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The State of the Industry January 2009: 15 Leading Experts Break Down What Went Wrong in 2008 and Predict What Will Happen in 2009

By Ron Jackson 

What a difference a year makes. When we put together our January 2008 State of the Industry report the domain business was coming off its fourth consecutive year of robust growth and major capital investors were actively trying to roll up the domain space. The big question was whether or not the industry could continue to enjoy such smooth sailing. Unfortunately as the year went along many boats in the domain fleet ran into stormy weather

The PPC (pay per click) business was the first to run aground, falling by close to 50% according to most accounts. By the third quarter rough water had started roiling the aftermarket as well. That storm was still intensifying when the end of the year arrived and damage was becoming evident, especially at the high end of the market.

On the plus side, domains priced in the low to mid-range favored by small 

The domain industry ran into stormy weather 
in 2008 - will the skies clear in 2009?

business end users were still holding their own and online advertising, which underpins both parked and developed domains, was the only sector in the ad business expected to show growth in 2009.

To make sense of what happened in 2008 and where we are headed in 2009 we called on 15 of the most successful people in the domain industry for our fifth annual State of the Industry report. Our panel of experts includes key company founders, CEOs, developers, investors and attorneys. 

As always, to keep things fresh, we brought in several new contributors to join some of the highly respected pros that helped us produce last year's report. The five new panel members for 2009 have all been subjects of DN Journal Cover Stories; Reinvent Technology Founder Dr. Kevin Ham, the father of Internet telephony Dr. Chris Hartnett, Skenzo Founder and Directi Co-Founder Divyank Turakhia, noted domain attorney Ari Goldberger and real estate domain impresario Rob Grant.

They join a distinguished group returning from last year that includes Sedo co-founder and CEO Tim Schumacher, WashingtonVC founder and BuyDomains co-founder Michael Mann, T.R.A.F.F.I.C. co-founders Rick Schwartz and Howard Neu, Moniker CEO Monte Cahn, Internet Real Estate Group co-founder Andrew Miller, two giants from the geodomain field, brothers Michael and David Castello (founders of the Castello Cities Internet Network - CCIN), ParkLogic.com co-founder and WhizzbangsBlog author Michael Gilmour and Internet Commerce Assocation Legal Counsel Phil Corwin

You can read this detailed report straight through, or jump to the links at the bottom of each page to go directly to the page that features the person whose comments you want to read first. Each expert's name is featured in a bold heading at the start of their commentary, making it easy to find and revisit your favorites. We will be covering a lot of ground but with the challenges the industry (and the world at large) is currently facing, we think you will find the information rewarding and the time you invest well spent - so let's get started...

Monte Cahn (Moniker. com)

 

 

 

 

 

 

 

 

 

 

 

 

 

Moniker CEO Monte Cahn

Last year  I kicked off our report with comments from Monte Cahn, partly because he had just completed a huge deal to sell his company, Moniker, to Oversee.net (where he stayed on to continue running the Moniker division). Again this year Oversee made big news just as we started putting this article together - this time by announcing an 18% workforce reduction across all of their divisions (including DomainSponsor, SnapNames and Moniker). That cutback came on the heels of a 10% reduction last summer. 

Because of the timeliness of that news, as well as Cahn's vast experience in all phases of the domain industry (aftermarket, registrar and PPC) I am going to use him as our lead off batter again this year, starting with a comment on Oversee's second round of layoffs - a move dictated by both market conditions and the natural process of eliminating overlapping responsibilities  across various divisions following the acquisitions of Moniker and SnapNames.

"The end of 2008 became a time of great focus for our division (Registrar and Aftermarket) and Oversee as a whole," Cahn said. "We started the process of controlling unnecessary expenses, cross training, and integrating our business units in advance of our 2009 budget and plan."

"As I predicted in last year's January cover story2008 was a year of consolidation.  Partners joined forces and competitors merged. And in doing so many in the industry overcame challenges, realized opportunities and some also gained efficiencies.  As a whole, the overall domain market experienced major adjustments due to significant changes in the way Google dealt with click fraud and traffic quality.  In addition to PPC revenue decreasing from these adjustments, the overall economy had material affects on the amount of investment capital available for domain purchases."

