Unless you’ve been living on Saturn, you’ve probably heard that Instagram received a whopping price of $1 BILLION from Facebook recently. It begs the question, how did this yearling upstart with thirteen people command such a crazy price tag?
Let’s understand how an online asset like a website actually builds value other business owners want to buy. It doesn’t hurt that you gain the attention of Mark Zuckerberg, but I digress.
A website builds value four ways:
- Building a community of rabid, loyal visitors is worth real money to those selling stuff who want to reach that same target audience. If your web presence can attract over 10K visitors a month, you can get paid by advertisers who want to reach your audience.
- If those visitors become followers and leave a part of themselves, like their email with you, that’s gold. These are the “tribes” you’ve heard Seth Godin talk a lot about. Consider each subscriber to your newsletter as worth about $30-$50 each.
- If your subscribers become buyers, that free-cash-flow also gets factored into the value of your site.
- Level of engagement. If your visitors come back to your site on a regular basis and make it their new “home”, that loyalty is worth a lot.
The ability to sell something of real value to these followers not just once (as in “greater fool theory” like the internet millionaire snake oil salesman), but repeatedly.
This generates predictable cash flow online what is worth it’s weight in fine diamonds. Why? Because it’s VERY difficult to do. One website that is genius at this is www.lynda.com.
Every web designer on the planet has to subscribe because they learn all the new website platform capabilities. www.Lynda.com has millions of subscribers and over 40,000 courses no one else has.
My guess is, Lynda.com is also a multi-hundred million dollar site because of it.
But Instagram offers FREE software! Yup. They also built a loyal following of over 30,000,000 people. That’s 30 million for the uninitiated.
Instagram received $7Million in venture funding and used it to build their platform and then this incredible community building mechanism to capture the profiles of 30 million people who LOVE that platform.
At that rate, each Instagram user cost Instagram about $.23 to attract. In marketing parlance that’s called “cost of acquisition”.
Instagram reached critical mass when it reached over 1 million users. At 30million users, it now sports one of the largest database of users online anywhere.
So Instagram acquired users for $.23 and sold that database, it’s real source of value, for $33 per user. That means the venture capitalists made 143X their money back in three years.
Because the database was so large and so loyal, the premium paid for it made the record books. Not bad in the middle of a tough recession, right?
What can you do? Build your user base. Offer something for free that has real value so they’ll subscribe. Then offer value to invite others to join in the conversation on the topic you know well and are passionate about.
Above all else, make it REALLY easy and REALLY fun.
Do you have 100 subscribers? Your site could be worth as much as $3,000. Build the subscriber base, build the value. It’s that simple.
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