Web 2.0 Valuations and the Google PageRank

October 20, 2006

I posted an article earlier today on the Small Business 2.0 internet marketing blog titled “Understanding Google PageRank”.  Most of the OnStartups readership is likely already familiar with Google PageRank (if not, I’d advise taking a quick peek at the article).

Now, I’d like to tie Google PageRank back to startups (and more specifically startup valuations).

As you might suspect, many of the startups I talk to these days are Web 2.0 companies (which I’m defining for now as web-based software companies focused on building a community of some sort).  This is not an accurate definition, but it works for me for now.

In any case, if you’ve been following OnStartups, you’ll probably know that I’ve written a number of articles on Web 2.0 startups being auctioned on eBay (the most successful so far being Kiko, which sold for over $250,000).

Looking at my own behavior, I have found that when checking out startups for sale, one of the things that I immediately do is look up the company’s Google PageRank.  (If you don’t have the Google toolbar installed, I’ve built a simple tool that does this.  Check out the Small Business 2.0 Google PageRank Calculator.  It’s quick and free (no registration required).

So, why do I care about Google PageRank when trying to determine the “value” of a Web 2.0 startup even though it’s nothing more than an approximation and an inaccurate one at that?  For one simple reason, it’s one of the few ways we have of actually knowing how Google thinks about a website (outside of a search for specific phrases).  PageRank is an independent measure (and does not rely on any particular search term).  Also, getting a high (6 or higher) Google PageRank is pretty hard to do and reasonably hard to “fake”.  It’s suspected that Google uses a logarithmic scale to assign PageRank, so a PageRank of 5 is much higher in value than a PageRank of 2.  It also has value because if I were to buy a web startup with a high Google PageRank that is somehow related to other companies I’m involved in, I can leverage the PR and SEO of one site to benefit others.  

So, PageRank is important for one simple reason:  It is one of the primary components in how Google determines the search rankings for natural search results (those that are not paid ads).  And ranking high in natural search is an immensely valuable asset – one that I value, and I’m sure others would to.

My advice:  If you’re running a web-based startup that in any way depends on web traffic and high volume user acquisition, you need to be tracking your Google PageRank.  It’s ugly, coarse and infrequently updated – but it’s important.  All things being equal, a startup with a higher PageRank is worth more than one with a lower one.

What do you think?  Have you built a website with a high PageRank?  Does it impact valuations of web startups at all or is my thinking misguided?


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