"Although Moniker and SnapNames fared well through this uncertainty by producing solid sales results in our live and online auctions, towards the end of the year, we did notice a decrease in domain portfolio retention on the registrar side," Cahn said. "For the first 
time, many began to "cherry pick" through their inventories and allow domains to expire that they normally would have renewed. Others transferred domains to cheaper registrars, putting price in front of good value, service and security.  At the same time, we saw several good domain purchases – some would say bargains – in both public and private transactions.  Some of the best names from top investors went up for sale. Many of these domains have never been available for sale previously. "It’s also important to note that many relied on the strong value of their domain assets to cover other personal expenses outside of the domain industry."

"Domain development became a popular topic at conferences as well as other alternative monetization strategies such as micro sites development and networking, affiliate sites, lead generation and CPA modeling for domains." 

Though the domain industry is still much better off than other sectors of the economy, the 

severity of the current downturn is such that no sector can expect to be unaffected this year. On that point Cahn noted, "The economy will certainly have affects on our industry in 2009. However, down markets become great opportunities for the future as internet user growth continues to expand at enormous rates worldwide.  Broadband and high-speed access are available in almost every country at little or no cost, including third world countries.  The cost of computers continues to decrease and the mobile market is expanding with new wireless networks, improved portable phones, PDA's and handheld entertainment systems." 

"The cost to register a domain and build a website remains more than reasonable compared to other types of start up businesses. In addition, increased unemployment resulting from a weak economy, becomes the breeding ground for entrepreneurialism, new ideas, and new start-up online businesses. These factors along with advancements in SEO and SEM tools and strategies, will produce more online activity, more traffic, more domains registered and should result in better conversion rates. This will set a new foundation for our industry to learn from, build upon, and improve our offering to new and existing markets," Cahn said. 

Regarding Oversee in particular, Cahn added, "we will continue to focus on our core strengths in securing, protecting, enhancing and increasing the value of our client’s domains through our Domain Asset Management™ suite of products and services. We will focus on providing unsurpassed security and customer service while continuing to be the leading market makers in domain name sales through live & online auctions, private sales and escrow and appraisal services."  

Ari Goldberger (ESQwire. com)

 

 

 

 

 

 

 

 

 

 

 

          Ari Goldberger, ESQWire.com

Cahn mentioned the increasing interest in domain development as a way to offset declines in PPC revenue and slowing sales for high end domains. That was a recurring theme among many on our panel of experts including prominent domain attorney Ari Goldberger who told us "A significant trend I see is that domainers seem to universally recognize that in order to reap the super-value of domains they must “develop” them.  With domain parking revenues down across the board, the move toward development has become relatively less risky and costly (i.e. less parking revenue to lose).  On the other hand, the type of development and a domainer’s capability to develop a domain is an entirely different story."

"I am working on a plan to develop some high-profile domain names with partners," Goldberger said. "The process is very challenging. There are important questions to ask before leaping into development: What is the best application for a particular domain name?  Is the domainer experienced in the product/service/industry associated with the 

domain?  If the expertise is lacking, how will the domainer gain it?  Will a domain support a successful business just because it’s a great name?  There are great opportunities for a domain-less individual with industry-specific experience, technical know-how and connections to link-up with domainers lacking these qualities.  Social networking tools like Linked-in and Facebook can help these groups connect."

"Ultimately, to achieve real value it is essential to build the best possible business as if you did not have the benefit of a great domain.  While emulating what works out there is necessary and smart, significantly more value can derive from innovation and striving to be the ‘next big thing,’ particularly when the business is riding on the horsepower of a great domain.  Simply cruising with a revved-up parking page and some pics and content will not generate the double-digit multiples that these great domains deserve," Goldberger noted.

Like Cahn, Goldberger is convinced that the current economic downturn can not derail the growing importance of the Internet in everyone's lives. "While business is definitely down, now more than ever users continue to pile-on to the Internet for all their needs to get the best deal. Internet use will continue to increase as traditional media outlets are unable to 
compete with the unique economies of the online model (i.e. no paper, printing, delivery boys) and the accelerating reach of the Internet as it becomes THE PLACE where we all live, work, shop, and communicate. I believe the biggest and most exciting trend to watch for is the recognition of traditional media businesses (print, TV and radio) of these powerful opportunities of being online – and not seeing the web as just something ancillary to their “brick-and-mortar” biz," Goldberger said.  

"While the newspapers are singing the blues they still have tremendous value that can be channeled online:  name recognition and brand power; knowledge of the market; existing advertiser relationships; experience in producing content which all sites require (type reads the same online).  So I think you will see some media newspapers realizing this, regrouping and, instead of closing the doors on their business – opening new doors online and growing it in ways never before possible on large sheets of paper."

