The State of the Industry January 2008: Our Panel of Domain Experts Analyze What Happened in 2007 and Share Their Forecasts for 2008

It's time again for our annual round up of domain industry experts to get their forecasts for the new year ahead as well as their thoughts on the key trends that impacted the domain business in 2007. We've brought back some of your favorites from past State of the Industry reports and also reached out to some new contributors to keep things fresh. In this report, you'll hear from leading company CEOs, major domain portfolio owners, conference organizers and representatives from the legal, finance and domain development sectors.

The industry is coming off it's fourth consecutive year of robust growth and that has attracted major capital investors who are attempting to roll up the domain space. In last year's article the consensus among our panel of experts was that consolidation would continue to be the key force in 2007, just as it was in 2006. As they

Will the domain industry continue to enjoy 
smooth sailing in 2008? We asked more than 
a dozen experts for their forecast and what they 
viewed as the most important trends from 2007. 

were in year's past, their forecasts again proved to be on the money. The most recent example of that was this month's announcement that Oversee.net had acquired Moniker.com. 

With that deal still fresh in the headlines, we felt Moniker CEO Monte Cahn (who signed a long term deal to stay on under Oversee) would be the perfect lead-off man for this year's round up. In addition to being one of the most popular registrars among domain pros, Moniker permanently changed the industry for the better by pioneering the live auction model that had produced so many high dollar domain sales.

Cahn kicked it off with his thoughts on another boom year for the domain business in 2007. "With a total base of more than 146 million domains, the rapid and continued growth and expansion of new domain registrations worldwide is proof that the industry as a whole is healthy," Cahn said. "Not only have .com domains continued to expand at a healthy rate, but other TLDs and extensions have also seen remarkable growth. Localization of the internet continues to increase. Not only have we seen a stronger interest in geo target domains, but country code domains – with Germany’s .de and China’s .cn leading the pack – continue to draw attention from both businesses looking for market share in those countries and individual domain investors who are expanding their portfolios. We see even further evidence of this with the increase in demand for Internationalized Domain Names (IDNs), which allow internet users with a non-ASCII alphabet to type domains in their native languages."  

"The organization, popularity, and growth of the live domain name auction has been a significant milestone in 2007," Cahn noted. "We are beginning to see some competition and “coopetiton” (competitors working together to advance the industry), with Sedo and our new sister company, SnapNames.com (also acquired by Oversee in 2007), bringing live domain name auction to domain-related trade shows.  The various iterations and concepts we are all bringing to market are healthy for the industry as a whole. In addition, other partners of ours such as Fabulous, NameMedia, RevenueDirect, and others have been both buyers and sellers at most of our events this past year which has demonstrated cooperation, and alignment never seen before. Indeed, we have come a long way from our first T.R.A.F.F.I.C. event in 2004, where there was a manual domain auction process. Now auctions have grown into multi-million dollar events, with online, proxy and telephone bidding."   

"The sheer number of events has also grown," Cahn added. "In 2007, Moniker alone hosted 10 live and online domain name auctions at both industry and “niche” events. T.R.A.F.F.I.C. NYC was the break-out event of the year netting more than $12 million during the live, four-hour event and subsequent online auction. The inaugural event was the first time an auction broke the $10 million mark. The publicity surrounding these events has lead to a greater understanding of the industry as a whole and an increase in the price of domains. We’ve seen this happen before our eyes at some of the niche auctions we’ve done. The secondary market for unique, marketable domains has risen greatly and we feel that everyone from corporate executives to brand managers on Madison Avenue are starting to understand the value of a domain name. "

"These trends influenced a great deal of growth at Moniker," Cahn said. "As a result of our auctions and our related Domain Asset Management suite of services, Moniker experienced growth in registrations of more than 50%, and saw a 109% increase in domain sales year-over-year. These were led by some of the industry’s top-grossing domain transactions of 2007. Porn.com (brokered by Moniker) topped this year’s chart when it sold for $9.5 million in May and we had other significant success allowing us to capture 4 of the top 5 domain name sales of 2007 according to DN Journal’s domain sales chart.

Looking ahead to 2008 Cahn said, "Moniker headed into 2008 with excellent momentum. Of course, it started when we announced that Moniker has joined forces with Oversee.net, a leading technology-driven online marketing solutions company and parent company of Snapnames. With our addition to the Oversee family, we can together leverage our capabilities, and those of SnapNames, to offer the industry’s most comprehensive live and silent auction services as well as the most complete suite of Domain Asset Management Products and Service available." 

"We will also continue to bring auctions to premiere and niche events throughout the world. This global expansion will provide new opportunities for us and domain investors around the world. Whether you participate as a buyer, seller, or observer, these events will benefit you and the industry. 2008 will also be more and more challenging for the domain industry from a legal perspective and with regard to security, trademarks, cybersquatting, customer confusion and monetization of traffic. Moniker will continue to work to pioneer the very best services domain owners need to help them growth and maximize the value of their domains," Cahn concluded.

Now let's turn to the CEO of another industry powerhouse, Sedo.com Co-Founder Tim Schumacher whose company also took part in 2007's continuing wave of consolidation. "Sedo was certainly very happy with how our business in a thriving environment, developed," Schumacher said. "Apart from our acquisition of GreatDomains.com, we didn't have any major events, but instead, we focused on quietly improving our products and processes and almost doubling our revenue and the revenue we pay to our clients - did you know, by the way, that in 2007, we at Sedo paid out over $100 million for domain sales and domain parking to our clients?" 

"2007 was also a big year for auctions," Schumacher noted. "We see more and more people pushing their names into auctions, when they get a bid through Sedo (and this also does make sense whenever someone owns a name for which there could be demand from more than one bidder). We also ran more and more monthly and topic/country-specific auctions, and of course also the dotMobi premium auctions. This was probably also Sedo's biggest bummer of the year. We really didn't anticipate that level of demand, but the auction received so much attention in the final moments that our auction servers crashed before the completion of the auctions, rendering our system incapable of processing many validly submitted bids, including proxy bids set by user’s using the feature to automatically bid up to a maximum amount, and sending out winner notifications in error. It was a tough moment for me personally as well, because no matter on which decision we took, we knew we wouldn't make everyone happy, and all we could do is apologize. We do hope though that with dotMobi's decision to re-run the auction starting January 23 (which we also believe is the most fair option to everyone), people will be understanding and give the auction another shot." 

"Looking at the entire industry, I believe 2007 definitely was a good year for the industry again, though things are definitely not as easy any more as two years ago and competition is further heating up," Schumacher observed. "With competition increasing, consolidation is, too. We have seen major players (e.g. Ireit) going through restructurings and others being actively shaping consolidation (e.g. NameMedia or Oversee)."

And how about 2008? "Just as for 2007, I see that we move even further down the road in our "domain evolution theory", meaning less expiring market, more domain sales and portfolio sales," Schumacher said. "I also think the Registrars are starting to wake up and they will play a more important role, either by partnering (smart!) or by doing things on their own (smart only if you're among the top 3 in the world!)." 

"Also, I do think domaining will move more mainstream, with advertisers seeing the value of domains (especially the improved long-term ROI vs. paying every month in a PPC model). That's what will increase our market in the long run... not if there's only a market for domains between domainers themselves. In regards to that, I'd also like to congratulate NameMedia for filing for their IPO! NameMedia has done a great job in the past years and we at Sedo applaud their IPO efforts and drive to bring greater attention and awareness to the domain name industry outside the original domain market. It's good to see that with companies like NameMedia generating interest and excitement on Wall Street, individuals and investors alike are realizing that domain names are not simply a cost of doing business online or a novelty, but rather a valuable asset that can be bought, sold and utilized strategically for any number of activities<" Schumacher said.

We are glad Tim mentioned NameMedia. We certainly would have had representatives from the company in this article, but because they have filed their IPO they are now in an SEC-mandated quiet period that prevents them from commenting publicly. We wish them the best with their offering and look forward to having them back in next year's State of the Industry report.

Through their AfternicDLS, NameMedia made a big push in getting aftermarket domains exposed in new venues in 2007. That has also been the focus of Fabulous.com's new Domain Distribution Network. Fabulous COO Dan Warner has long been one of our go-to guys when we are looking for in-depth industry analysis. He can speak with authority to every aspect of the industry but for this article we focused on the domain aftermarket where, through the DDN, Fabulous is making their newest initiative.

"New retail sales channels via the registrars and auctions dominated growth of domain sales in 2007," Warner noted. "Registrars were finally enabled to actively trade aftermarket domains at fixed prices with instant settlement and high quality control. Most of the major registrars were able to benefit from the robust rollout of new contextual technology, quality controls, and registrar API’s to flex their muscles in a largely new and untapped market for them. As an added benefit, new registrations increased for registrars when aftermarket domains were listed in-line with the new registration path."

"Domain banners (on partner registrar sites) which advertised aftermarket domains provided a new traffic stream to registrars. This new traffic sold a massive flow of new registrations, aftermarket domains, hosting services, and other registrar products making domain banner traffic a proven and important new source of income for domain owners and registrars alike. A source of revenue that is now difficult to discard," Warner said.

A key reason that the aftermarket continues to scale news heights is the availability of domain financing, an area that was pioneered by DomainCapital.com. Their Presdent, Robert Alfano, told us "Domain Capital is in the unique position of not owning any Premium domain names, but adding a service to an ever growing industry. From where we stand, we are seeing numerous inquiries a day for our financing services and with the additional Trade Shows, which adds more Live Auctions we are seeing more financing opportunities from that avenue as well."

"The sky seems to be the limit and we don't see the sales in the secondary market slowing down," Alfano said. "Even with consolidation taking place the Auctions allow a well organized and professional forum for Domains to trade. I would say the most significant event of 2007 is the increase of live and online auctions that are taking place and that are ALL highly successful." 

Looking ahead to 2008 Alfano said, "As Domain Capital enters our 3rd year being in business we see consolidation as the possible theme of 2008. When you have an Oversee.net buy a Moniker in the first week of the new year you can only expect more acquisitions and mergers. And as we have stated before, we are looking to continue our growth and support within an industry that continues to grow at the speed of light."

Of course PPC and domain development are the other two legs of the domain monetization stool and we are going to look at both of those. Let's start with development since that has become something of a buzzword over the past year and is becoming the focus point for more and more owners of  top quality domains. Developing a successful website is hard work but the payoff can be a hundred times greater than the returns from PPC or aftermarket sales.

 Michael Mann who built the BuyDomains.com empire before selling it to NameMedia is now going full bore in domain development through his new firm, WashingtonVC. Mann (the only person to have been featured in DN Journal Cover Stories twice) told us, "The idea of latent domains whose fortunes were once being guided 
exclusively by the lame monopolistic PPC market instead incrementally transforming into great businesses or performing web properties is big. I think WashingtonVC has fared great in 2007 utilizing a simple strategy of controlling and building exceptional Internet companies 
leveraging the world's best domains, technologies and business leaders."

With respect to what's coming in 2008 Mann predicted, "More disruption of the PPC and advertising market. More wealthy domain leaders stepping out from years of shadows and becoming business and community leaders and role models; including building and managing technology and marketing teams and non-domain web assets; and leading more on and offline social and nonprofit activities."

Andrew Miller and Mike "Zappy" Zapolin of the Internet Real Estate Group (who were featured in our September 2005 Cover Story) are equally big proponents of development. Zapolin and Miller consider the most significant event of 2007 the filings by Domain name based companies and brands, to go public. "InternetBrands, Creditcards.com, NameMedia to name a few, have opened up their financials for investors to see and they are very impressive," Miller said. "With tens of millions of dollars of EBIT each, Wall Street is beginning to realize the power of the modern day Internet/Domain Brand." Andrew and Zappy are also very excited about the strong multiples being paid for private acquisitions of high quality Internet businesses, Business.com sold for $350 Million, approximately 23 times EBIT, and Dictionary.com sold for $100 Million, more than 23 times EBIT. "This further reinforces the fact that a great domain brand coupled with a great business has an exponential value," they said. 

The Internet Real Estate guys are encouraged that owners of the very best generic domain names are interested in partnering with a development partner like Internet Real Estate Group and retaining equity, rather than just selling the domain for a big windfall. "They are realizing the upside and are placing bets on this. Two examples of this where Internet Real Estate Group has formed joint ventures with the owners of domains are DutyFree.com and SEM.com, which IREG is developing into standalone brands and businesses," Miller noted.  

"There are so many Internet sole proprietorships or small businesses that are doing great Revenue but desperately need a generic domain name brand, credibility, and a strong management team. By being the generic domain name in some of the strongest categories, we are seeing the crème de la crème of these businesses before the PE firms or VC’s and are in a position to acquire, merger, or Joint Venture with them to accelerate development," they noted.  

"2007 was another exciting year for IREG. We brought in Rob Monster as our third partner, and with that, brought years of brand and operational experience into IREG. We rapidly developed Luggage.com and exited the business in 2007 and acquired and began full scale businesses on Patents.com, Chocolate.com, Software.com, Phone.com, Jeans.com and Podcast.com. Patents.com is a strong example of the power of the generic domain name, as we took a  domain name from date of acquisition, acquired one of the strongest small businesses in the space and with it a terrific management team, and closed a Series A term sheet with a major VC, all in less than 6 months timeframe. This is a model we expect to duplicate many times in 2008 and beyond," Miller and Zapolin added.

