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It’s been a little over three weeks since we announced our plans to sell DropSend. A phenomenal amount has happened in that time and we’ve already learned so many lessons about the ins and outs of selling a web application.

The world of mergers and acquisitions is a mysterious and often necessarily secretive one, but in blogging about the process – which was as new to us as to many of our readers – at Bare Naked App, we’ve tried to keep the whole thing as transparent as possible.

The main question that everyone wants answered, of course, is how do you arrive at the valuation? Since the days of the dotcom boom and bust, these sometimes sky-high figures always send a ripple of debate across the industry. Lessons have been learned since then, but does that make it any more coherent this time round?!

Crunching the numbers

So how do you put a value on a web app? A quick search will reveal a multitude of different ways to reach that figure (eg. the Asset Approach, the Market Approach, the Income Approach, and so on). Put simply however, it’s all about how much someone is willing to pay for your app vs. how much you’re willing to sell for.

Potentially interested parties will be looking at all sorts of things, such as profit potential, scope for development (and integration), running costs, marketing potential, competition, product lifetime, leverage, and much more.

Let’s take a look at some high profile price tags from recent years (important – some of these are rumored values):

• MySpace.com (sold to NewsCorp) $580 million
• Weblogs.com (sold to Verisign) $2.3 million
• Skype (sold to eBay) $2.6 billion
• Upcoming.org (sold to Yahoo!) $1 million (rumored)
• del.icio.us (sold to Yahoo!) around $30 million (rumored)
• MeasureMap (sold to Google) under $5 million
• Writely (sold to Google) around $10 million (rumored)
• Rojo (sold to SixApart) $10 million
• YouTube (sold to Google) $1.65 billion

Guess the Valuation

Who will be next? Well, that’s a question we can’t answer, but in the run up to The Future of Web Apps London 07 we thought it’d be a fun experiment to invite you, dear Vitamin readers, to play a little game with us, called Guess the Value.

The companies we select are not (to our knowledge) up for sale, or even discussing it; we have simply selected them as prominent examples of today’s successful web apps. It’s not a serious project, but hopefully we’ll get to discuss some of the issues around determining the value of our web apps.

How much is Basecamp worth?

First up, we want you to post your valuations of one of the most popular web apps among the web community, Basecamp, from 37signals.

Here are some figures which we’ve found about the company which you can use to base your valuation:

• What is it: A simple way to manage all of your projects online
• Launched: Feb 2004
• Number of users: Over 1 million (Note: not all of these users are active)
• Account types: Free, Personal ($12p/m), Basic ($24p/m), Plus ($49p/m), Premium ($99p/m), Max ($149p/m)
• Interesting fact: Basecamp was bringing in enough revenue one year after launch to allow them to quit doing client work. They had four employees at that point.
• Conversion of total accounts to paid accounts: Here’s a quote from an IM conversation with Jason Fried, owner of 37signals: “Our Basecamp conversion rate is higher than DropSend which was 0.87%, right? I won’t tell you how much higher. Could be just 0.01 higher, but it is higher.”

Share your opinion

So the real fun of this article is going to be in the comments below. Some things to include in your guess:

1. How much is it worth? Why?
2. Who would buy it? Why?
3. Is the app viable by itself, or does the team need to go with it?

We look forward to hearing your opinion. After this article, we’ll pick another popular web app and play another round of Guess the Value!

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Quick thanks to Jason Fried from 37signals for the “Guess the Value” series idea. Choosing Basecamp was our idea though, not his :)