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Welcome to the Alts Sunday Edition 👋

For over a decade, investing in content websites felt like striking digital gold.

This is the world I come from, and one I know well. Before starting Alts, I was the Head of Product at Flippa — the first marketplace dedicated to website investing.

So let me tell you — content websites were the wild west of alternative investing. Savvy entrepreneurs and investors could create very lucrative passive income streams with what were ultimately some pretty simple strategies.

But those days are rapidly coming to an end. In this issue I'll tell you why.

It includes quotes and interviews with some of my favorite people in the media space: Dom Wells, Brian Morrissey, and Richard Patey.

Let’s go 👇

The Golden Age of content sites

Let's start with a quick primer: Content site is a bucket term for any website focused on providing information and resources.

Instead of selling products or services directly, the goal of a content website is to identify profitable keywords, use low-cost labor to churn out articles that rank highly in Google, invest in SEO optimization, get tons of traffic, and monetize it all through ads.

That's it. Then you can just sit back, collect checks, and enjoy that sweet passive income. Err, at least for a while.

The "golden era" thrived roughly from 2010 to 2020, when a confluence of factors let savvy investors and entrepreneurs build, buy, and flip content sites.

“There was a period in the 2010s where the arbitrage was just so unbelievably high." - ​Brian Morrissey​, The Rebooting

It was a giant game of traffic arbitrage, but it created a lucrative opportunity for those who knew how to play the game.

Here's how the game was played:

Step 1) Get sites to rank in Google

It all started with SEO. The primary goal was to rank high in Google search results through extensive keyword research, on-page optimization, and link building. Success meant a never-ending stream of organic traffic, the lifeblood of these sites.

A whole industry of SEO specialists were dedicated to gaming Google's algorithms. These specialists employed various tactics; some ethical ("white hat") and some unethical ("black hat"):

Step 2) Stuff the site with ads

Nearly all of these sites were absolutely stuffed to the brim with ads, using Google AdSense or upmarket services like ​Mediavine​ to earn revenue based on clicks & impressions.

Affiliates took more work, but could be even more lucrative. By embedding affiliate links within their articles, website owners earned a commission on every sale generated through their site.

Step 3) Stay one step ahead of Google updates

As part of their massive effort to keep SEO slop away from the top of search results, Google would constantly change its algorithm, with at least one or two "​core updates​" each year that can cause a site's traffic to literally ​plummet overnight​.

A big part of website investing is understanding these never-ending updates, and trying to read the tea leaves on stuff Google is doing behind the scenes (but not saying publicly.)

To Google’s credit, this was the right approach to take. Handing out olive branches is too risky. Playing hardball with the SEO industry is the only way to maintain integrity of search results.

But to counteract this, website operators were forced to create content which was truly valuable (what a concept!) OR resort to tactics that keep traffic engaged on the page for as long as possible.

This explains the rise and fall of ​listicles​, and why ​recipe bloggers​ started writing ten minute preambles before telling you their recipe for Nonna's meatballs.

Overall, the strategy was not inspiring, but the scheme worked if you knew what you were doing:

“This strategy has worked for a long time. It’s not an inspiring strategy, but if you manage your costs accordingly and really know what game you’re playing, the arbitrage scheme works.”
- Jacob Donnelly, from ​A Media Operator​

The website investing boom

The relative ease of building and monetizing content websites led to a boom in website investing. Marketplaces like ​Empire Flippers​, FE International, and Flippa considered content websites their bread & butter.

And for good reason. According to the Empire Flippers 2023 ​State of the Industry Report​, content sites focused on display advertising were the most highly sought-after assets. In 2022, display ad content sites outsold every other business category.

Platforms like ​WebStreet​ and ​Onfolio​ aimed to capitalize on this trend by acquiring and scaling profitable online businesses. (More on them in a bit.)

And best of all, it wasn't uncommon for investors to build and flip content websites for 3x multiples of their annual revenue. So the returns were attractive, the barrier to entry was low, and the path to success was fairly well-defined.

But those glory days are rapidly coming to an end.

AI is massively disrupting the website investing industry

First came the “zero-click” searches...

This golden era was already facing headwinds well before 2020. The first major threat to the content website model was the rise of something known as "zero-click searches."

These are searches that provide the answer directly on the search results page (SERP), without requiring the user to actually visit a site.

As far back as 2019, studies showed that zero-click searches were becoming extremely common. As in, baseline search behavior.

According to Rand Fishkin of SparkToro, about ​half​ all Google searches in Q1 2019 resulted in zero clicks. By 2020, that number had climbed to almost 65%.

The implications are obvious. If Google is showing the answer directly on the SERP, ranking well no longer means much.

...Then came AI-generated answers

When ChatGPT launched in 2022, it was the nail in the coffin. Overnight, mounds of content was being created for free! Google's internal "code red" memo ​circulated​ around the web. Shortly after, Google began integrating AI answers search results.

At one point, Google's AI answers were shown at the very top of the page in about 50% of searches, though later they ​scaled back​ to under 10%.

Google is clearly experimenting like crazy, but regardless — this is a fundamental shift in how people get answers. And it poses a direct challenge to the traditional content website industry.

Throughout all of this, one of Google's big struggles has been distinguishing between genuine, human content and AI-generated material.