Miller and Zapolin see the momentum from the second half of 2007 continuing in 2008, with some of the leaders going public and a “watershed moment” occurring when Art.com files for its public offering, at which point Wall Street and Investors realizes that the business that started from a domain name and a couple of acquisitions is doing hundreds of millions of dollars in revenues and EBIDTA. "We also expect to see continuing investments from new kinds of investors, who are already jumping into the domain space, given the weakness in the physical Real Estate market, the risk of the stock market, and the weak dollar. There will be continued validation that domain investing is extremely risk averse and continues to have massive upside for speculators and business builders. The hazards we see are people or companies delving into lower quality domains, whether that be secondary TLD’s to dotcom or non intuitive names that are not strong brands, and continuing to rely solely on pay per click sites that ultimately provide no end value to the user," the dynamic duo concluded.

Any discussion of development also benefits mightily when Michael Castello and David Castello of Castello Cities Internet Network are included. The owners of PalmSprings.com, Nashville.com, Cost.com and many other great generics were the subject of one of our most popular cover stories ever in December 2006 (by the way here is a little bonus for Castello Brothers fans that you haven't seen before - a classic video from their rock & roll days (Michael is on vocals and David is the drummer). I challenge you to watch this video and not come away scratching your head as to why these guys didn't become one of the biggest rock bands of the 80's. Oh well, the music world's loss was the domain world's gain). 

Looking back at last year Michael had no doubt about the top story, "The trend toward the development of good quality domain names into viable sites," he said. "It is one thing to have thousands of domains that generate PPC but to build a single site into a money maker takes domainers from being search engine tools and elevates them into entrepreneurs with power generated directly from the user/visitor. No one can break that bond. The power is going from big corporate back to the people. The internet has  facilitated this revolution like never before,' Michael said. "CCIN has advanced in development and co-development this year by forging relationships on several fronts including Cost.com and WorldGolf.com. Those that “get it” are realizing that the power to build these global powerhouses can come right from the nest of creativity within our own ranks."

David added "Domain name development will continue to be the most important trend for domainers. In the past, Parking was considered the end game for most domain names. Now, it is being seen as a temporary first step to monetizing a name before it is developed. 2007 was a great year for the Castello Brothers and CCIN. In addition to expanding our city sites such as Nashville.com and PalmSprings.com, we focused on developing our non-Geodomains such as Whisky.com and Kennel.com. We also solidified our first outside development deals with Cost.com and TRAFFICZ, and our Golf Geodomain portfolio with WorldGolf.com to create the world's largest Golf Geodomain Network."

Looking ahead David said, "In 2008, the Enlightenment of Madison Avenue and Corporate America will begin as they start to acknowledge the massive synergistic marketing advantages of adding easy-to-remember, generic domain names to their advertising portfolios and marketing campaigns.  Domain name values will rise as they enter the market.  However, this will be no love affair - Corporate America will only buy what they can't take."

"Typosquatters will find themselves squarely in the crosshairs of litigation as more of Corporate America awakens to the revenue they've lost and targets anything they can through present and future typosquatting laws.  Because of this, there will be a shake-up in the hierarchy of many of those who are now considered the major domain players. When the dust settles, the pinnacle will belong to those who successfully developed their names into independent entities." 

"The importance of the Internalization of Traffic will become obvious because of domain development. With Parked names, the transference of traffic away from the site was an inherent characteristic of monetizing via PPC. With a developed name, keeping viewers on the site will become paramount and the idea of a site simply being a monetization conduit to send visitors somewhere else will be seen as ridiculous as a newspaper, radio or television station sending their readers, viewers and listeners away to a competitor," David concluded.

Michael said, "The hazard will come as the “powers that be” will push back in ways that would make any democracy cringe. That is the way the game is played in capitalism and we need to work together to allow the positive properties of the internet to naturally unfold. We need to be smart in how we position ourselves. We must protect from being labeled as cyber-squatters which is being perpetuated in large part by those trying to make a buck  profiting off of legitimate trademarks such as typo-squattering. This type of practice will paint a broad brush of demonization to a public that is  struggling to understand what we do. This is the time for the visual  brands in our industry to present ourselves in a positive ways in order to calm the fear that is out there. Many of the publications like DNJournal.com and other blogs are making good, concise information available. The public, because they have the internet at their fingertips,  will have the ability to see clearly the growth and direction of our  industry."

