Archive for November, 2013

Can We Ever Trust Black Market Websites Again?

After Silk Road was shut down by the FBI earlier this year, arguably the most popular site of its kind, lots of new black market sites popped up in the aftermath, trying to claim the now empty throne and to fill the void in the market left by SR. Users rushed to claim that this new way of buying illegal products online was here to stay, no matter what the authorities tried to do about it, as there’s a lot of money to be made. As the mythical Hydra, cut one head and three more grow in its place.

And they were right. SR’s shutdown brought a whole new set of players, some of them technically better than its predecessor, and business was as good as ever (probably the closure of the popular website and its appearance on the media brought in a lot of awareness to the existence of these black market sites).

But when you thought that customers were safe from vendors because of the review and escrow system, and vendors were safe from the authorities because of all the technical efforts made by the market site owners (and lack of mistakes, unlike the Silk Road owner) to ensure everyone’s anonymity, making the whole thing a great place to engage in illegal activities, turns out there’s a new problem in town: market sites scamming vendors and customers alike.

Atlantis was the first to go, taking everyone’s money. Then Project Black Flag also shut down, also taking everyone’s money with it. In case you don’t know how these markets work, let me explain a bit so you know what I mean when I say “taking everyone’s money”. These sites all transact with bitcoins, since you don’t need credit cards or bank accounts to make payments and thus, you can shop at these illegal marketplaces without having your real identity tied to it (assuming you did things right to protect yourself). So you have your private wallet with all your bitcoins. You’re the only one with the key / password so nobody can access it. For now you’re in the clear. But in order to buy things from these sites, you need to first send money into the site (into a personal private wallet you have on the site, but that the site owners can also access), so that the site can automatically deduct from it the amount you spend on the site. At the same time, vendors have their own private wallet on the site where they receive the bitcoins paid by customers. Both parties can theoretically withdraw any bitcoins they want from their account at any time back to their private wallets (where they’re safe).

Lots of customers (most, really) don’t just send the exact amount they need to buy what they want and withdraw back what’s leftover. They have some extra money for the next time they want to buy. And lots of vendors leave a bunch of bitcoins there, only withdrawing when they feel like it. Some vendors lost tens of thousands of dollars when Silk Road went bust a few months ago, because they hadn’t withdrawn their bitcoins. So when I mean “taking everyone’s money”, I mean taking the money of customers and vendors that still had money in their wallets in the website (where the site owners can access it and send it to other wallets not accessible to their rightful owners). Basically, it’s like you sharing a bank account with Amazon, where you both can operate it, but the money is yours. And at some point, they wire all your money to one of Amazon’s accounts. The safest thing to do in this scenario, is to never have any more money than absolutely necessary in that website wallet.

Sadly, the latest market to join this trend is Sheep Marketplace. Ironically, a lot of people thought this market was a scam or an FBI honeypot from the start because of its name, while others thought that was too obvious a clue. As far as I know, it was the most popular market right now, and given current Bitcoin exchange rates, the admins stole over $40 million worth of it from customers and vendors. Clearly, there’s a lot of money in the space. Remember that Silk Road processed over $1 billion in sales over two years, and its profits were (at the current exchange rate) over $100 million.

A comment on HackerNews made me realize something. How can you trust black market site admins with your money? The author makes some good points:

  1. The admins have made a big effort to hide their real identities from the FBI and other law enforcement agencies. You’re clearly not going to find out who they are.
  2. You can’t even report them to the police because using these sites is illegal in the first place.
  3. Bitcoin doesn’t provide any safety measures to recover your money in case of fraud, unlike credit cards.

Basically, you’re left to trust the admin’s good will and honesty as the absolutely only thing to do. Based on what I read, Ross Ulbricht, Silk Road’s founder, seemed liked a true libertarian and a fighter for the cause. If he didn’t bail out (even just properly closing down the site without taking everyone’s money) after making tens of millions of dollars, he was probably sticking around for the long haul. And it seemed like a good idea when, after years of running a highly profitable and known illegal site, he seemed to be invisible to the authorities. But we all know how that turned out.

So I’m guessing people with the skills to run and grow these sites have come to realize one thing: they can create a great site and provide a good service, gain the trust of our users, and when the time (and the bounty) is right, they shut it down, steal everyone’s money and move to a private island to sip piña coladas. The alternative, most probably, is to end up being too profitable and well known for their own good, and being caught by the cops (nobody’s perfect and everyone makes mistakes). Definitely makes more sense to make a lot of money in a few months and disappear. Most law enforcement agencies probably won’t spend a lot of resources tracking down someone who closed shop and stole money from drug vendors and buyers.

