Friday, November 25, 2005

The next round is on me

A few weeks back Goran wrote a post about a blog value calculator from Technorati. While it makes for an interesting momentary diversion, a little research will quickly discourage you from spending the money all at once.

How does it work? Well, it starts with the sale of Weblogs Inc. (a blog network) to AOL. The creators of the calculator assumed that the value of a blog was directly proportional to the number of other blogs which link to it (as reported by Technorati). Therefore, they took AOL's purchase price for Weblogs Inc. and divided it by the total number of blogs linking to all the Weblogs Inc. blogs. This resulted in a value of $564.54 per link. So all the calculator does is retrieve the number of blogs which link to your blog and multiply it by this value. In the case of Boylston Chess Club Weblog this is 43 links x $564.54 per link = $24,275.22.

This blog is worth $24,275.22.
How much is your blog worth?

What's wrong with this approach to blog valuation? Several things.

First, there is the "links as a proxy for visits" issue. I addressed this earlier in a post about Blogshares. To summarize, links are important and probably do have some correlation with visits, but they are easily manipulated and overall do not represent an adequate proxy for visitors.

Second, it seems silly to assume that AOL was simply buying Weblogs Inc.'s links (or visitors for that matter). Weblogs Inc. has proprietary technology they developed to support their blogging operations and presumably there must be some value attributable to the Weblogs Inc. brand. Therefore, the calculator almost certainly overvalues the price per link.

Finally, there simply isn't a liquid market for blogs. In fact, only a few blogs have ever been sold. Therefore, it is unreasonable to assume that blog value follows a linear relationship. Instead, a more reasonable model would probably be something like 99.999% of blogs are worth $0 and just a relatively small number have some value based on the revenue streams they produce.

So what is your blog really worth? In the chess blogosphere, if you are not Mig then I would estimate <=$0. Even for the few that might be earning a penny or two from Adsense, I suspect that if you discount your cashflow and make an honest assessment of your expenses (including your time) you'll find that your blog is actually under water financially. There's nothing wrong with this of course. Few, if any us, play chess for the money either. The rewards from chess blogging (as from playing) come from another side of our lives.

No comments: