> He said he would sell it to me for $40k. I offered $20k, which he refused but he said if I had any domain names generating ad revenue, we could do a deal of domains and cash. He said he would accept a lower amount if I paid in Bitcoin.

> So we worked out a deal where I gave him $20k in Bitcoin and a domain that was making about $9k/year in ad revenue, and he gave me the domain friendster.com. Now I was the owner of the domain name friendster.com.

I don't know anything about how to project future ad revenue of a domain, but would this be likely to be valued at only $10,000? Unless I'm misremembering my limits, even if it made $4,500 next year and continued to cut in half every year after that, it would still account for $9,000 of revenue projecting indefinitely into the future, even bumping that up to something like 60% of the previous year's revenue it would already put it at more than $10,000 (although I don't know whether ad revenue tends to scale with inflation or not; my instinct is that the prices of ads probably would roughly increase with inflation over time)?

I know I'm nitpicking a bit about the title, but I can't help but actually be curious now that I thought of this.

You are absolutely right and that jumped out at me. I should also point out the obvious: if people were selling online assets making $9k/year for $9k, there would be a line out the door of people lining up to buy them. If anyone here is selling an asset that makes $X a year for $X, I'll buy it! I make my money back in 12 months and everything else is profit.

So let's value it as it would be valued on, say, Flippa, a decent proxy for "the market." We would look at the monthly revenue: in this case, around $750/mo (which is 9k divided by 12). Then we'd do a multiple of the monthly revenue: 20 is low, 40 is normal. I would actually say 30 here, because this guy created the asset and I would bet he did it well and it's not junk. So let's say it's worth $22.5k.

So I think it would be more accurate to say, "I purchased the site in a deal through assets valued at about $42k, total."

[edit: updated the comment as I got confused about the thing being exchanged - it's a site the guy created that he transferred to make the sale]

If you had a steady investment opportunity with 10% return (about in line with long-terms stock market returns), $9000 per year indefinitely is worth the same as $99000 now (in an idealized finance world. In the real world you can't invest $99000 and withdraw $9000 per year because withdrawals during downturns will take out too much. But it's a quick way to calculate equivalent values).

That's obviously an upper bound, because those domains won't make $9000/year forever. But valuing them at $10k if they make $9k/year is equally unsound. Not to mention the domain is worth more than its ad revenue. You could also end up selling it to a company that came up with the name and saw that the domain is available for purchase for some reasonable 4-5 figure amount (like in the example of this very article, where someone buys a domain for a five-figure amount)

Obviously there is a lot we don't know (is the $9k pure profit or are there substantial costs? How likely is the domain to sell?), but it sounds like the seller got the better end of the deal. He got more than $40k in value, in return the author got a deal he could afford

From what I can tell, The upper bound on price for any site making less than 100k a month is 24 months of revenue, but the more common is around 12 months.

The buyer takes on substantial risk because it's easy to fake the numbers, and google updates can tank the site at any time.

Also, most sites will require maintenance/upkeep to keep earning, or they can tank quick. Even if they have got evergreen content, without updates google might drop their search ranking.

You can check out similar sales on flippa.com - ad revenue does not last forever, even if it’s existed for years. And revenue is very much not profit, you could create a site and get $100/day in ad revenue tomorrow but it would cost you $200 in ad spend.