The Story of How I Grew and Sold a Blog for $20,000

A thread on HackerNews prompted me to write a comment on my personal experience growing, living off, and eventually selling JuegosIndie.net, a blog in Spanish about casual/indie games. I’m not sure if you’ll get learn much from it (a lot of it was dumb luck) but hopefully you’ll find the story amusing.

The Beginning

In 2007 I had just joined Softonic as a web developer, after pretty much giving up on making a living making indie games (I’ll write about this another day). There I met Albert García, currently CTO at Verticomm. A few years back he had started Obolog (a free blogging platform in Spanish) as a side project and created NexoBlogs (a more commercial and professional network of blogs) as a byproduct. All the blogs in the network were basically run by some of Albert’s friends and relatives. Some were actually run by other colleagues of mine at the time at Softonic.

At some point I gave him the idea of creating a blog about indie/casual games since it was a niche I thought was powerful and underserved (specially in Spanish), and even gave him the name of a friend of mine as someone who could run it (he was already blogging for a more mainstream videogame blog and knew a lot about the scene). He proposed I write instead, something I hadn’t really considered. After some pondering I said ‘what the heck, why not?’ and started writing right away, before we even got a nicer design for it. After I wrote around 10-15 posts, he officially added it to the NexoBlogs network and uploaded the official design. I was so proud of being part of it.

I have to say that I never started it with the goal of making money off it. Mostly, because some of the other blogs had been running for a couple of years now, and if I remember correctly none of them were making even $100 a month (from AdWords) by then. I saw it purely as doing something fun and being part of something bigger than myself.

I started writing about some games that I loved and it was fun for a while. But at some point I realized I kind of had run out of games that I played and loved or that were so well known they deserved their own posts (even if I wasn’t a big fan of them). I had reached the crossroads that every blogger gets to (most sooner rather than later): should I keep writing even if it’s not fun or it doesn’t come easy anymore? Most bloggers get to this point by week two. At least I had lasted a few months!

A Change In The Fun

Luckily, I realized something. 90% of the traffic to the blog (which was rising nicely but was still way behind other blogs in the network) was coming from a handful of posts in related topics. Hidden Object & Time Management games, which are definitely not my favorites, were driving most of the traffic. So then I started writing not for the fun of it but to see if I could increase the traffic to the site. It became a competition, against myself and the rest of the blogs in the network.

By studying popular keywords in my niche (Google Keyword Research Tool was helpful), what games were driving the most traffic and also what games were topping the charts at popular game portals, I managed to increase traffic to the blog a log, and eventually be among the top 2-3 in the network.

Money Enters The Picture

As I said before, making more than beer money was never in my mind. By now I was probably still making less than $100 a month. But then something happened that made me realize there could actually be money here. One of the other blogs in the network got lucky with a very, very popular (but unfortunately, very seasonal too) keyword and got insane traffic and AdWords revenue. In a few short months the guy who ran it got over $1,000 and used it to pay for a great holiday. That was eye opening.

I started looking for ways to make more money. Other than obviously keep working furiously to add more content and drive organic traffic, I realized affiliate programs could be another source of income.

They way these programs work is, you sign up, send them traffic (via links on your site) appending your affiliate code to the URL (say http://www.gameportal.com/?affiliate=juegosindie) and then if anyone you send their way buys a game, you get a cut.

I started using Reflexive’s affiliate program because it offered a 40% share as opposed to Big Fish Games‘, which was only 25% at the time (now it¡s 70%, although game prices have gone down). I went and changed all the links in my posts so far (over 100) to lead to Reflexive with my affiliate code instead of the developer’s site. I quickly started seeing the metrics. There were a good number of downloads, but few sales. Turns out, Reflexive charged you for bandwidth for the downloads you caused, so a lot of the revenue I should be making was being offset by the low conversion rates of my visitors, eating my profits. Some months I even remember having negative profits! I needed a new plan.

That’s when I looked at Big Fish Games’ program. They didn’t charge me for traffic so even if my commission was gonna be lower, I’d still come ahead. So I signed up and changed again all my posts’ links over to the new master. That was tedious.

Immediately I saw I big improvement. Month after month. Turns out BFG had other advantages over Reflexive that I had overlooked, and it was a big one. First, they converted better. That means I had a higher percentage of people buying the games they downloaded. Maybe that had to do with Big Fish’s design, their purchase process or the fact that they ran sales on certain games. But whatever they were doing, it worked. No wonder they became they #1 Casual / Downloadable game shop in a short few years. Also, while Reflexive only gave you commissions for the sales produced from the downloads originated from your immediate referral, Big Fish store an affiliate cookie on the user’s computer and gave you credit for all their purchases for a whole year (!!). This seems very simple but it’s huge. It means that someone could find my blog on Google, follow a link to Big Fish, and then if they bought, say, 10 games over the next year, I got my 25% share even if they didn’t come back to my blog. Unless of course they affiliate cookie was overridden by another of their affiliates. But still, it was easy extra money.

