Yahoo has acquired MyBlogLog reportedly for $10 million. Does anyone stop to do the math on these things? MyBlogLog started business in July...just 6 months ago, and they have 5 employees. They reportedly serve 45,000 blogs, have 33,000 registered users, and zero revenue.
Valuing startups is an inexact science for sure, but there are some guidelines. Here are a few "back of the napkin" approaches without the benefit of any due diligence or facts.
Employee multiple - Cisco popularized this metric back in the 90's. They used $1 million per engineer as one metric for valuing a startup. I'm not sure of the math assumptions behind this, if any, but taken together with other metrics it kind of holds together. Using this metric MyBlogLog would be worth $5M.
Build vs. Buy - You can usually estimate how many "man-months" it would take to build something internally and apply a fully burdened cost of say $240K per year or $20K per man month. MyBlogLog has 5 people and has been in business for 6 months. Lets be generous and assume they spent another 6 months in stealth building the service. So, 5 man years of effort at $240K would make it worth $1.2 million.
Value per subscriber - You can build a revenue model based on the number of subscribers, multiplied by some estimate of revenue per user per month. MyBlogLog reportedly has 33,000 subscribers in their first 6 months. Lets say they triple that in the next 6 months to say, 100,000 subscribers. Lets say they can monetize these users at $1 per user per month, or $12 per year. So, 100,000 users times $12 per year makes it worth $1.2 million.
Strategic value - All acquisitions presumably have strategic value that exceeds their intrinsic value. Big companies have leverage in terms of users, products, audience. Meaning, they can take a small product or feature that has very little value on a stand alone basis, but enormous value when applied across their existing products and customers. As Mark Cuban once told me "It is not what it is worth today, but what it can be worth in the future as part of your strategy". So, Yahoo must have a brilliant strategy to knit together Del.icio.us, Flickr, MyWebLog, and other acquisitions into a targeted revenue generating machine.
Bradley Horowitz is VP of product strategy at Yahoo. I have known Bradley for almost 10 years and have a lot of respect for him. We worked together on video search when I was at AltaVista and Bradley was at Virage. He has assembled lots of interesting pieces at Yahoo but I haven't seen any clues as to how he expects to knit them together into a synergistic whole that produces leverage or revenue. Can you gives us some clues Bradley?
