The Report That Changed Blogging.
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This is a guest post by Shane Lashley, who blogs at www.InnovativeEconomy.com. If you have any questions for Shane after reading this article (I know I did!), please leave comments addressed to him.
The same economic meltdown that has wiped out stock portfolios is already opening opportunities for savvy bloggers, both entrepreneurial and corporate, to generate new – and more – revenue. This is not an opportunity to exploit those hardest hit. Rather, it’s an opportunity for bloggers to become a part of the economic recovery, and to help others and themselves at the same time.
At the heart of the opportunity are the rights to innovations owned by individuals and companies alike. These rights are referred to as “IPR” (Intellectual Property Rights). Some familiar with Internet marketing may have been introduced to IPR through Private Label Rights or Resale Rights for content. But the universe of IPR is far more comprehensive and it is rapidly becoming very friendly to bloggers.
Intellectual Property (IP) consists of patents, copyrights, trademarks and trade secrets. IPR refers to the various rights attached to each form of IP, rights that can be transferred, shared, quantified and monetized. IPR exists across all industries in all free-market economies, and is the single largest source of value in many U.S. companies. Many other countries are experiencing strong growth in their development of IP and their reliance on IPR.
Bloggers are now in a great position to secure IPR that will generate revenue streams through tough economic times and continue to perform during the recovery. But in order to extract the value of IPR, there must be a market for the product it represents. That’s where blogs begin to add their value.
Blogs with existing traffic or the ability to grow traffic are the new gold in a downward economy. Good blogs are focused on a single topic and tend to attract a definable psychographic or demographic. Though far from being a cure-all solution, traffic indicates the presence of an audience, who is also the target market of some company that just lost its bank financing or ability to raise private equity, and doesn’t know when or if either will return before the company runs out of time.
Many companies and individual innovators are losing the ability or the appetite to roll out products across a big market. They just don’t have the cash or stomach for the risk involved. They need to take smaller steps and attract paying customers along the way. They also want to find something that already works, even on a smaller scale.
The ability of a blog to connect its audience with meaningful innovations is a game-changing event for the blogger looking to make money from their blog. The blogger should not abandon its purpose, independence, or writing voice that connects with the audience. These are important pieces of why the blog is now a valuable resource for products and companies with products.
As an IP professional, I have closely examined the changing valuation power of bloggers. My conclusion: conventional forms of blog revenue can be dwarfed by IPR arrangements.
For example, two blogs of roughly equal readership and attention may differ by more than 50 times in their valuations due to the impact IPR can create.
How can this be? A number of factors can cause this huge valuation difference, but here are two foundational principles.
First, remember this rule: “Good IPR extends time. Time magnifies value.” Therefore, it is not necessary to generate seven figures of revenue in order to achieve a seven figure valuation. You will sell the IPR based on its valuation, so this rule is critical to your success.
Let’s look at an example. A patent can provide as much as twenty years of legal protection. You acquire certain IPR after five years of patent life have already passed, perhaps with no money down, since it’s been sitting on the shelf of its former owner. Depending on the industry and nature of this innovation, you may only need to generate high five figures or low six figures in actual revenue in order to achieve a seven figure valuation for that IPR. Why? You own the rights to the remaining patent life (up to fifteen years).
Now let’s break our example down further, and compare physical and digital products. Physical products can retain their value longer than many digital content products, especially eBooks. You write a $27 eBook and sell 2,000 copies over the course of a year. At year end, the content of your eBook may be nearing obsolescence. Now you need to update your eBook or create a new one and start the product launch all over again.
You have IPR in the form of copyright, and copyrights do extend time. But in this case, the shelf-life (market life) is much shorter than its copyright life. You may find your eBook has already peaked in value. If it hasn’t yet, your selling price is likely a multiple of 1.0 to 1.5 last year’s sales, if you can get that much. At $27 multiplied by 2,000 that’s $54,000, which multiplied by 1.5 equals $81,000, but nearing obsolescence can drive your value down to less than $10,000.
Alternatively, you sell a patented product for $27 through your blog and you sell 2,000 units over the course of a year. Rather than approaching obsolescence, you are just getting started.
Again, five years of patent life had passed before you acquired it, and you’ve spent one year selling the product, so you have fourteen years of patent life remaining. Though most products sales rise after the first year, let’s say that your conservative forecasted plan is 2,000 units per year over the remaining fourteen years. $27 multiplied by 2,000 equals $54,000, which multiplied by 14 equals $756,000. But your value does not end there.
[NOTE: Valuation math is actually not this simplistic - it can be quite complex. But it is built on the principles outlined here and this example is fine for the purpose of teaching the basic concept of relative value.]
Let’s look at the second rule: “Online success contributes to off-line value.” The patent is not only for your direct sales or online presence. It includes off-line rights too. If you have international protection it could also apply to multiple countries. Your $756,000 is perhaps just part of your value. It is not unrealistic or uncommon for a patented product like the one in this example to achieve a value of $4 million or more, once all factors are taken into account. Compare the digital product’s best case value of $81,000 to the patented product’s middle-of-the-road value of $4 million. Which one would you rather own?
Does that mean you should not use Private Label Rights or write eBooks for your portfolio? No, it does not mean that at all! Think of your portfolio as a team. Each team member has a unique role that contributes to the overall success of the portfolio especially if they help you discuss your other products. Private Label Rights and eBooks can be valuable members of your team.
Now you may be asking, who would buy your IPR for $4 million? Companies and individuals buy investments that work. Even with just modest sales like those presented here, you are making it easier for a company to justify purchasing your IPR. Why? You are proving that the product works and the market wants it.
Most companies would rather pay a seven figure price tag to acquire an opportunity with a promising track record that they can scale up to a higher level of sales, than risk wasting time and money experimenting. A price tag of $4 million can be a great deal for that company and a homerun for you.
I have only dealt with a patent example here. A strong portfolio includes all forms of IPR, and the portfolio impact drives up the value of your blog.
For our last example, let’s assume you build a portfolio of just five IPR-based products that you monetize through your blog.
As a blog owner, you have many options. You can decide to retain ownership of all the IPR and the blog and just put your life on cruise control while you collect the money. You may decide you want to sell off one of the IPR assets and make a major purchase, using your IPR to do it debt-free. Finally, you may decide to sell everything – the blog, the IPR and all that goes with it. The point is you get to decide what works for you.
Innovation will play a powerful role in the recovery of our global economy. Bloggers everywhere can now achieve greater financial results than many people thought possible. The skills and resources required to build your own IPR portfolio are within the grasp of most anyone. It is a great time to be a blogger!
For more on this subject, see The Coming Economic Boom For Bloggers
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