Before we move on to the topic of PPC, the legal challenges that the Michael and David bring up make this an appropriate point to bring in an expert attorney, Phil Corwin, who also serves as the Washington, D.C. lobbyist and Legal Counsel for the Internet Commerce Association. Corwin pointed to five developments that had a big impact on the domain business in 2007:

• The RegisterFly fiasco and ICANN's reaction, in which after an initial state of denial and fumbling it began to take the concerns of individual registrants more seriously. While ICANN has taken positive follow-up steps - such as improving communications and mandating secure data escrow for all registrars - it remains to be seen whether a truly improved Registrar Accreditation Agreement (RAA) will be uniformly implemented and enforced to provide registrants with the protection and rights they require.
  
  
• The launch of CADNA and the significant possibility that major corporate interests may seek to push domainers aside in the online search and advertising business through a coordinated campaign of negative publicity and trademark law changes in the US and internationally.
  
  
• The continued growth of and support for the ICA and the growing recognition within the domainer community that an organized and ongoing public policy voice is vital to protecting its long-term interests.
  
  
• The initiation of cybersquatting lawsuits by various major corporations that seek to use anti-counterfeiting statutes against alleged cybersquatters. If accepted by the courts, this tactic could dramatically increase (by a factor of 10) the potential fines faced by domain registrants and expose them to various legal strongram tactics (without the inconvenience of getting Congress to amend trademark law) -- increasing the potential for reverse name hijacking.
  
  
• The implementation by ICANN of a national law exception policy that will permit accredited registrars to have national privacy protection laws preempt their WHOIS obligations. While this particular exception benefits registrants, it may mark the beginning of the unraveling of RAA uniformity, a development that could hurt registrants in other ways and that could also encourage the establishment of offshore "privacy havens" that become legal shelters for cybersquatters. 

We also asked Corwin what he saw coming around the bend in 2008 and he provided these bullet points:

• Advertsing flows online increase dramatically -- increasing the clout of the domain industry but also its vulnerability to attack by interests seeking to usurp it in the battle for online search and advertising dominance.
  
  
• The possibility of punitive CVADNA-launched trademark law legislative initiatives and lawsuits that seek to asign domainers to permanent second class status in the law and the marketplace.
  
  
• General economic downturn and continued restrictions on credit availability in the US and worldwide -- it should help online advertising and e-commerce overall, compared to traditional media and physical retailers; among domainers, those with cash will be king while highly leveraged players will face trouble.
  
  
• The troubling possibility that more UDRP decisions will find domain parking to be a questionable activity that is not viewed as sufficient development to fend off a dispute complaint.

Now let talk PPC (pay per click) - still a favorite topic among large portfolio owners. For this subject we called on Australian Michael Gilmour, author of one of the best of many great blogs that came on the scene in 2007, Whizzbangs Blog. PPC is Gilmour's specialty and I don't know anyone that has studied it more closely or who has a better understanding of that category. In reflecting on the key trends in 2007 Gilmour said "I think of a question like this first of all in terms of what impacted my income and the valuation of my domain assets and secondly what occured that would increase my expense line. In these three terms we can see that 2007 was a year of great change. 

Income

1. Earnings Per Click for parked domains has continued to decline. This is against the trend of increased advertising dollars that have been flowing into the industry. Generally speaking increased traffic due to greater numbers of people spending more time online has largely shielded the monthly income for domain owners.
   
   

2. Domains sales have increased in both volume and value but have largely been funded by individuals within the industry rather than external entrants. Debt as an instrument of funding domain acquisitions has entered the marketplace in a meaningful structured manner and this has assisted in a continued increase in the value of domains. This debt funding combined with the proliferation of both online and offline auctions has continued to place an upward pressure on the average domain sale value.
   
   

3. One of the most under-rated and often misunderstood events occurred with the introdution of the direct channel to market by both BuyDomains and Fabulous. Reaching the market has always been a huge problem for domain owners who have been wanting multiples based upon "generic value" rather than multiples based upon PPC income. This year both BuyDomains and Fabulous have built systems and partnered with registrars (most notably Godaddy) to access this market. Suddenly the domain portfolio "long-tail" has a potential value even if the domains are not receiving traffic.
   
   

4. Standards and transparency was first placed on the table in a serious manner. This has been a huge issue with me as I believe that the industry needs to take steps to reasuring both domain owners and advertisers that value is being created and can be proved to being created. The reason why this is important is that when industries have adopted standards and transparency the value of the assets in the industry and the flow of money into the industry has typically increased.
   
   

5. The rise of the registration price of a .com domain was to be expected and the increase has particularly impacted the bottom line of the some of the larger portfolio owners. Even a small increase in price multipled by hundreds of thousands of domains can mean that the more speculative domains are dropped rather than renewed.

