Gurley argues organic versus bought traffic is a critical distinction for valuing Internet businesses.
“One that one that I think people really should focus on is where, especially for these Internet businesses, is whether traffic is organic or bought.”
Gurley lists Google, Skype, OpenTable, and LinkedIn as examples of companies that never ran ads to grow.
“Google never ran marketing ads, you know, in its day to get to get big. Skype never ran ads. OpenTable never ran ads. Linkedin doesn't run ads.”
Gurley argues marketing-heavy companies rent customers and should trade at lower multiples than organic-growth companies.
“I don't see any reason why a company that's heavy on marketing will get the same kind of multiple as someone with an organic customer base.”