Tuesday, October 31, 2006

The Domain Name Business, Part 2

I must admit, every day I kick myself for missing out on this. I knew domain names were important, but I was just a youngling when this was the rage, what did I really know?

Despite my frustration, my curiosity has been peeked. Where did the figures John provided come from (see my previous post)? If you had the forsight, just how good could you really be doing? Is there anything left? What can be learned from the examples of this business?

My investigation led me to an article authored by Paul Sloan. Featured on CNN, it's entitled Masters of their Domains, published in late 2005. It has many of the same statements John provided. I'm inclined to believe this is where he obtained most of his facts (though I didn't see any citation - tisk tisk).

Before I go further, I provide one quote to shock you:

"I don't like to work," Schwartz says, almost yelling as if to convince everyone within earshot that they're fools if they do. "I figure any moron in the world can generate work for themselves and tie up their time. I have one laptop, no employees, and no product whatsoever--none! This is magic." Magic, he claims, that's earning him $2 million a year.


Schwartz is a domainer, and as you can see, he's made a fortune in the business. Initially I had trouble believing these sorts of figures mentioned in John Chow's blog post, but this CNN piece seems to confirm it. Another confirmed figure comes from a Yahoo rep. "One Yahoo official estimates that type-ins could make up 15 percent of its search business." Well there you have it. John wasn't bullshitting.

John also brought up the case of Yun Ye, on which the CNN article provides much more information. Here it is in the CNN piece:

Domainers have their heroes, and one of the most mysterious is a man named Yun Ye, a Chinese citizen living in Vancouver, British Columbia. He is credited with boosting the entire market when he sold his portfolio of more than 100,000 domains to Marchex. His names were bringing in more than $20 million a year in revenues--and $19 million in profits--when Marchex paid the equivalent of 8.6 times annual earnings, based on figures provided in SEC documents.


Marchex did in fact shell out $164 million for his portfolio. Yikes.

Paul also covers the future of this business in his piece. From what I can gather, the future is consolidation. Large entities are taking notice. It's likened to the "billboard industry a decade ago, before Clear Channel and Viacom bought up the small operators."

For instance, take three men, Rabin, Bob Martin, and Marc Ostrofsky, who run the company Internet REIT. They are spending $250 million buying out domain owners. Rabin states, "We've only just begun the roll-up phase. This market will likely be in the billions."

Is there still room for small fish? I know I don't have $250 million. Perhaps. Right now .com addresses are prevailing, but who knows, maybe given enough time it saturates and things like .biz become more viable. The older generations grew up with nothing but .com, it's all they know, that's where the money is. But think of the younger generations, a little more aware of the dearth of top level domains. Perhaps one day a type-in of cellphone.biz will be just as likely as that of cellphone.com. Then again maybe not.

It almost feels like buying property just past the major suburbs of a metropolitan area. Chances are the city will grow and cause growth to spill over into those unsettle areas. However, disasters do happen, so how can you really be sure?

Another option is to snag expiring domains. These domains have a history on the web. Some have been heavily indexed by search engines. As a result, they are more likely to draw hits.

The only conclusion I can draw at this point is that you have three options.
  1. Assemble capital and throw down thousands or millions of dollars of cash to buy proven names and reap the rewards.
  2. Speculate on something much more long term, like new top level domains such as .biz or .mobi.
  3. Snatch expiring domains using a clever method.

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