Looking ahead to 2008, Gilmour again painted his picture by the numbers:

1. Standards and transparency will become the number one issue for the industry this year. The first TRAFFIC conference in Las Vegas this year is themed around "standards & transparency". Once standards are uniformly adopted I believe that the industry will begin to see some serious external money enter the industry as the domain asset class is legitimised to the financial community. This is great news for domainers if it can be pulled off!
   
   

2. There will be an increased number of support companies for the industry that assist domainers in managing their portfolios of domains. This is similar to the gold rush spawning shovel and pick manufactures. Many of these companies will become very lucrative and go on to become very successful businesses but I believe that a lot of them will soon disappear. 
   
   

3. I wouldn't be surprised if a number of the parking companies merge or begin merger talks by the end of the year leaving only a few major traffic aggregators and a host of smaller options for domainers. The main driving force behind this will be the need to aggregate more traffic so that "mega-parking" companies can put increased pressure on the margins of the advertising aggregators (Google and Yahoo) and also domainers.
   
   

4. There will continue to be an increasingly greater number of domain auctions both on and offline. At the moment we have a huge supply of domains wanting to receive exposure in the auctions and millions of dollars swapping hands within the industry. I wouldn't be surprised if the auctions begin charging to have a domain submitted for consideration to the auction process. This will cull the number of domains, limit the work of sorting through the domains by the auction companies and guarantee only high quality domains are up for auction. Not to mention the fact that this will make the auction side of the business even more lucrative than it already is.

I mentioned that Gilmour was one of the new breed of bloggers that surfaced in 2007. DomainTools.com chief Jay Westerdal, who also writes an excellent blog that often breaks big news, feels that medium took over the center stage last year. "2007 was the year of the Domain Blogger," Westerdal said. "A lot of domainers got a blog and started speaking their mind last year. This is an awesome thing for our market because it gives us a lot more voices. The cost of having a blog is nothing and the benefits are enormous." 

"The other emerging trend last year was headlined online auctions, the sales in 2008 will eclipse all sales of 2007. The popularity of auctions, new auction facilities opening up, and number of domains changing hands is reshaping the industry.  It is also lending credence to the viability of the domain name market and industry.   Companies outside of the domain industry are taking notice.  This is seen in such public areas as media advertisement where the domain name is used in the advertising and pushes customers to the product/company," Westerdal said.

Looking ahead to 2008 Westerdal told us, "Consolidation will occur among the leaders and new companies will take shape. The domain market will start becoming more mainstream and in simpatico with internet/web industry blending the line between them. Companies based primarily in web hosting and connectivity will begin to take stronger interest on the domain name market as it is the foothold of the industry. In the same sense, domain industry companies will expand into other internet-based products such as hosting and applications.  Large portfolio holders will begin developing more aggressively."

"I also predict Ron Jackson will get a blog in 2008 and become one of the most read domaining blogs. I have been hoping and praying for RSS feeds to hit Ron's content for a while. I rarely visit this great site and RSS would help me follow the site better," Westerdal said (Editor's note: Jay has been on my case about this for a long time and I have to admit he is giving me good advice. I will have to see what I can do about making his predictions on these points come true).  

"My other major predictions are that Verisign will raise DotCom prices again in 2008 and domainers will get even madder this time. This price increase will continue to hurt small time domainers and compress earnings for large portfolios. IREIT wll quietly fade as they sell off their entire portfolio in 2008. Marchex will make a turn around in 2008 and go from 9 dollars a share to 16 dollars a share. DomainTools will triple in size in 2008," Westerdal said.

Westerdal also produces the Domain Roundtable conference which, along with DOMAINfest and T.R.A.F.F.I.C. comprise a powerful trio of  general interest domain conferences that have had a dramatic positive impact on the domain industry and the rise in domain values. 

T.R.A.F.F.I.C. co-founders Rick Schwartz and Howard Neu were the guys who pioneered the major conference space and they have put on a remarkable series of shows with each succeeding conference topping the one before. Of 2007, Neu said, "As I had predicted last year, the domain "industry" grew up in 2007 to be a full-fledged legitimate contender for investment funds throughout the world. This growing process was culminated in the recognition by Steve Forbes at T.R.A.F.F.I.C. EAST 2007 of the place in history that domain investment can be and will be.  In the process, WALL STREET took recognition of the industry by attending and participating in T.R.A.F.F.I.C. NEW YORK and creating a dialogue that was previously lacking. This was especially reflected in the results of the Domain Auction conducted by MONIKER which realized over $12 million in domain sales and reported by the New York Post and New York Times. The resultant increase in domain values was reflected in every auction of domains thereafter, whether at T.R.A.F.F.I.C. or elsewhere."