​Richard Patey​, a well-known long-time player in the website investing space, believes Google is simply unable to keep up:

"They simply cannot distinguish between badly written content and AI. You can run content through multiple LLMs, or ​humanize it​. It gets recycled so many times that it's impossible for Google to know. You just cannot tell. So instead, they have completely killed off the hobby websites in SERPs, and replaced them with sites like Reddit."

The website traffic arbitrage game is up

The impact of these changes on content website operators has been enormous. Many who have built lives & careers around SEO suddenly find themselves in a very difficult position.

But the large cap media industry is not immune to these mega-shifts either. The media industry is at the top of the list of industries affected by Google. There's (arguably) more capital at risk here than anywhere else.

In short, media companies can no longer rely on Google traffic as they once did.

Some of this is their own fault. For over a decade, big media companies basically whored themselves out to the Google algorithm, creating content they had no business creating in an obvious attempt to further game the system and siphon as many temporary eyeballs as possible.

But over the past year, big media companies have watched their ​traffic tank​ and revenue ​dry up​:

Morrissey thinks the arbitrage jig is up:

"The old model of relying on Google traffic and display advertising is no longer sustainable."

The content arbitrage game is largely over. A lot of these big media brands don't have an economic purpose, so their future is simply getting smaller. A lot of the big ones won't make it, and that's just creative destruction. No one has a right to a media business."

Richard Patey agrees wholeheartedly:

Content site valuations have fallen

The impact on content website valuations has been significant.

According to the 2023 Empire Flippers' ​State of the Industry Report​, the average multiple for content sites decreased from 3.47x annual net profit in 2021, to 2.9x in 2022. Their next report will likely be even more damning.

Jacob Donnelly makes no bones about it:

Capital reallocation is now underway

As the "golden era" of content websites fades away, website investors and operators are rapidly reallocating capital towards new opportunities.

One terrific example of this capital reallocation is Onfolio.

Onfolio's pivot to agencies

Onfolio Holdings Inc. (NASDAQ: ​$ONFO​) is a holding company that acquires and manages a portfolio of stable, cash-flowing online businesses.

Once focused on acquiring and scaling content websites, Onfolio has shifted its strategy towards ​digital agencies​ and other online business models.

Interestingly, Onfolio began this shift before the onslaught of AI.

Per CEO Dom Wells:

Richard's next investments

Richard Patey is the perennial early adopter. He was one of the first in the website investing industry, but now that he sees the writing on the wall, he's out:

"It felt like a massive risk I didn't want to be a part of. This is why I'm leaning into the whole AI agents space. It's everything I'm doing. I'm putting my money where my mouth is

I see a huge opportunity in building and investing in AI-powered solutions that can help businesses adapt to the changing landscape.

"Previously a human had to run software, or an agency did it for you. Next, agents will do it for you. That's what's next. That's my focus now.

If you want to learn more, Richard's ​AI Agent Manual​ is a constantly updated Notion full of SOPs for how to use AI agents in business & crypto.

The rebirth of niche communities

As social media becomes increasingly algorithm-driven and noisy, people are rediscovering niche newsletters and online communities.

​Alts.co​ itself is a perfect example of this. Our company began as a niche newsletter with a website to host the content. But driving traffic to our site was always a nice-to-have.

To me, SEO seemed like an expensive investment with a low chance of success, whereas investing in newsletter subscribers created immediately valuable relationships.

We got lucky, because while it was tempting, we never fell into the media traffic trap. The last thing I wanted to do was get hooked on the pageviews crackpipe and plaster the site with shitty ads.

Newsletters have their pros and cons, but one thing’s for sure; they are terrific to parlay into creating something bigger than the sum of its parts.

Today, we’ve developing our rich, broad investment community on ​Circle​, and are celebrating our one-year anniversary of Altea — our private community for accredited investors with ​$6m under management across 6 SPVs​.

I’m proud to say that we’ve carved out a valuable, alternative niche in the crowded online investment space, and we did it our way. We followed our own path, not Google’s. 💪

Closing thoughts

At best, the glory days of content website investing are over. At worst, the entire industry is toast.

To me, building a business around SEO was always building a business on rented land. This collapse is a stark reminder that even the most stable sources of passive income mean nothing if you don't own your distribution.

As Brian Morrissey put it:

In a way, SEOs kind of helped ruin this industry. They gamed Google's system so effectively, for so long, that they inadvertently contributed to the AI-driven search results now disrupting the content website model.

It's a classic case of "F around and find out."

Richard Patey pulls no punches:

"Yeah, we have ourselves to blame. Like Gary V. said back in the day, 'marketers ruin everything.' I think that was the case here.

The whole SEO industry is a hacking industry to try and and get in front of Google before the next update. The travel websites are never getting their traffic back. The game has changed. We're all partially to blame.

The fact is though, it was time to evolve regardless:

I do find it funny how we've all migrated from complaining that "Search results are flooded with SEO slop!" to "Search results are filled with AI slop!"

But evolution is necessary for survival. And if there’s one thing the Internet does spectacularly well it’s reinvent itself.

Yes, the old ways of Googling are ending, and bringing down entire industries with it. The landscape is smoldering.

But hopefully something even better will rise from the ashes. ☠️

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That's it for today. A big thanks to Dom Wells, Jacob Donnelly, Brian Morrissey and Richard Patey for inspiring this issue.

Until next time,
Stefan

Disclosures