This article looks at the risks of investing in websites. Investing in websites can be very lucrative. There are plenty of hundred-million dollar funds that focus on buying and running sites. But there are risks. No matter your niche, the Internet is full of a hundred other sites doing what you’re doing. And the gate keepers of the Internet, Google, Facebook, etc., are constantly changing their algorithms. That means you need to maintain content quality, originality, and marketing strategy.
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What are the risks of investing in websites?
As with any industry, website investing involves risks. There are certain things that you must address and be aware of. It’s important to be aware of the risks before getting into website investing, so that you can have the maximum chance of success.
So what are the risks of investing in websites?
Competition in the market
Competition in the market can wreck a website’s value. And competition is easier with websites than it is with traditional businesses.
If you own a restaurant and a competitor wants to move in nearby, they have to obtain real estate, get licenses and permits, and more. With websites, a competitor can spring up overnight.
The good thing is that it’s hard for a new competitor to gain ground quickly and compete with your site. Nevertheless, if your site is highly profitable today, but a competitor has emerged in the market, you need to take steps to mitigate the danger to your business immediately.
Start by solidifying your position and ensuring that you have high quality content. At this stage, keeping a close eye on your data is critical. If you can establish yourself as the bigger, more popular brand, then you’re good to go. Ideally, you can turn organic views into return visits, which will make it much more difficult for a competitor to take over.
However, if you are struggling just to coast by or if a new competitor has better content, product, or brand identity, you risk being overtaken. If you do see loss in traffic or sales that means you’re losing customers to a competitor.
Changing landscape
When you buy or start a website, you put a lot of thought into strategy, marketing, and target audience. But you can’t prepare for everything. And sometimes the landscape changes.
This is more common in certain niches than others. For example, if you buy a site about COVID-19, the site will eventually become obsolete as the virus wanes.
Although evergreen niches aren’t immune, this is a problem you often see in trends based sites. If you have a website that depends highly on a fickle customer base’s wants, knowing when your clients are losing interest is essential if you want a return on your interests. It begs the question of why anyone would even start a trend based site instead of picking a more reliable evergreen niche.
If you do own a site in a niche that’s changing, eventually, you must accept the changing landscape. Whatever you were offering your users is no longer needed or profitable, and you will have to find a way to pivot in order to survive.
Algorithm changes
This is the one that keeps some website owners up at night. Google changes its search rankings at least twice a year (generally, in the spring and fall), and Facebook and other social media sites make changes as well.
With one algorithm change, a site that ranks number 1 for a search query can quickly end up at number 5 or even 10. This can mean a significant change in users and profits, and an immediate drop in the value of a site.
To mitigate this risk, you must diversify your holdings. That means two things:
First, make sure that the sites you own have multiple pages that get traffic. Too often, brokers and marketplaces will list successful sites that rely on one page and one query to get a significant portion of their traffic.
Ideally, you shouldn’t buy sites where one page gets more than 15% of the traffic or makes more than 15% of the income. Sites like this can lose value quickly if there is a Google algorithm change.
Second, it’s best to have multiple sites in multiple niches, so that if a Google algorithm change has an effect on one of the sites, the others may avoid it. At any one time, an algorithm change may affect part of the portfolio, but the income of the whole portfolio will be only slightly affected.
Losing interest
Another one of the risks of investing in websites is losing interest your business or niche. Investing in websites requires dedication and tenacity. If you aren’t motivated to put in the same level of effort you have in the past, your websites will suffer.
And you may think that this doesn’t apply to you, but running successful sites isn’t just about completing everyday tasks. It means rethinking your strategy continually, taking into account market and algorithm changes, and A/B testing on every level. From ad placement to content quality, gathering data and making adjustments is critical to the sales growth process.
If you do lose interest in a site or niche, you should sell your site before you give up on it. If you wait too long, your rating and quality will decrease as users and search engines notice the ripple effect from your lack of interest. Your growth trends will stagnate for a while and then turn downwards.
Mitigate risks with proper due diligence
The best way to mitigate these risks is with proper due diligence. I have written many in depth articles on due diligence, which you can find on this site.
But if you’re just getting started, I suggest reading my due diligence primer, which goes along with my FREE Due Diligence Overview worksheet.
To get the Due Diligence Overview worksheet, all you have to do is join my mailing list below. Along with great website investing content and tips, you’ll get the entire Website Investing Beginner’s Kit delivered to your inbox.
Key points
There are risks to any business, and website investing is no exception. The most important risks to be aware of are:
- Competition
- Algorithm changes
- Changing landscape
- Losing interest