Neu sees more of the same ahead in 2008. "I believe that the industry will continue to grow and receive widespread recognition as the mainstream investor learns more about the nature of domains, what they are, how they work, how they create traffic for web sites around the world, and how Direct Navigation is beneficial and the Parking Companies become more transparent as to where the money is coming from and where it is going.  The Advisory Board of the World Association of Domain Name Developers, Inc (WADND) will be adopting Standards of Transparency for Monetizers to create a new Seal of Approval to be awarded to those PPC companies that provide the transparency that domainers require. There will also be some excitement this coming year with a Road Rally in Las Vegas (Feb. 17-21) and the first T.R.A.F.F.I.C. that will be truly family friendly at Walt Disney World (May 20-24).  The year will be topped off with going back to New York (Sept. 2008) at a different venue and culminating in the first international T.R.A.F.F.I.C. in Australia (November 2008) in conjunction with Fabulous.com on the beautiful Australian Gold Coast."

That brings us to Neu's partner, domain pioneer Rick Schwartz. As I have done in years past, I am using Schwartz as my clean-up hitter in this report. I do that for a reason. Schwartz has a unique ability to put this industry into perspective. He is recognized as a visionary because he has a record of being able to look beyond the specific circumstances of the day and predict how things will play out years down the road. Predictions he made about the rise in domain values a decade ago -  thought to be pie in the sky dreams then - have become reality today. 

Schwartz says what is on his mind and let's the chips fall where they may. That has earned him both loyal friends and bitter enemies. It also makes him what we in journalism refer to as "great copy".  As someone who came out of the TV business Schwartz reminds me very much of Captain Outrageous - Ted Turner who was one of the most fascinating characters in my previous profession. Like Turner, Schwartz is truly one of a kind. He has been such an integral part of this business I find it hard to imagine it without him - it would be very much like switching from watching color TV back to watching black and white. He's colorful, candid and controversial and that makes him the perfect guy to close the show.

"2007 was a BIG year. No question about it. Payouts were up dramatically for the first half of the year and even during challenges of the latter part of the year have remained strong. Domain Values continue to rise throughout the year as your reporting indicates. I think the most significant change is all the live auctions that are popping up after watching the dramatic success of the live T.R.A.F.F.I.C. auctions. In 2007 34 of the top 100 sales for the entire year came from the TRAFFIC/Moniker auctions. That is pretty significant. If you dig a little deeper it will reveal that Moniker had a hand in nearly 50% of all the high ticket domains in 2007. There are many moving parts in a live auction and if you are a seller you want to be assured that you will receive the highest market value. If you are a buyer you want quality names at an uninflated price. When you can present a proper balance, everyone comes out a winner. 

Next would be all the blogs that have popped up with Frank Schilling leading the way. To watch and read and listen to all the top domainers share their ideas and stories and views is a great gift to all of us and hopefully will spill over in the mainstream business world.  

But of all the things that happened in 2007, I think having Steve Forbes come to speak to the domain industry in October was the single highlight not only of this year but of my career in domains. When I think back to where we came from and how drastically the landscape has changed over the years, I believe we will look back at that moment for years to come. Some of his quotes are being used on many sites I see.  

“Internet traffic and domains are the prime real estate of the 21st century. This market has matured, and individuals, brands, investors and organizations who do not grasp their importance or value are missing out on numerous levels.”  

I have the CD from his speech and I listen to it over and over again just trying to pick out great quotes and how those words could have great value. I don’t think folks know how genuinely impressed Mr. Forbes was when he met us. He really got off on what we all do. He has such a deep respect for entrepreneurs. Especially for a group like ours that has taken great risks and have a lot of successes to show. I think his appearance will pay dividends for the entire industry for years to come. It demonstrates that we are a serious group with a record of accomplishments and not afraid to aim high. I have had contact with Mr. Forbes a couple times since his appearance and I think he knows that we are a group that is making and writing history. I think our paths will cross again.

As for business, 2007 had a lot of ups and downs but the end result was a record breaking year on multiple fronts.

Now how about the year ahead? "No question the industry is maturing and with that comes growing pains and conflict. So while the best days are still in front of us, the accomplishments will not be quite as sweet as the earlier ones. They may be bigger, just not sweeter. Human nature is kicking in and many will lose a sense of where they came from and who they are. You can’t do anything about it unless you know you are caught up in it. Normal has a way of changing. So we will all be well served by keeping our eyes opened for pitfalls that come with the territory. One of those pitfalls will be addressed at TRAFFIC. We know the guys upstream are making more money and we know domainers are getting less. So TRANSPARENCY will be the focus and theme for our 2008 TRAFFIC shows. Isn't it just plain silly or worse that you count your frickin' change from a $20 bill at McDonalds and don't use the same due diligence when millions are at stake? How smart is that? If you are told you are getting 65% then you have a right to make sure that is the rate you are actually getting. You also need to know if that rate is 65% of what they get paid or is it after expenses?    

