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This
page considers domain name portfolios, major collections
of domain names formed by domain name registrars or for
advertising.
It covers -
It supplements discussion of the domain name system, registrars
and online resource identification.
introduction
In discussing internet
searching we noted many users do not rely on a search
engine, directory, links found in email and other sites
or a an offline pointer such as citation of an URL in
a newspaper advertisement or the side of a bus.
They instead intuit a domain name in seeking to find specific
sites, sometimes going astray because their intuition
was unlucky or because they mis-typed a particular word.
Others rely on 'keywords' (the name of products or services),
assuming that the relevant keyword will appear in or form
a domain name, for example -
-
photography.com
- flowers.com.au
- bostonmotels.com
- burrito.com
- chicagoluxuryhotels.com
- japaneserestaurant.com
- neworleansrestaurant.com
- newyorkbagels.com
- lasvegasvacations.com.
Many
will mis-type the chosen keyword or use a variant, such
as flower.com, fower.com, flowwers.com, flowes.com.
Low domain registration costs - particular for major domain
registrars - mean that it is possible for those registrars
and specialists to register very large numbers of domain
names and then create a basic site for each name, with
the expectation that people will encounter those sites
by choice or accident. That activity has two rationales.
The first is the registrant (ie the entity that 'owns'
the domain name) can get some sense of traffic to the
site, including -
- the
number of hits on the site (how many times it has been
visited)
- more
uncertain measures such as the demographics of visits
to the site (for example dissecting traffic by type
of browser, broad geographic
location of visitor)
That
information enables determination of which sites - and
therefore names - are more valuable than others. That
value provides a basis for pricing
domain names in the 'DNS aftermarket', including domain
name auctions.
The second rationale is to exploit the so-called attention
economy, with the registrant placing advertising on the
particular site or automatically forwarding visitors to
another site that features advertising. That advertising
may or may not relate to a visitor's presumed search,
for example flowes.com may display an ad from a vendor
of nonprescription pharmaceuticals rather than an offer
to sell gerberas, callas, roses and delphiniums.
The expectation is that over time substantial numbers
of people will encounter a 'keyword' or other site within
a portfolio of sites. That portfolio allows the registrant
to garner a large number of eyeballs.
It enables portfolio owners to claim, for example, that
the thousands or hundreds of thousands of visitors to
a collection of domain names are equivalent to the
same number of people encountering advertising
-
in offline venues (eg newspapers, magazines and television
broadcasts) or
- in
online venues with a higher profile (eg gateway sites
such as MSN and Google).
the market
Portfolio building is not new, first appearing in the
mid-1990s as the dot-com bubble
expanded and speculators assumed that easy money could
be made by large-scale registration of 'attractive'
domain names. Those names would be sold individually or
en bloc to other portfolio builders.
It coexisted with moves by some entities to snaffle 'their'
names (and major variants) in the major gTLDs and ccTLDs.
About.com for example supposedly spent US$500,000 in 2000
acquiring over 4,000 domain names as part of what one
commentator breathlessly described as "a stealth
effort to control the About.com domain and all possible
combinations".
Speculative registration was inhibited by the US Anti-Cybersquatting
Consumer Protection Act (ACPA),
by effective domain registration rules in leading ccTLDs
(eg restrictions developed by auDA)
and by realisation that - contrary to some of the wilder
claims about the information superhighway as a machine
for printing money - monetisation of individual domain
names can be difficult.
That resulted in many speculators relinquishing individual
names and in substantial declines within the domain name
aftermarket, in particular lower
prices paid in domain name auctions, in claimed values
and in the number of domains being onsold.
An associated effect was the decline in the share price
of major domain registrars, some of which saw their market
value slump from billions of dollars to much lower sums.
Portfolio building reappeared on investors' radar around
2003 and gained popular attention as it became clear that
entities such as Google
and Yahoo were generating
substantial revenue through paid placement on their sites.
