Article Contributed by Experienced-People

The dot com bust proved convincingly that business models involving a lot of gloss and very little prospect of consistent and growing profit find themselves on the scrap heap - and rightly so. However, in the years that followed, some internet businesses made it so big they forever changed how people buy products and how they live their lives. From Amazon's colossal grip on the world of books, to Paypal's hugely successful online payment system, to YouTube's massive user base, many Internet businesses have innovated their way to fame and success. However, the big Internet Business Success Story isn't any of those. Some of those leviathans have profit more in their imagination than in their bank.

The Facts and Figures

That the Internet population is growing by the day is not in doubt. From 2000-2008 the number of people online skyrocketed by 342%.1 Not only are more people online but users are spending more time on the 'net, accessing more goods and services there, integrating their offline world with "social networks" and moving their spending online too. In 2008, nearly 900 million people bought something online and that number is growing at the rate of 40%2. The US accounts for less than 16% of global internet users, yet in the US alone people will spend over $160,000,000,000 online in the recession hit 2009.

The bulk of that money is not, as one would imagine, going to a few large companies that straddle internet commerce. For every dollar the Google behemoth makes from the Adsense ads seen on so many websites, a large chunk goes to the owners of those sites. In the first quarter of 2009 Google paid out $410 million every month to these small businesses3. For every £1 eBay makes in commission on goods sold, the "small" eBay retailer pockets up to £10 in profit. The top 1000 eBay sellers generated revenue of £785,000,000 in 2008, with an average turnover of £440,0004.

The Opportunities

Businesses like eBay and Google account for only a small fraction of the business transacted online. The big story is the millions of small businesses - from firms developing applications for Facebook to companies creating and providing electronic delivery goods like software and ebooks, to businesses supplying consultancy services to SMEs, multinationals and governments. There are huge opportunities, there are successful businesses showing amazingly healthy growth, and there's a business in this sector to suit every taste and budget. They include

- small, low cost, work from home, part-time businesses making just a few hundred dollars a month
- information websites that have steady revenue from contextual ad programmes such as Adsense. (It's like income from copyrights and patents - no active management required)
- "drop ship" retailers of everything from candles to yachts but without a warehouse, logistics or customer service
- domain businesses consisting of nothing more than a collection of domains earning steady income from "domain parking"
- franchises without the employees, premises, bureaucracy or tedious hours
and
- traditional businesses selling high street goods and services but conducting the advertising, selling, order processing etc., entirely online giving them a significant competitive advantage over older, more established players

Why Now?

Clinton Lee, author of 101 Ways to Make Money Online, has been involved in online businesses for the best part of the last decade. In his words, "I've moved from buying and developing B&Ms (Bricks and Mortar) to buying Internet businesses partly because they are so much better value. The P/Es are a lot more attractive. It's not uncommon for a quality website to sell for less than a year's EBITDA. There are real bargains to be had. Yet, these businesses are higher growth, more flexible, more scalable and better able to adapt to changing market conditions."

The lack of geographical restriction when choosing a business makes for phenomenal amount of choice. Most can be run from anywhere, even if the owner decides to emigrate. The ownership of online business and their cash flow can be directed outside a home country making them ideal tax planning vehicles. Internet businesses are easier to grow than local businesses, can grow much further, can employ talent anywhere in the world and tap into the larger global market.

So why are do online businesses sell for what would be considered bargain basement prices elsewhere?

Traditional valuation principles still apply. It's still about quantifying future Profit and Risk. The values exist ...but the buyers don't.

There is still a mind-set among buyers that associates Internet businesses with new-fangled, high risk or requiring specialist technical skills to own/manage. Nothing could be further from the truth. While no Internet business can boast the 50 year history that some cafes, hotels or pubs take pride in, many have been generating substantial and growing profits for several years. With staff to do the technical work, long-term contracts in place with blue chip companies, solid business plans and motivated management teams, many of these businesses have everything that excites buyers.

Except the Marketplace

There's another price dampener: the lack of a proper forum for the buying and selling of these businesses. Apart from particularly large businesses, Internet concerns are unlikely to catch the attention of the right audience when listed in a general business-for-sale publication. A typical website owner wishing to sell needs to contact owners of similar sites or post threads on webmaster community boards - hardly the best places to find savvy business investors.

What's very evident in these website-for-sale threads is the average sellers' obvious inexperience with selling businesses. Their pitch is targeted squarely at their audience of webmasters and usually refers to Page Rank, DMOZ listings, site design and backend, how high the PPC is etc.. but rarely a proper analysis of the profits, cash flow or projections. Presenting a proper financial case is a turn-off for that specific audience. The experienced business buyer would ask the right questions to get at the figures.

The new Daltonsbusiness sector devoted to Internet businesses should bring these business opportunities to a wider audience and expose business buyers to a largely untapped sector.

Isn't it time you considered buying an Internet business?

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