Part 1 – Domain Name Landscape

Introduction

There is a lot of land in the world. Virtually all of it is owned, be it by an individual, a corporation, or a government; a fair amount is developed, and the value of the land ranges dramatically based on its location. Some owners of the land are simply holding on to it, waiting for it to appreciate. Others build, and what they build ranges in size and scope from the mini-storages to entire communities. There is so much land at so many varying states of development. There are no cute, easily digestible statistics on land usage, nor is there a transparent view into what land is available and which of that land is likely to be most valuable over time. Ask most people, and it will feel like all of the good pieces have been taken.

The Internet equivalent to land is domain names, and there are a lot of them too; 47 million dot-com names alone have already been registered. Dennis Forbes, perhaps the only “domainologist” shared with the Wall Street Journal some interesting findings. For example, the 1000 most common English words have been registered. The same applies for the 1,219 most-common male names, the 2,841 most-common female names and the 10,000 most-common surnames. I guess that is to be expected with so many already registered. All of which means that similar to traditional real estate, finding available, valuable Internet real estate is not easy. The challenge is illustrated in the names being chosen for many companies today – Flickr, Revver, Socializr, Yelp, Noodly, Zoozio, Trumba, Squishr, Chatsum, Meebo, the list goes on. These newer companies have chosen atypical names in hopes of becoming at the very least memorable.

If individuals will often register names in hopes of resale, we can expect a company to have applied technology and a greater pool of assets to systematize the resale business. This is exactly what BuyDomains.com, now NameMedia has done. They own hundreds of thousands of names and grew their impressive business off of being a mini-marketplace where those interested can purchase one of their domains. With the growth in online advertising, in particular paid search, another model began to emerge that also involves the ownership of domains in scale. This business looks to earn advertising revenue off the traffic the collective domains receive, independent of the domain names likelihood for resale.

Shifting Model

Domainers is the term generally used to describe those who purchase domains in scale in order to make money off the traffic those names receive. Those who purchase thousands if not hundreds of thousands of names cannot feasibly develop each and every name into a site. As a result, companies have emerged to help those who specialize in finding available domains make money off them. These domain parking companies rely heavily on distribution arrangements with the major paid search engines. Much like Google’s relationship with AOL and Ask.com, these domain parking companies are treated as a syndication partner. Perform a search on AOL, the sponsored results come from Google. Land on a typical domain name, and you will often see search results, again powered by one of the major engines.

Domainers and domain parking companies come together to form an industry known now as Direct Navigation. A certain percentage of users, instead of typing in a search query into an engine, will type in the equivalent search into their browser and simply add a “.xyz” to it. This means that someone looking for chairs might end up trying Chairs.com. That page though has content, but it’s ad supported “parked domain” content, i.e. paid search listings. They could be random ads, but the goal of any who create parked domains is to continuously increase in relevancy what appears on the site. If those who park domains can increase relevancy, users who land on these pages will perform searches and earn the domain owner advertising revenue. More importantly, if pages can become more relevant, users will form a positive association between performing a browser search and parked pages. That is why at some level Direct Navigation is really about trying to disintermediate the search engine and have users comfortable performing the equivalent of a search + .com (or any other extension). It is turning existing user behavior and matching that intent with a merchant.

Acquiring Domains

Direct navigation relies on domains, and given that millions of domain names are currently registered, those that choose to become domainers face fewer avenues for becoming a domainer and greater hurdles. The choices today include purchasing an existing portfolio of names from a domainer or registering names that aren’t taken. The former method, buying ones way into the direct navigation space, is perhaps the easiest and it includes public company Marchex (owners of Industry Brains), and two “startups” – one backed by the Chairman of Starbucks along with Ross Perot’s investment fund, with the other entrant being lead by the former Intermix/MySpace President. In other words, this relatively obscure and often disparaged world of domain parking has drawn the interest of mature and sophisticated investors and business operators. Together, they have invested hundreds of millions of dollars in acquiring domain name portfolios. And, while the previous owner of the domain might have sold their portfolio, this behavior still falls into the direct navigation category because the names were valued primarily off their advertising revenue as opposed to some potential brand value. For example, these companies would not have spent $7 million for business.com.

The second option for acquiring domains might be considered the hard way. Companies who choose this route must look for names that a) are not taken and b) will earn their registration fee (about $7) back in advertising revenue via direct navigation with parked domains. If any reader has tried this method on your own, you will know that picking a profitable name is a crap shoot. Finding available names is possible; finding ones that will receive traffic is another story. That is why most casual domainers simply buy ones they think sound good in hopes that someone might offer to buy it for a few hundred dollars. The serious domainers, on the other hand, have to develop sophisticated intelligence for not only finding names but finding names with a high likelihood of receiving traffic. The process in many ways reminds me of email marketing. Anyone can send a message, but if you want to send millions of messages and get into the inbox you need both technology and relationships. Domain names are no different. (This article continues in Part 2.)