"Online is better because the paper can now INTERACT with its readers – making them 

“users” and “customers.”  Newspapers can now not simply put up a classified ad for a car, it can run online auctions. Newspapers can sell products to its users.  Newspapers need to recognize that the goodwill they have in the community is tremendously valuable. Their editorials have meaning and their political endorsements make news. It just doesn’t make sense for their product to be distributed on pieces of throwaway paper any more.  The sooner they realize it the better chance they have of salvaging what is left of their brand."

Goldberger concluded, "Why does this matter to domainers?  I believe these media entities, in shifting to the Internet, can do well and grow their audiences by adopting powerful generic domain name brands, so I think they will be good customers for us as they recognize the power of the Internet.  In addition, this continuing trending away from traditional media to online is a great thing for domainers.  So while times are looking tough in the overall economy, I think the good news for domainers is that the Internet will continue to grow and grow with every new user and with more and more business being conducted online.  I also am looking forward to a new generation of marketing folks and advertisers who recognize the incredible value of domains and see the Internet as the central location of every business and of course the domain is the entry point to that location.  A great domain is not only a door but a powerful magnet.  So, I am bullish on the future of domains and their value."

Andrew Miller (Internet Real Estate Group)


Andrew Miller
Internet Real Estate Group

Andrew Miller is President and co-founder of the Boston-based  Internet Real Estate Group (IREG), a company that has bought, sold and developed some of the world's best generic domain names, including CreditCards.com, Software.com and Shop.com. Miller told us, " 2008 was a year that brought those that rely on domain names as core to their business further realization that domains are digital real estate and like traditional real estate, the more true value that is developed around  that domain name, the more valuable the asset. There is still money to be made wherever one sits within the  domain monetization spectrum, but the more that the domain is leveraged into a game changing business, the more value is created."

"Of course, 2008 presented new challenges which carry into 2009, but I finished the year very excited about how domains as an asset class held their own amongst many other free falling assets, and while there are peaks and valleys in any element of business and life, the domain valleys are not as deep as others, rebound faster and stronger, and present 

significant opportunities. Several of our early stage developments at  IREG and seperate from IREG are poised for a tremendous 2009: These Include Chocolate.com, Patents.com, Phone.com, InsuranceQuotes.com, SimpleDomains.com and Alerts.com," Miller said.

"Most important, is the continuing need to find ways to educate those around us on the importance of dotcom domain names to their respective businesses. This includes Fortune 500 Senior Management, VC's, Private Equity, budding Entrepreneurs, Business Schools, Professors, and even Internet Entrepreneurs or Management. The place we need to start is to use 2009 for the domain industry to further mature and understand the value of their own assets, and where that value lies. The 80/20 rule applies here."

"Domainers need to shift the perception, and their own mindset, from first asking "what is the traffic or what is the PPC revenue". That is important to know but its the 20 percent portion of the value. The 80 percent portion of the value is: the indelible branding advantage provided by generic domain names; the search engine optimization and search engine marketing advantages that generic domains induce; that if you have a large, established  brand already, that owning your category generic domain name likely will give you two kicks at the can on page 1 of Google, both SEO and SEM wise; the recall when marketed or advertised; the perceived credibility of the website, both in business development and to end customers; the fact that website  visitors return to generic domain websites at a much higher percentage. These are only a handful of examples," Miller said.

"Domainers need to move on from the shorter end of the stick and teach the 80 percent of the value. Domainers need to stop appraising and pricing domains based on the 20 percent side of the equation and the small revenue associated with the 20 percent side and educate the market that the true value lies within the Intellectual Property and direct advantages the domain provides from inception to exit. We must stop cutting off our nose to spite our face, and remaining at the lowest end of this. Move from speculators to business builders, ensuring domains end up in the hands of the entity that can leverage the brand value more than the lowest denominator."

Miller continued..."And, we need to stop diluting the market with TLD's that continue to be money making vehicles for the industry. I ask you all, to spend one week listening to the radio and looking at outdoor advertising while you drive, watching prime time TV, and observing all media over that week timeframe and at the end, add up the percentage of the hundreds of millions of advertising spent that week was .com, and what percent was any other TLD, years into .tv, .biz, .us etc. The results will be telling and likely 98 + percent .com and the rest .org."

"We need to grow this industry up  in 2009," Miller concluded. "The Internet and domains are still strong, within a difficult, unprecedented economy. People are still buying domains, buying Chocolate gifts, looking to save money on their insurance, searching for Patents, using and switching to  VOIP , playing fantasy sports, and engaging in more and more day to day online behavior. The key now is to put the domains in the hands of those who can extract the most value, and, in educating. Owning a top generic dotcom domain for your business is like starting the 26 mile marathon at mile 3 while everyone else is starting at mile 1. A huge head start."

