inbound links mean little to nothing. Companies are bought based on revenue, earnings, page views, and growth these days. I'm thrilled with this because I've always liked to focus on the revenue side of the business and that is what the players in the market want today. I can't go into the details of the deal obviously, but I can tell you that our revenue, earning, pageviews, and growth were the key factors in the deal. Also, we had a very, very talented management team in place. People are not buying traffic these days (with MySpace being one of the few exceptions).

UPDATE:

Here's a link to Jason's post in July, showing the Weblogs, Inc. revenue ramp.  Back then, the company was at about a $1mm run-rate from AdSense. 

Comments

[Paul Walker]

Good post. Hopefully the authors who have been calculating the value of their blogs -- based on links -- the past couple of days will take a close read. I'm also curious about how much cash versus AOL shares Calacanis gets in the deal. And, what's the earnout? Henry, I'm looking forward to reading your blog. Hopefully, you'll inject some healthy and informed scepticism into the discussion.

[omar]

According to MSN link below the deal was "...an ALL-CASH transaction..."

http://www.msnbc.msn.com/id/9611167/

GOOGLE_SEARCH: [Weblogs Calacanis AOL 25 million cash]

Any idea what past or present earnings were for Weblogs Inc.?

Calacanis listed page views and revenue on his personal blog... Thanks!

[dude]

Henry,

you're right on this one. i think there are too many "web 2.0" bloggers who are helping perpetuate this "build something cool, offer it for free, and we'll spread it till you have a user base" mentality. i like your stance, and i hope you won't aid in this by making trivial posts about the newest blog search engine with a twist. my view is that there are too many "websites" and no "companies" - i dont think these people should be rewarded, but it seems that they are (youtube 5M!?)

[Yanestra]

Somehow, I get the impression you are a person from day-before-yesterday, still staring open-mouthed at a technology you don't understand and at technology firms you have not a single idea what they do and why they do it. You are boring.

[Avg Joe]

Just what makes Henry Blodget an internet expert? The fact that he was an II all-star back in the bubble days? PLeeeeeease. I have no problem with Blodget getting a second chance - at least he wasn't a fraud like grubman, and everyone deserves a second chance. But who are these people who worship Blodget as some internet guru? Just where was Blodget ever right?

[Betablogger]

It took only five years - the hype is back. I would have thought that it will take some twenty years. But fine, the most money will make who will fight the market. Short in US-Stocks, US-Bonds, US-Dollar, all those "assets", which will sink down and down and down

[Michael Berndt]

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