Digital assets includes websites, domain names, online businesses and smart phone applications. Although they seem very foreign and confusing to retail investors digital assets are similar to physical assets, can be income producing and have a value.
Online assets give their owners a way to earn an income in the digital world with the main benefit being that the owner can live anywhere.
Domain names are similar to land in that they don’t usually earn an income, but unlike land there are millions of potential domain names for every country in the world. Unless the domain name is a good relevant keyword that a lot of businesses would like, domain names are fairly inexpensive to buy and inexpensive to hold.
Domain names are purchase and renewed via a domain name registrar for less than $30 per year for most developed countries. They are similar to buying a business name – it’s not until you add products and contact details that you begin to be able to earn revenue.
Websites and Hosting
Installing website building software like WordPress is inexpensive but also requires hosting which is very similar in concept to paying rent on a place of business.
With a simple website and hosting the website owner can create pages and products using words and images that can be used to attract visitors.
If the visitors like what they see at the website they can take action by clicking on “affiliate” links, clicking on ads at the site or buying products/services.
Customers and income
Once a website earns an income it’s technically a business and depending on how that website earns an income it will be able to build up a list of customers.
A customer list and prospect list are business assets that are worth money, particularly if the website owner is able to send marketing messages to those people to encourage them to either buy more products or tell their friends about the business.
Advertising, Referral and Organic website visitors
The most valuable website traffic is organic traffic because it’s free! But that doesn’t mean it was always free.
Website owners use money, content and resources to bring visitors to a website and if designed well, with compelling products and services that website will start to receive organic traffic from search engines like Google.
If the website owner is paying to bring traffic to a website it is often because that advertising spend is earning more money than it is costing. If that’s the case then it means that not only is the website getting free organic traffic but it can scale.
Scaling, up selling and cross selling
Scaling means that you can spend a dollar in marketing and advertising and the website will earn more money than it costs. If a business can spend $500 per month and increase it’s gross profit by $1000 then it can technically spend twice as much in advertising to earn even more money.
The only way a business can grow in size is by
- selling more products/services
- selling products/services to more people
- increasing the amount it sells to each customer
Valuing a digital asset
A business is worth what someone is prepared to pay for it and that can be determined by a lot of different factors, including
- replacement cost
- cost to replicate
- multiple of earnings or profit
A website is relatively easy to create. A domain name is cheap to buy and hosting is also cheap but getting traffic and converting website visitors to customers is hard, even converting website visitors to real people can be hard for some businesses and takes time, know-how and money.
If a business is growing it’s worth more than if it’s steady or slowing down and all these factors go into the mix of what a business is worth and how you can make it earn more money for you.