 

The Castello Brothers (CCIN. com)

 

 

 

 

 

 

 

 

 

 

 

 

Michael Castello (left) and David Castello
         Castello Cities Internet Network

With respect to development, geodomain owners are the role models many look up to. Owners of large .com city domains have probably developed (and more importantly developed well) a greater percentage of their domain assets than owners in any other sector. Because of that we pay close attention to leaders in the geo space like the Castello Brothers, Dan Pulcrano, Skip Hoagland and many others.

The Castellos, Michael and David, own gems like PalmSprings.com, Nashville.com and Acapulco.com to name just a few. Michael predicted, "We will see a continued move towards site development as domain name owners place their stake in the future world of self sufficiency and empowermentCCIN has seen stability and is developing toward the future just as we had accomplished in the dotcom bubble of 1999 and 9/11. We are currently witnessing a dynamic power shift of 

unprecedented proportions that will continue to propagate globally. The Internet and those with developed land of impassioned impulse will reap huge benefits. I project a larger trend in the area of self branding and this will make memory based names more valuable as more site saturation evolves in the dotcom industry. My suggestion to Internet individuals for the year is Brand Yourself."

David Castello noted, "Domain names are the real estate of the Internet and, like traditional real estate, it's going to come down to two things: development and location, location, location.  In this dark economy, the Internet is going to shine in 2009, but it will prove to be a double-edged sword for many domainers.  If you're parking great domain names in 2009 you need to prepare for the barbarians at the gate.  The scales have fallen from their eyes, they're beginning to believe that domain names are the new bullion and the best strategy to deter them is a well developed site."

"On the other hand, don't worry about ICANN and their misguided plans to flood the world with TLDs (while enriching their coffers).  It will only push the value of dotcom and ccTLDs higher because most people can't intuitively remember a domain name using anything else
(Factcheck.org anyone?).  Speaking of, remember the pundits in 2000 who said Internet commerce would never surpass brick & mortar? They're now the same people predicting that dotcom will become irrelevant because everyone looks for everything on search engines. In other words, the importance of stamping your brand into the public's consciousness will go the way of the dodo bird and the dinosaur because of Google and Yahoo. Remember that when you watch the Super Bowl ads!" Castello smiled.

Looking back at the events of the past year David said, "The most significant event of 2008 was the stock market crash and the super-recession aftermath.  Ironically, nothing could be better for the future value of Internet addresses, particularly premium generic and geodomain dotcom and ccTLDs. As traditional media and thousands of brick & mortar businesses gives way to the Internet, the ability of the new Internet based economy to help pull us out of this recession in 2009 will become apparent and domain names will ride the crest of the wave."

Michael Castello opined "The most significant trend was the continued Connecting of the DOTS of Perception for geodomains in the world wide web. It is starting to look more like a virtual world. The most significant event in 2008 was the intercession of the Commerce Department into ICANN’s plans for hundreds of new TLDs.  Those plans appeared to be set in stone, but it shows that oversight by a knowledgeable Commerce Department made clear that the process would potentially cloud the waters for the public. It is ICANN’s public duty to clarify and define the road ahead.  In my opinion the extra burden of the new TLDs would have reduced the inherent potential of domain names and direct navigation which has already been defined to the public and has clear clarity. The power shift needs to move back to the public."

Coming Up On Page 2 -
2009 Forecasts from:
  • Dr. Kevin Ham

  • Sedo CEO Tim Schumacher

  • ICA Legal Counsel Phil Corwin

  • WashingtonVC's Michael Mann

  • Dr. Chris Hartnett 
    (find ou
    t why he says "Trust in God but tie up your camel.")

GO TO PAGE 2

Drs. Chris Hartnett and Kevin Ham
coming up on page 2!

Direct Links to All Pages Featuring our Panel of Experts:

Page 1 featuring: Monte Cahn, Ari Goldberger, Andrew Miller, The Castello Brothers.

Page 2 featuring: Dr. Kevin Ham, Tim Schumacher, Phil Corwin, Michael Mann and Dr. Chris Hartnett.

Page 3 featuring: Michael Gilmour, Rob Grant, Divyank Turakhia and Howard Neu.

Page 4 featuring "cleanup hitter" Rick Schwartz.


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