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March 25, 2014

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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 

Michael Gilmour (ParkLogic.com)

Michael Gilmour of ParkLogic.com is a regarded as one of the leading experts on the PPC industry. He also writes a popular domain business blog at WhizzbangsBlog.com. Gilmour told us, "The most significant event that the industry experienced in 2008 was the large decline in PPC generated revenue. This one event has caused domainers to evaluate their portfolios with an eye on profitability rather than just traffic. Many people predicted that the domain industry would be shielded from the global economic down-turn but this is clearly not the case. Despite a bouyant Internet advertising market no one predicted that Google/Yahoo would be financially under pressure to produce abnormal results that has resulted in them squeezing the domain industry for cash." 

"The second most significant event has been a lack of co-ordinated action by the domain industry as a defense 

Michael Gilmour - ParkLogic.com

against common threats and to seize industry wide opportunities. There was, and I believe still is an opportunity for the Internet Commerce Association to play this vital role but given the fragmented nature of the domain industry and lack of enthusiasm by key industry leaders it is unlikely to happen in its present structure in the short-term. This is a real shame as issues such as standards, transparency and the development of an ongoing proof for the value of domains for advertisers really comes out of such an association. Each of these issues really strike at the heart of the value of a domain owners portfolio but sadly it would appear that this message hasn't really been understood by the domain community," Gilmour said.   

With respect to 2009 Gilmour had this to say, "I see that there are going to be a number of significant opportunities and changes in the upcoming year. For a start, I believe that many of the "cowboy" domainers will be washed out of the industry and systems will continue to improve to eliminate more and more of the fraudulent traffic. Many of the 

registrars and registries will experience a decline in new domain registrations as domain owners continue to rationalize their portfolios and eliminate a lot of their non-performing assets." 

"On the upside the depressed domain market will mean that there are a lot of opportunities available to those with cash. A high level of uncertainty has entered the market and this has meant that many more leveraged or equity invested domainers are now selling down large chunks of their portfolios in order to generate cash. Rather than this cash being reinvested into the domain industry it is being exited to finance external obligations. This will in turn cause an additional decline in domain prices until such as a time as the domains migrate to larger self-financed portfolio owners. The challenge for these owners is to sort through the good and the bad domains," Gilmour concluded.

Rob Grant (Adirondacks.com)

Rob Grant, a Lake Placid, New York based real estate broker owns the world's best collection of real estate related domain names. The former Madison Avenue advertising executive, who is also an active domain developer, told us "When we look back at 2008 and try to fathom the historic events that unfolded, I think history will show that we reached a 

major turning point for the U.S and the world. In 2008 the American financial system, and, ultimately, the global financial system experienced a near fatal meltdown. The collateral damage this caused was so deep that it will take several years for our economy to recover. Entire industries were eliminated, seemingly overnight,  highlighted by spectacular failures like Bear Stearns, Lehman Brothers and the collapse of the entire Investment Banking sector. In many respects what we witnessed in 2008 was the equivalent of a deadly financial comet striking at the center of the worlds financial markets and flattening Wall Street. In the aftermath, we lost a lot of big dinosaurs."

"In the new economy that emerges from these ashes, the question now, is who is left standing... And how will this impact the domain industry? If you're a dinosaur, your days are numbered. That much is certain. Old legacy industries like the newspaper business have seen the collapse of major

Rob Grant

publishing empires like the Tribune Company as advertising revenues disappear and migrate full force to the web. Even venerable institutions like the 100 year old New York Times appear to be teetering on the brink. But what's bad news for dinosaurs is very good news for domains. As the dust settles on 2008, many old industries will be replaced by new efficient business models. Domain names will move to center stage and play an increasingly important role in this new economy," Grant said.

"In effect, domain names will become the new brands of the 21st century. As online ad spending continues to grow at the expense of traditional media, businesses from Fortune 500 companies to small main street vendors will finally understand the strategic importance of owning a descriptive domain name. This, in turn, will transform the value of domains in a very significant way. Domain names will shift from being historically passive inert investments (earning marginal ppc revenue) to fully functional retail platforms and end user web sites. Development will take center stage."

"Parking companies will have to adapt and reinvent themselves. Those companies that do survive will have to develop new ways to mine the value of domains including the formation of strategic 'development partnerships' with portfolio owners. These same companies will also have to forge direct relationships with major advertisers and agencies in order to circumvent the monopolistic control that Google and Yahoo currently exert over the domain channel. This will create chaos in the domain space and lead to disruptive, exciting new business models which will benefit both advertisers and domain companies," Grant said.

