I had lunch with Hillary and Frank Stiff from Cheval Capital earlier. (Their site seems to be hosted at Hostway.) We reminisced about the good old days, when Hillary brokered digitalNATION's $100 million sale to Verio. The deal was all cash and valued at 14x annual revenue. You don't see numbers like that any more.
Of course, Cheval has completed 19 web hosting M&A transaction this year. And Hillary says she's got a number of additional deals in various stages of closing. Negotiations take time, because 9 out of 10 hosting providers practice shoe box accounting. Cheval has represented sellers whose financial record-keeping consisted of floor to ceiling stacks of receipts and merchant account statements. But they can't estimate their server count and don't know how their churn rate is changing over time. Which makes them sooo much less marketable.
Frank and Hillary joked about starting an Accounting Squad (accountingsquad.com is available!). It'd be just like Best Buy's Geek Squad, but instead of computer fixers in VW Beetles, you'd get server counters in Mini Coopers.
On a more serious note, we talked about the sky-high affiliate commissions that so many companies are paying for new sign-ups. I just checked on Commission Junction; there are 17 shared hosting providers who offer $100+ payouts. Hillary's advice is not to get carried away with one-upping the competition. Instead, you've got to see what your numbers say.
Speaking of which, a few months ago Ted Smith from Peer 1 passed along what he heard from BlueHost's Matt Heaton during a HostingCon panel: there's more to advertising ROI than sign-up rate. You should also monitor average churn stats on customers you've acquired through different ad venues. For instance, if a Google-referred customer costs twice as much as Yahoo! but stays three times longer, you've got yourself a good deal. I'm sure Hillary - not to mention your company's future buyer - would approve of this kind of methodical analysis.
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