Latest Google algo change vaporizes millions off HuffPo


Tired of Making Chump Change Online?

AOL recently bought the popular liberal blog Huffington Post for a whopping $315 million dollars.  That’s around 32 TIMES the earnings of Huffington Post according to Reuters.  Surely, the brand equity of Huffington Post, its high caliber stable of contributors as well as the name equity of Arianna Huffington factor into the price.  Still, 32 times earnings is quite a stretch.  We ARE living in the post GeoCities digital world, right?

The business climate after the “glue in a paper bag” valuation highs of online media and internet companies during the 1999 to 2002 period is decidedly more realistic.  Target companies now SHOULD have some earnings.  There IS now some appeal to real world busines fundamentals.  That’s what gave some observers of the HuffPo deal the heebiejeebies.  Regardless, 32 times earnings is QUITE SOLID if evaluated in terms of Web 1.0 (Pre Dot Bust) valuations.  Again, refer back to the GeoCities deal (here is the cautionary epilogue of that deal).

Well, it looks like a large chunk of that 32 X earnings valuation has just vaporized due to a recent algo change by Google.  This is just part and parcel of Google’s ongoing war against “content farms”.  Basically, you take Google trends and you write blog posts on them.  If your blog has enough existing “authority” posts, your trend-targeted posts get a boost too.  It’s an upward spiral.  Until Google caught on.  It appears the jig is up for huge media properties like Demand Media, Mahalo, AOL, and yes, Huffington Post.

Recent tests run by Money Magazine shows the penalty in action.  Based on these tests, a huge CHUNK of Huffington Post’s traffic got affected.  Also, many webmaster forums, ranging from mainstream to adult to casino, you name it, have threads complaining about the recent algo change.  Although Money Magazine estimates the change at 12% , we doubt this figure.  25 to 40% is more like it considering the huge outcry in many subniche (blackhat included) forums.   Assuming that  50% of the AOL price for Huffington Post is for brand equity and goodwill, using the 12% figure on the remaining $157M value, we can estimate that the total hit could be as high as $5 million if we assume that a large chunk of HuffPo’s traffic come from bookmarkers and social media instead of search traffic.  Again, we can only guess what the actual hit would be.  One thing for sure, if the algo changes remain in place, the damage would be in the millions.  As we have said before, this might be another case of Google trying to kill ants with a steamroller.  Effective… but it maybe overkill.  Which brings up another maxim, live by Google DIE by Google.  What lessons can we take from all this?  For one, that facebook “like” button sure looks mighty appealing right now :)

We at firmly believe that these sort of tactics only serve to penalize large professional content producers while failing to achieve Google’s stated objective of producing “high quality” and more relevant results.

Hat tips:  Michael Roper / Money Magazine

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