By 2006 advertising-based portfolio building was being
promoted as "an embodiment of Web
2.0", an echo of pre-crash hype about the global
infobahn.
VC partner Bob Davis for
example claimed that "a business like this can be
a multibillion-dollar franchise". One Australian
promoter more problematically announced that "even
if we don't get the clicks we can always offload the names
to mums and dads". Overseas, in an echo of 1990s
hype, registrar GoDaddy.com proclaimed "the domain
name is 21st century real estate". A competitor said
in 2006 that
Now,
a patient speculator can buy a name for $30,000 and,
a few years later, sell it for a windfall.
Media
coverage of portfolio building coincided with often uncritical
reporting of incidents such as the student who aimed to
make a million dollars by selling "individual pixels"
on his homepage to advertisers interested in those consumers
curious enough to visit that site after encountering an
item in a blog or the popular press. Skeptics noted that
the half-life of such media phenomena is short and that
the opportunities for emulation are thin.
Proponents of the "direct navigation" industry
suggested that businesses could make money in two ways.
Domain registrars would register and then host a large
number of names (something which many were already doing),
gaining substantial revenue from advertising to supplement
money made as intermediaries between consumers and registries.
Traffic data would allow them to 'taste' the best domains,
determining which names were most likely to be visited
(eg the most common mis-spellings of popular products/services)
and reserve those names for their own portfolios.
Specialists would, in contrast, build discrete portfolios
with an expectation that
- the
builder would be acquired by a competitor
-
media buyers would jump at the chance to gain exposure
on several hundred thousand sites at once (rather than
having to negotiate site by site) or receive traffic
intended for those sites. NameMedia claims to attract
over 25 million consumers each month
- 'prime'
names could be used for intensive marketing, even new
services, with traffic being driven to those sites from
other parts of the portfolio (a model initiated by the
Adult Content sector).
That was reflected in high profile merger & acquisition
activity, highlighted below.
In 2005 for example online marketer Marchex reportedly
paid US$164 million for Name Development Ltd, which offered
keyword advertising across more than 100,000 domains.
The deal followed US$155 million paid by SAVVIS for Cable
& Wireless America (including some 350,000 names)
and US$176 million by Freenet for German hosting
operator Tect (including 2.2 million names). US-based
NameMedia acquired 650,000 names for its own portfolio,
with 'rights' to a further 350,000 names registered by
other entities. Internet REIT claimed 400,000 names as
of 2006, after acquiring 50 portfolios in the preceding
15 months.
Internet Business Group paid £1.1m for three domain
names - inc cheapholidaydeals.co.uk and cheapaccommodation.com
- in 1006. Its chief executive commented "I agree
that in their own right, domain names are worthless"
but announced "this is a strategic acquisition".
Sceptics might be forgiven for asking whether the names
were that much more valuable that sportingequipment.com
(sold for US$7,547), cosmeticians.com (US$2,050) and rubbergloves.com
(US$19,804) in 2006.
portfolio specialists
Intelligent rulemaking in Australia means that local portfolio
specialists have not achieved the scale and public profile
of some of those overseas companies, which emphasise aggregation
of large number of domains (particularly in the dot-com
space) but promote themselves as having different business
models.
Demand Media, for example, accounts for some 200,000 domain
names and results from three acquisitions. One executive
proclaimed that
We're
really a media company. We're not going to build out
all of the domains, but we'll use tools and technologies
to create a better consumer experience on all our domains.
Cynics,
fairly or otherwise, might question the uniqueness of
that "better consumer experience".
Competitor NameMedia (formerly YesDirect and BuyDomains.com)
similarly said that
The
analogy we use is real estate. Our objective is to build
the largest portfolio of undeveloped real estate on
the Internet. Some of the sites we have will be held
for resale. The best ones, the waterfront properties,
we'll build businesses around. It's a content-light,
user-friendly way for people to find what they want.
