Is a blog a purely passive investment? I say no.
Before you burn me in effigy, let me be clear – I think a blog is a wonderful source of income.
- Unlike wages, it doesn’t trade time for dollars.
- If you do it right, a blog can multiply your return on investment
- And yes, in some sense, a blog does provide “passive” income.
But the phrase “passive income” has been adopted by everyone from Amazon FBA to real estate investors to bloggers to Bitcoin millionaires. And these are not equivalent business models.
If you’re serious about this blogging thing, I just want you to weigh your options. Don’t get caught up in the marketing-ese. Blogging generates semi-passive, not purely passive income.
Here are some examples which might illustrate the difference.
Fair warning: I like to dabble in the financial markets, so if you’re not into finances, then by all means, skip this post. I wrote it in 20 minutes; you won’t offend me. This post is really just a thought experiment on different forms of passive income.
Blogging Compared to Investing in the Stock Market
The purest form of passive income is arguably financial investing. If you stash $10,000 in the Vanguard 500 mutual fund and the index rises 10% in a year, you will earn money – by doing nothing. You’ve loaned money to others, and they’ve put your money to good use.
Investing in the stock market is a compounding investment. Over time, assuming perpetual growth, a small seed can sprout and multiply into a field. (Just ask anyone who bought Amazon shares in the 1997 IPO.)
That’s not how a blog works. Over time, if you abandon a blog, it will taper off to nothingness. Yes, a blog is the gift that keeps on giving. But your “investment,” aka, your content, will ramp up to peak performance and then ramp down to extinction – unless you put in more work.
Blogging Compared to Earning Wages
We all know that blogging doesn’t deliver returns for weeks, months, or even years. It takes time to build a website, grow an audience, and learn from your mistakes.
So we have to consider the pay-off period. In other words, the time we spend building an online business isn’t free. We’re paying opportunity costs by not working on something else.
So if I spend 500 hours a year working on a blogging side hustle, how much is that worth? If I make, say, $30 an hour, then that’s $15,000 in lost opportunity wages.
If you never recoup the entirety of that money, then everything up to that threshold is just delayed wages, no different than a squirrel socking away nuts for the winter. It’s not passive income; it’s just a belated paycheck.
So your blog has to make $15,000 before you can break even compared to other available employment. If you invested two years, or 1,000 hours into building your blog, now it has to make $30,000.
Don’t confuse hysteresis with ROI.
Of course, the big assumption here is that you could work somewhere else for an equivalent income, and for most of us building side hustles, that’s not true. There just aren’t a lot of side hustles you can do on your own time for 5-10 hours a week.
Blogging Compared to an AirBnB
Let’s say you hire a property manager to rent out your vacation home as an AirBnB. How does blogging compare to passive income from real estate?
As the owner of an AirBnB, you do no work. You hire that out. No effort is required on your end beyond setting up (at least not until the house ages).
Unlike equity investing, there’s no chance for compounding unless you invest in new property;* houses don’t make babies. However, ceteris paribus, you can safely assume that you can rent out your AirBnB over the asset’s lifetime, aka, the house.
Blogging doesn’t have the asset stability of real estate. The asset is not even the website; it’s only the traffic to the website and any direct customer communications, such as your email list. A website with 10,000 posts and 0 visitors is worth $0. So you’re partially dependent on search engines, a volatile 3rd party, for your asset value. The value of real estate – location, location, location – is much less volatile.
Secondly, unlike real estate, there’s no expectation of future scarcity in blogging. In fact, one can reasonably assume that competition will become more fierce and there will be a glut.
*The BIG exception to this are the sites that hit. it. big! If you can create the next CreditKarma or Money Under 30 or Making Sense of Cents, then the sheer size of the blog can generate its own momentum. It gains fiat power through market saturation.
So What’s the Anwer? Is a Blog Passive Income?
I would argue that a blog is a form of semi-passive income.
- Revenue doesn’t compound, but it does multiply.
- You don’t directly own the value of the asset, but you can reasonably trust in its security.
- The value of an abandoned website would decay to zero, but it’s not a 1-1 relationship with time invested. If you quit blogging, you can reasonably expect a long, slow decay*
*If – and this is the big if – if and only if you’ve crossed the minimum success threshold. If you’ve built a website with 30 articles and then call it quits, you’ll likely never make a dime. The website is just too small. But if you can get the flywheel moving, then even once you let go, the prodigious momentum of the flywheel will keep it moving forward. All you need to do is give it a little boost every once in a while 🙂
And once I’m there, I’ll let you know.