"All of these changes will ultimately serve to unlock the pent up and explosive value of domains. These new brands of the 21st century will emerge in full force in 2009 & 2010. Powerful generic domain names will look and feel like true media properties. As we enter the new year, the domain industry will continue to grapple with

many of the same issues it has been faced with in the past (including the threat of CADNA and over reaching trademark laws). However, despite these issues, we are remarkably fortunate to be at the forefront of a new and emerging industry. For ever old world dinosaur that disappears in this new economy, a powerful new domain stands ready to take its place," Grant concluded.

Divyank Turakhia (Directi.con and Skenzo.com)

Divyank Turakhia founded Skenzo.com and with his brother Bhavin, co-founded Directi, a Mumbai, India based company that has enjoyed spectacular growth and is still going strong despite the current global recession. Turakhia noted, "Directi/Skenzo has been featured amongst Asia's Top 500 Fastest Growing Tech Companies for 2008 by Deloitte & Touche. Despite the downturn seen in the global market, we were featured in Deloitte's prestigious list for the 4th consecutive year, a feat that very few other companies have been able to achieve. As according to Deloitte, we have achieved an average revenue growth rate of 141.97% annually over the past three years. During the year, our employee headcount increased from 450 people to 550 people."

"Our key to success has been our on-going ability to identify high-growth high-potential opportunities in addition to focusing primarily on our core competencies," Turakhia said. "We continue to be very bullish about all the businesses that we operate. Skenzo has higher budgets than ever before for growth in 2009. Our budgets for 2009 are likely larger than every other parking company. We plan to continue making very substantial investments into research and development this year. Our continued commitment to building better technology is going to allow our customers to make more money from their domain traffic than they could have otherwise made in the year."

"2008 has undoubtedly been a challenging year for everyone, especially in the parking industry," Turakhia said. "I don't expect the next 12 months to be much better when it comes to revenue per click/view/action or revenue multiples at which domains portfolios (for traffic) are sold. Everyone is suffering of course, and no one in the industry is immune to any of these problems. I would say that the highlights for 2008 are as follows:  

Divyank Turakhia
Founder and CEO, Skenzo
Co-Founder, Directi Group

Positive Events:  

  • The biggest positive event of 2008 was the launch of the Adsense for Domains program by Google for the masses. Every experienced domainer already knows that this program isn't going to make them more money as compared to parking companies. It does however substantially increase advertiser confidence in traffic from the Domain channel since Google, by launching this program, has essentially expressed its vote of confidence for domain parking to the world at-large. 

  • Microsoft’s bid for Yahoo: The substantial offer to Yahoo goes to show that they are serious about the online advertising business, and are ready to invest heavily to gain market share. Even if the deal doesn’t work out, it goes to show Microsoft’s commitment to the industry. Healthy competition can only be good for all of us.

  • The failure of the Yahoo-Google deal: Yahoo would have likely not used the Google deal for most of its traffic. However, the fact that the deal was scrutinized heavily by the Department of Justice, causing both Yahoo and Google to back out from this deal goes to show the Government’s commitment to prevent the formation of any monopoly in the industry. 

  • More domain auction houses: Healthy competition fosters creativity and provides more value to all customers. The increase in the number of auction houses is good as it provides domainers with more avenues to buy and sell their names.  

Negative Events:  

  • Substantial decline in parking revenue per visitor.  

  • Decline in gTLD Registrations: Decline in growth of gTLDs by 60% as compared to growth in 2007.  

  • Death of Domain Tasting. This can be viewed as both, good and bad. The bad is that it caused a decline in newer domains from entering the parking market, affecting the overall industry growth to a certain extent. The good is that domain tasting had a lot of negative publicity associated with it and hence to that extent it is good that it no longer exists.

  •  Google stock price dipped by 55-60%. Yahoo stock price dipped by 45-50%. These two companies are the primary vendors for the entire domain parking industry. Any negative impact that they experience would in turn rub off on the entire industry.  

  • Kentucky Drama.  

  • Global Economic Meltdown.

My predictions for 2009 are as follows:  

  • Over 90% of advertising revenues for the industry will continue to be generated from PPC via Yahoo and Google. 

  • Total sales of generic domains to end-users will continue to see healthy growth. The average price paid for generic domains will continue to increase for domains that are priced between $500-$5,000. The average price would decrease for domains historically sold for >$100k

  • Domain Sales between middlemen will decrease further, impacting overall liquidity from domains. 

  • Domain parking revenue will likely decrease further by 10-20%. The advertising revenue will remain more or less the same for high-converting traffic or at best grow marginally. The advertising revenue will decrease considerably for low-converting traffic. 

  • All forms of Arbitrage will see a further decrease due to policy changes required to provide advertisers a better ROI. High-quality Arbitrage will continue to exist. 

  • There will be a decline in growth of domain-typo traffic. Typo-traffic will be increasingly blocked by providers. 