Marchex explains that
our direct navigation business is focused on building
and monetizing a large network of vertical and local
Web sites that are used by tens of millions of unique
visitors each month. ... Marchex offers advertisers
the ability to place paid search listings, graphical
ad units, product feeds and branded content on its Direct
Navigation Web sites, which can be targeted by category,
subcategory, keyword, or domain.
Internet
REIT (iREIT)
- "veteran domainers, seasoned entrepreneurs and
other industry experts" "leading the industry's
transition from domain properties to media properties"
- commented that
iREIT is in the business of acquiring "virtual
real estate" - portfolios of Internet domain names.
Our primary interest in purchasing domain names that
generate natural traffic and current revenue (through
parking, affiliate programs, PPC, CPM, or a combination
of internet advertising sources). We are very selective
about purchasing speculative domains (those requiring
development to justify their price).
issues
The 'direct search' and domain name profile industry poses
a number of issues, including -
- viability
- innovation
- typosquatting
- demographics
- values
- cost
effectiveness
As
with the dot-com bubble, a number of portfolios (and portfolio
builders) appear to have been established on the basis
that they will be acquired before it becomes clear that
the developer will never recover the costs or will run
out of money to exploit those names.
More broadly, there is uncertainty about the business
models used by some portfolio czars.
In 2004 Marchex quoted estimates that the size of the
global search market was approximately US$4.5 billion,
forecast to grow to $13.1 billion by 2008, with a claim
that 'direct navigation' ("defined as typing a URL
into a browser address bar or using a bookmark")
"may represent 10% or more of this market".
In 2006 RBC Capital estimated that direct navigation in
the US would generate US$650 million in sales, "about
7.5 percent of all search revenue". Much of that
figure was, however, attributed to revenue sharing with
search engines such as Google for paid placement.
It is unclear whether consumers will continue to rely
on direct navigation and thereby power growth of the industry.
Several of the studies cited in our discussion of search
engines, directories and search behaviour strongly indicate
that web savvy (or merely experienced) users avoid direct
navigation.
Proponents of direct navigation argue that online 'real
estate' can be converted into "media properties".
That argument is deeply problematical, given past difficulties
faced by site owners who have sought to attract recurrent
visits on the basis of a site's content. Becoming a 'media
property' requires more than a name (or harvesting of
traffic from other sites). That is presumably why some
portfolio builders are seeking alliances with media organisations,
alliances that are likely to benefit those organisations
more than the builders.
The industry has proclaimed that it is experienced, innovative
and professional. Claims of innovation are dubious, given
that traffic harvesting appears to have been pioneered
by the adult content sector. Portfolio builders are not
alone in trying to add content/services (and thus a reason
for a second visit) to domains that essentially consist
only of a name. The vicissitudes of sites that have sought
to become major B2C or B2B portals might lead to caution
about hype from particular businesses, particularly when
that hype centres on buzzwords such as Web
2.0.
landmarks
1999 NameMedia formed in Washington
2000 Oversee.net founded in San Francisco
2003 Marchex founded in Seattle
2003 acquires Enhance Interactive (formerly ah-ha.com)
2003 Marchex acquires SiteWise Marketing (TrafficLeader)
2004 Marchex acquires Name Development Ltd for US$164.2m
2004 Marchex acquires goClick.com for US$12.5m
2004 Marchex IPO
2005 Marchex acquires IndustryBrains (industrybrains.com)
for US$30.6m
2005 Marchex acquires Pike Street Industries for US$16.5m
2005 NameMedia acquired by venture capital firms Highland
Capital Partners and Summit Partners
2006 Marchex acquires Open List Inc (openlist.com) for
US$13m
2006 Internet REIT buys Netster.com
2006 Demand Media buys domain registrar eNom
2006 Marchex acquires AreaConnect LLC for US$16m
2006 Internet Business Group hypes £1.1m acquisition
of 'cheap' names
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