Good Return

I’ve been waiting for the actual sale to post about the numbers but it’s not happening so I’m clearing those tabs from my browser anyway.

I’ve written before about Dropsend being for sale and some of the numbers involved but I’ve been proven wrong (or might) since it seems it could go for $900 000US which is way more than I thought and more than the highest initial valuation in the comments of the announcement which was for $325K. The sale hasn’t gone through though so the only thing we have to go on is Carson’s affirmation that they had three bidders still interested at that price (one pulled out since then) so who knows what it will go for?

The other related post I pulled out of the archives is this March 06 post by Ryan on 37Signals; The Cost of Bootstrapping Your App: The Figures Behind DropSend. You see that the total cost of development was $50 000US so if the sale goes through that’s a 18 to 1 ratio for dev. and sale. There’s still the time spent on it in the mean time that’s not tabulated but you’d also have to add the actual revenue that reached $7000/month so overall a very very good investment for the Carsons.


Gabriel December 28, 2006

Well, here’s a good question.

Those web services are generating some pretty interesting revenues. The value of a company is highly influenced by its potential benefits. But developing and maintaining web services is cheap (well, compared to many other industries).

So, how should the value of a web service be calculated? Based on the work that’s been put in the project or on the potential benefits, like we would for “any other” company?

Patrick December 29, 2006

You are right in wondering about valuation since the creation and maintenance of most web apps is a lot lower than it used to be but I think they are currently priced more on the idea, it’s execution and it’s place in the market at the time of the sell.

Buyers of web 2.0 stuff are often paying for a good idea and its elegant execution (and the brain(s) behind it) more than for anything else, the actual effort behind the product/service doesn’t come into it all that much I think. Potential benefits can also be pretty varied, not just dollars. Could be the influence of the people when they come in to the buyer’s company (Yahoo with Flickr, Upcoming,, etc), could be a blocking move in a market or access to an untapped market (the buyer who backed off for Dropsend was another large file transfer provider who considered the buy as a marketing move, to access the creative people using Dropsend).

From the buyer’s view point a lot of the little webtwenny apps are viewed almost as R&D, canaries going first in new directions and, if they have potential, being bought out by bigger players. In that sense, it’s often still cheaper to pay for the idea (worth more than the effort) than it would have been to pay for 15 things to be done internally, hoping for one to “stick”. (Although of course they still do the R&D anyway)

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