Now let’s shift gears and really mix it up. Everyone knows I am about the most optimistic person you will ever meet. But my optimism is never divorced from reality. Reality is what IS whether we like it or not. I will probably take some heat for what I have said and even more for what I am about to say, but so be it. The following was a blog post I was going to make this week. I think it would have more value here first.   

The enemy within.

There is no question that 2008 will be the most challenging year ever for domain owners and investors. While domainers are having a grand old time their livelihoods are in peril and few really even want to know about it. Combine that with the abuse that domainers themselves are guilty of and I will tell you that the biggest threat lays within the industry. Apathy, greed, wrong doing will surely put us all in jeopardy. While we do these things, our enemy is organizing and they will change rules and laws that will take YOUR domains and the earnings they currently make for you and your families and are actively trying to shift those dollars to their pockets for them and their families.

But party on like a ship of fools my friends. My gift is seeing things before they materialize. But hey, don't pay attention. Don't believe it. Don't do anything. But I promise you that some day in the next 3-5 years (Maybe much sooner) I will point to THIS POST and let you know that there was an opportunity to avoid it but you were too busy laughing at what I suggest. The laughter no different than the day I "Wasted" my first $100 and bought a domain name. So I am quite used to it.

The forces are gathering. You have a choice to ignore this. But when you do, ask yourself  how you are going to feel when your domains are in jeopardy? When it is too late? When your domains are gone and the income along with them?  

Like I said, the biggest threat may be from within. Let's face it many registrars and others are just outright whores and their practices are not only raising eyebrows, but rules and laws will be put in place to try and control them and their abuses. While doing so we may get smothered in the process. Some domainers are no better. They focus on Trademarked domain names and that does not help us either. Some think the problem is small. I will respond to that once I stop laughing. It is out of control and makes everyone look bad.

I see what is going on daily when I get emails from the ICA. The threats are everywhere. Forces against us are joining together. If the domain industry does not get ahead of this we will all see the day in which some unfair ruling will be used to take your assets away from you. Those assets are worth a fortune. No matter what silly appraisal you have had, GREAT domains are worth much more than what they say. The proof will be obvious when you see the millions they will spend to get what you have at a FRACTION of the fair market value.

There are storm clouds gathering and it is serious. Choose to ignore and you have only yourself to blame. The choice is easy, start educating yourself now. Get the ICA newsletter. Pay attention to the decisions and why domainers are losing domains. Do whatever you can to prevent what is IN PROGRESS. Or do nothing and start looking for your next career and how to replace your incomes.

Some will view this as doom and gloom. Some will view as the sky is falling. My email will go bonkers. It is quite the opposite. The value of domains are going up faster than you or I even know and THAT is the reason we are a target. If the values were not there, if the importance were not there, these folks would not care about our assets. They validate the FACT that some of the assets we own are PRICELESS. Unique assets, investments, collectables, virtual real estate, storefronts,  that have gone up in value faster than any other investment in history. Assets worth fighting for. Worth changing laws for. They will spend MILLIONS to get what we own. They will spend tens of millions. Just ask yourself one question. “Why would they spend so much to get what we have?”

We have insurance for everything we own. The house, the boat, the car, the life, the health, the toys, etc. etc. etc. Yet for some unexplainable reason domainers won’t insure their futures. Won’t insure the very thing that pays for everything else. Won’t insure that they are insulated from predators that want what you own. You folks own “Mona Lisa’s” and these PRICKS want it and they don’t want to buy it. They want to legislate it away from you. Tax it away from you. STEAL your assets thru legal means and I am telling everyone in the industry that they will WIN if you don’t step up and pay attention and support efforts to insure our futures. Steve Forbes related much of the same message as this has been done throughout history. Ask any of the top domain lawyers. Ask the top domainers. They all know what is coming. You will all live to see the day that billions of assets changed hands because some of the smartest folks on the planet failed themselves and their families. This is the one predication I don’t want to be right on. My job is to ring the bell as loud as I can and get the industry to take this seriously. Consider the bell rung."

With that we bring the curtain down on another State of The Industry report. Best of luck to you in all of your domain endeavors and it is our prayer that we can all return here at this time next year celebrate another banner year for this business we love.

*****

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