How to Value a Web App
It’s been a really interesting process learning how to value DropSend. In light of this, I’ve written an article over at Vitamin on the subject.
We thought it would be fun to play “Guess the Value” and pick a different web app each time. The first article is called Guess the Value: Basecamp.
Head on over and guess the value of 37signals‘ popular web app, Basecamp.
Funny, I’ve been wondering about the same thing. You said $900K for the minimum bid. In cases like this, I believe it’s often about “build vs. buy” (the cost of), and time to market - buying gets you there now, and with a known quality, building gets you there in N months, and with an unknown quality (will it scale? will it be buggy? etc.). That said, does it really take $900K to build a new DropSend and market it a little to get it to the point to where DropSend is now? Say you pay each engineer $100K/year, and have 9 of them, will they be done in a year? My guess is they’d be done in 2 months - it’s much easier to copy a successful DropSend than to come up with one from scratch. Add to that the ease of outsourcing, which drops the cost of developers down significantly….
That is why I was asked question #2 (of 5) here:
http://www.barenakedapp.com/dropsend/number-of-users-on-each-plan#comment-5040
Comment by Jack — November 22, 2006 @ 2:06 am
“Say you pay each engineer $100K/year, and have 9 of them, will they be done in a year? My guess is they’d be done in 2 months - it’s much easier to copy a successful DropSend than to come up with one from scratch.”
While it’s definitely true that coming up with the specs is more difficult than doing the coding, throwing engineers at the problem is not an effective solution. See The Mythical Man-Month here:
http://en.wikipedia.org/wiki/The_Mythical_Man_Month
Comment by Chris — January 3, 2007 @ 3:52 pm
try itsdex.com, it values a domain based on daily traffic fluctuations. dropsend.com is valued at $80,000, yousendit.com at $17,000,000 currently. later you can tweak some variables, this is measured on traffic counts not on your business model of having a paid/pro subscription service.
Comment by itsdex — January 4, 2007 @ 9:24 pm
the classic method if you are profitable is to apply a multiple to your annual earnings. 4x if it’s really boring, 25x would be a good average for a technology play, to determine your enterprise value. then layer any intangibles that may exist such as proprietary know-how or just factor that into the multiple. Read more about the valuation method used on itsdex.
Comment by itsdex — January 4, 2007 @ 11:59 pm
on the latest price update, dropsend.com on itsdex is now valued at $1,197,500, about what you were asking for in the process. your traffic increased, likely from the TechCrunch exposure, hence the difference in valuation from my first comment until now. i’ve sold a web company before, and you’ve pretty much gotten through most of it. from there, additional meetings, some due diligence, the deal goes through and depending on the structure work returns to normal. cheers and good luck!
read through the blogs, you’ll see that itsdEx pretty much nailed youtube.com, myspace.com and other recent acqusitions in the past year or so.
Comment by itsdex — January 5, 2007 @ 12:36 am