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Breakingviews, one of the least web-savvy websites in the world, ran a column by Jeff Segal on Monday about blog valuations. And given that breakingviews tries to disable copying and for all intents and purposes bans hyperlinks, it's probably not surprising that the column is almost hilariously off-base. Segal's big idea is that blogs aren't likely to be acquisition targets; I'm pretty sure that in fact they already are acquisition targets, and that the only obstacle at this point is agreeing on a price.

Segal seems determined to ensure we all know that he's utterly clueless: after mentioning Josh Marshall's George Polk Award and TechCrunch's Google-YouTube scoop, he calls these things "Web 2.0 credentials". In fact, of course, they're old-fashioned journalistic credentials, and have nothing to do with the web at all, let alone Web 2.0. Segal then continues:

There has yet to be an acquisition of a high-profile, pure-play blog, so it's difficult to find pricing benchmarks.

Um, how about AOL's acquisition of Weblogs Inc, which included arguably the most popular blog in the world, Engadget? On a smaller scale, there is definitely a market in more niche blogs: think of when the New York Times bought freakonomics.com. But no, the best comp that Segal can come up with is NBC's acquisition of iVillage, which isn't a blog.

Segal then talks of TechCrunch charging advertisers what he calls "a moderate $40 per thousand views - known as its CPM rate". A $40 CPM isn't moderate, it's very high. On the other hand, given the number of ads that TechCrunch runs per page, it's entirely probable that Michael Arrington gets much more than $40 per thousand pageviews, once all the advertisers on those pages have paid him. Segal reckons TechCrunch has revenues of $1.8 million per year; I think it's safe to say they're significantly higher than that, especially once you include things like conferences.

Segal continues:

It's not clear, however, that a valuation exercise based on comparable company performance can be applied to blogs. They differ from other forms of media - including online publications like iVillage. It's much more difficult to estimate potential revenues. Moreover, there are no real barriers to entry. The hottest blogs spawn copycats, and potentially keener minds can swarm in and lure away readers.

Why on earth should it be more difficult to estimate potential revenues for a blog than it is for other forms of media? In the short term, most big blogs, like TechCrunch or BoingBoing or Huffington Post, know pretty much exactly what their revenues are going to be. And in the long term, no one knows anything in any medium.

But I'd really love Segal to give me one single example of a blog where keener minds swarmed in and lured away readers. That doesn't happen in the blogosphere, because competition is a good thing, not a bad thing. I want other finance blogs to launch, the more the better. And I want them to be written by keener minds than mine. The more that happens, the more traffic I'll get - that's the way the conversation works. Other media don't work like that: if I'm watching ABC, I'm not watching NBC. But blogs are different, and don't operate according to that kind of zero-sum mathematics.

As for Segal's idea that blogs lose traffic when their founder moves on - well, Nick Denton has proved that to be false many times over, and again it's very hard to think of examples. Did Giga Om's traffic suffer when Om Malik had a heart attack and had to take time off blogging? If it did, I doubt the effect was enormous. In fact, I think the single-person commercial blog is increasingly a thing of the past: the vast majority of big, profitable blogs are group efforts and all the better for it.

Once upon a time, Segal's recommendation that big-media sites hire bloggers rather than buy blogs might have made sense. And indeed the likes of Time and the Atlantic have gone ahead and done just that, with reasonable success. But once a blog becomes extremely popular, its proprietor essentially becomes unhireable: there's no way that Arrington, for instance, would leave TechCrunch behind to go work for someone else.

The fact is that many blogs do make sense as big-media acquisition targets, and I'm quite sure that approaches are being made on a regular basis to most of the bigger sites. So far, saying no has proved to be profitable: I'm quite sure that the numbers being bandied around today are bigger than the sums which were offered a year or two ago. But eventually the two sides will come to terms, and presently independent blogs will indeed be incorporated into bigger media entities.

Source: Blogonomics: Exit Through Acquisition