Soon, affiliate commissions were in the hundreds a month and doubling and tripling AdWords revenue. I absolutely loved it.

Around this point, the worldwide advertising crisis started affecting AdWords’ pay-per-click rates and even though traffic and affiliate revenue kept going up, AdWords revenue went down. That sucked.

Getting Cocky

At this point maybe I was writing three times a week. Which became twice. Then once. Then I didn’t write for almost a year. It didn’t matter, traffic and revenue kept increasing and I was confident it was going to continue this way. At some point, though, Google caught up with it and realized we didn’t have “fresh” content anymore, and we started going down on the search results, affecting traffic.

I started panicking, and since I was used by now to the easy life and didn’t want to write anymore, I hired someone from South America on oDesk to write 5 times a week at a rate of 5€ per post. I started paying attention to keywords, telling him what to write about, etc.

It took a few months but traffic started recovering, although it never got to the peak it once had. Instead of the usual 500,000 visits a month, it hovered around 350,000. Still, revenue was better than ever.

Quitting My Job

At one point I was making around €1,000 per month in profit off the blog. A friend and I had just launched another website that hoped would turned into a big business in a year or two, so I decided to quit my job and work full time on that project. Unfortunately, €1,000 wouldn’t gonna cover the standard of living I had in Barcelona, so I decided to move to South East Asia where life is good and cheap.

For a year, life was good and thought the cash cow that was JuegosIndie was never going to end.

Revenue Crash

Then at the beginning of 2011 something scary happened. Affiliate program revenue dropped 50% from one month to the next, and it didn’t seem like it was coming back. Traffic was normal. What had happened? A year before this, Big Fish revamped his Affiliate Program,  giving ALL active affiliate cookies a life of 1 year from that point on. That was good, because it meant that for cookies that were gonna die, say in 6 months, now I had an extra 6 months of commissions (assuming I didn’t redirect them to the site again).

So basically what had happened is that in one month, all the cookies that should’ve died along the last year (and stopped making me money), all died at once. I made more money this way, but it was also sudden and unexpected, and I didn’t know what to do. Remember I was living off that money, and 50% of it wasn’t going to pay my bills (I was already being as frugal as possible).

So I did the only thing that made sense.

The Sale

Usually, I wouldn’t have been able to just sell the blog to someone else that’d take it off NexoBlogs, but fortunately, a couple of months before, Albert told us all that he was very busy running his new company and didn’t have the time to do all the management that he usually did (for which he took a cut of each blog’s revenue), so he was letting everyone do as they wanted: move it over to WordPress, keep it as it was, sell it, whatever. So I decided to sell it.

After asking some people I knew that might be interested in buying the site (all of whom declined), I turned to Flippa. Flippa is a marketplace where people buy and sell websites. A lot of them are shit, but others are legitimate businesses that sell for real money. You can state a “buy now” price, but it works similarly to eBay. People can place bids and there’s a deadline, at which point the highest bid wins (assuming you didn’t specify a minimum price, for which you pay extra).

After realizing that the last year the site made around $20,000 and that, while now revenue was substantially lower, a motivated buyer could turn it around, I decided to state a Buy Now price of $20,000.  You can check the Flippa listing here. As you can see, I was very thorough. I don’t think there’s any other way to do a Flippa auction. Tell the full story and add all the metrics.

During the first 2-3 days, some comments were posted requiring verified Google Analytics reports (didn’t even know you could do that, so I went and added that). Then they asked for Escrow payment, and added that too. Then a bid arrived. $5,000! I couldn’t believe someone was willing to give me $5,000 for a business I created. 12 hours later, the same dude upped the bid to $12,000. That was the most money I had seen together in my life.

The guy asked me privately how much I wanted to close the auction right now. Since it had just started I said I wanted $20K or wait it out to see what happened. A few days later he offered $15,000 to close it immediately. I said there were other people interested and wanted to see if I could get the full $20K. I was lying, he was the only one interested. A few days later he offered to pay the full $20k. Yay! Success!

The next two weeks were a combination of exporting data, sending HTML templates, passwords for a bunch of services, etc. All in all quite painless. When I saw the money in my account I couldn’t believe it.

This was the end of a very fun 4 year journey that netted me around $40K working in my spare time (I’d say less than half an hour a day on average).

As you can see, a lot of what happened wasn’t because of some master marketing plan or my genius. I’d like to think I did some things right, but I also lucked out and found a good niche by accident. Still, if you have any questions feel free to ask in the comments.