  • Disclosure requirements will continue to increase. Advertising Providers, Advertisers and Parking Companies will want to know more about who owns the traffic and where the traffic is coming from. 

  • Policies will be enforced to a much larger degree than has been done in the past. 

  • You will see at least some parking companies exiting the business this year, and will also likely see some consolidation.

 My suggestions for 2009:  

1.   Sell at least a part of your domain portfolios, especially those portions that would be valued using a revenue multiple. The idea is to de-risk and diversify.  

2.   For long-term investors, I would highly recommend buying generic domains within ccTLDs. Several countries will see significant growth in internet penetration and ecommerce across the next 2-3 yrs. Identify such countries and buy as many generic domains as possible. Holding these domains for 4-6 yrs would likely yield very high returns at a very low risk.

Howard Neu (T.R.A.F.F.I.C.)

Howard Neu co-founded the pioneering T.R.A.F.F.I.C. domain conference with Rick Schwartz, but that is just one of three roles he plays in the domain industry. Neu is also a noted domain attorney as well as a domain investor/developer. He tackled our question about the key events of 2008 by viewing it from each of those three perspectives. 

1.  As an attorney, the most significant event took place in the great State of Kentucky by a misguided Judge and an even more misguided Governor.  This story is still unfolding at the time of this writing as the Kentucky Appellate Court has not yet ruled on the appeal filed by IMEGA and joined in by the ACLU and the ICA.  It would appear however, that no matter which way the Appellate Court rules, this will in all probability end up in Federal Court and possibly go all the way to the U.S. Supreme Court.  The issue goes far beyond whether one individual or governmental entity can control which domains are legal in that jurisdiction (in this case gambling domains - some of which were parked, some non-operative and some working web sites).  A very important SIDE issue being raised here is whether or not Domains can be treated as property or whether, as many say, are merely contract rights. The ultimate decisions here can have an earth-shaking effect on the entire industry. 













     T.R.A.F.F.I.C. Co-Founder Howard Neu 
and wife Barbara at T.R.A.F.F.I.C. 
         New York - September 2008.

2.  As a Domain Investor, I saw my income from parked domains deteriorate substantially and turned my attention to development and Search Engine Optimization.  It was also a time to re-evaluate porfolios of niche domains to see which ones had value and which ones were simply registration fees down the drain.  Thus, there was substantial consolidation of investments, particularly when the Stock Market went South and real estate prices dropped like a lead weight from a tall building.  I believe that this trend will continue for at least another 6 months and possibly longer, so we have to hold on tight on a bumpy road. 

3.  As the co-owner and operator of T.R.A.F.F.I.C., 2008 was good to us, in spite of the increasing attempts by others (primarily PPC Companies) to get into the "convention" business.  Our first international conference was held in Australia by our good friends at Fabulous.com and T.R.A.F.F.I.C. Down Under was a wonderful success.  Although the auction business was opened up to a variety of Auctioneers, the big spenders tended to stay away due to market conditions.  Once again, our speakers were the most inspiring and knowledgeable in the business, including Jim McCann of 1800flowers.com and Barbara Corcoran, the feistiest "broad" I know who tells it like it is. Once again, we were able to show that T.R.A.F.F.I.C. means BUSINESS.  

Looking ahead to 2009 Neu said "Google is the key to the success or failure of the industry in 2009.  If it continues its trend of working WITH domainers instead of cutting them out, it can become a very good year.  On the other hand, if it reduces payouts and ignores domains, it could spell disaster for the industry." 

"The ICA had a pretty good year in 2008, but domainers and Parking Companies need to dig deep to support the organization in 2009, or you can bend over and kiss it goodbye.  Between the growth of CADNA, the increase in UDRP actions, the increased interest in domains by legislators that will be bringing back a revised version of the Snowe Bill, and the increasing general knowledge that domains have value, ICA is looking at a very busy year, which can only happen if it receives the support that it deserves."

"ICANN has been reaching out to Domain Investors by appearing and speaking at domain conferences including Dr. Paul Twomey speaking at T.R.A.F.F.I.C. Down Under.  The industry needs to take advantage of this increased exposure and get more involved in the workings of ICANN and its constituencies.  With increased involvement comes increased respect and acknowledgement of the legitimacy of the industry."

Coming Up On Page 4:

Our "clean up hitter," T.R.A.F.F.I.C. 
Co-Founder and domain pioneer Rick Schwartz, wraps things up with a thought-provoking essay on where we are now and what is coming in the months and years ahead. After reading it you may feel hopeful, hopeless, filled with confidence or overcome by fear - but in any case, you won't want to miss this.


Rick Schwartz reveals what he 
sees coming our way - but is it 
light at the end of the tunnel
or a 
freight train?
Find out on Page 4!

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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