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March 25, 2014

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The State of the Industry January 2010: We Asked 16 Domain Experts If We Hit Bottom in 2009 and Will See a Rebound in the New Year

By Ron Jackson 


The severe global recession that started in 2008 and continued through 2009 hasn't been kind to many businesses, including our own. Yes, we have fared better than most others, especially the traditional media platforms with whom domain owners and developers directly compete for advertising revenue. However, this high flying industry has had to shoulder more than a little pain of its own.

The heaviest damage has been inflicted on the PPC business with many who park their names reporting revenue declines ranging from 50-75%. Layoffs became commonplace at companies that, prior to the downturn, had been growing like wildfire. Domain aftermarket sales also dipped but, compared to the carnage in other sectors, they were a relative bright spot. 

After a tough year in 2009,  there are some 
positive signs for 2010 but it could still go 
either way
. Our panel of 16 industry experts 
weigh in on what happened last year and what 
they think lies ahead of us in the New Year.

In 2009 $102,024,002 in domain sales were reported to us as we tracked the market for our weekly domain sales report. That represented a 12.5% decline from the $116,702,257 reported in 2008. However, as you mighht expect in a recession, almost all of the $14.6 million fall off was concentrated at the high end of the market.  

When we looked at the top 5% of the more than 15,500 sales ranging from four figures to seven figures that were reported in 2009 we found that the dollar volume paid for the most expensive domains declined 20% (from $66,555,014 in 2008 to $53,052,804 in 2009). That's a difference of more than $13.5 million at the very high end, accounting for almost all of the $14.6 million the market as a whole declined. 

In contrast, the mid to low end of the market held up very well in the recession with the median domain sales price (the price at which half of all sales were higher and half were lower) falling just 3.3% from $2,688 in 2008 to $2,597 in 2009 (Editor's note: We do not track sales below $1,000). 

Even with the high end factored in, 2009 would have looked much better against 2008 if it were not for the fact that two previously unreported blockbuster sales made in 2008 came to light for the first time in the second half of 2009. When we learned that Clothes.com had sold for $4.9 million and Shopping.de for $2,858,945 we added those sales to the 2008 sales chart (where they ranked #2 and #3 for the year respectively). Had those two sales not been revealed, 2009 would have been off only 6.5% compared to 2008, rather than 12.5%. You have to figure that just as they did in 2008, some high end 2009 sales have also gone unreported that may eventually be made public, adding to the past year's tally. 

The important question now is having gone through the downturn that we have, is the worst behind us? Can we expect better times in 2010? To get some answers to that 

question we consulted some of the industry's leading domain investors and developers, top level company executives, monetization experts and attorneys for this 6th annual State of the Industry report. As always, to keep things fresh, we called on several new contributors as well as respected industry veterans who have shared their expertise with us in the past. 

We have divided our experts into three groups according to the areas they are most closely identified with. We will start with the Domain Sales and Monetization experts on this page, then move on to Domain Developers or page 2 before closing with comments from some of industry's most successful Domain Investors & Attorneys on page 3. Having set the stage...let the show begin. 

Domain Sales & Monetization

Rick Latona (Latonas.com & T.R.A.F.F.I.C.)

To get things started, we'll turn the floor over to one of our new panelists, Rick Latona, who just launched domain auction house Latonas.com and who will stage five of this year's six T.R.A.F.F.I.C. conferences. (Latona was also just profiled in our December 2009 Cover Story)

"I still see the economy as the single biggest factor affecting domain prices in the auction space," Latona said. "2009 has been a very difficult year for your average seller of domains. Sure, we've seen great sales reported but I'm sure the margins and thus the profits were way down for most. While people like to focus on PPC prices, I know that only a fraction of our buyers focus on revenue when bidding on names. A lot of what affects the prices are the same elements as what affects the housing industry, meaning access to capital. Fortunately for all of us, the economy has been rebounding. The fourth quarter of 2009 has been very active for us. We have done almost as much business as we did in the previous three quarters combined."

Even though 2009 closed with growing momentum at his company, Latona doesn't expect to see a complete recovery in 2010. "From my viewpoint, it's all about going global. While most of us feel that we are on the cutting edge of the Internet and see what others can't, I'd like to be a little more realistic and say that our industry is maturing. The real growth is going to come from ccTLDs and foreign language IDNs," Latona said.

Rick Latona 
Latonas.com Founder

"A lot of what we are doing with taking T.R.A.F.F.I.C. global is attempting to get closer to the people who are or will be major players in those areas. There may not be major sales in those categories in 2010 but as they say, "the check is in the mail". The breakout will most likely come in 2011 but for our part, we will be positioning ourselves in 2010 for the inevitable," Latona said. "New markets mean new players. Expect to hear of people that you had never heard of before. Somewhere out there, there is someone sitting on a killer portfolio of future value domains waiting to pounce. I will be waiting with open arms."

Jeff Kupietzky (Oversee.net)

Jeff Kupietzky, the President and CEO of industry giant Oversee.net (parent company of DomainSponsor, Moniker, SnapNames and the DOMAINfest Global conference) also sees the sky starting to clear after one of the most challenging year's businesses have seen in the past century. 

Jeff Kupietzky
President & CEO, Oversee.net

"2009 was a year of retrenching, not just for our industry but for hundreds of them" Kupietzky said. "There were economic and financial problems around the world that directly impacted online advertising spending. In addition, the search marketplace continues to see consolidation of market power into fewer companies which additionally impacts our businesses. Yet, despite those trends, many of us weathered the storm and even improved during this time. We saw double-digit increases in RPC (revenue per click) in our network as a result of optimization enhancements during the past year. On the Aftermarket side of things, while volume of transactions were lower, prices held up suggesting value of our inventory remains solid. As people return to past spending patterns, we should see a rebound in domain sales as online real estate is just tremendously valuable." 

"Obviously, the SnapNames situation was an unfortunate event for us and the industry this past year," Kupietzky said. "We’ve worked hard to address that situation with all the resources we can. I have been very pleased with what some might consider a surprising statistic – we’ve seen no fall-off at all in the SnapNames business. In fact, buyers
that haven’t used the system for a time have come back to participate. We are grateful to all the dedicated customers who have been supportive and loyal to us – we continue to strive to earn their business every day and appreciate their support."

Like Latona, Kupietzky believes that overseas markets will play a big role in getting the domain business back in overdrive. "In the monetization world, we’ll see a continued rise in non-US traffic and improvements in monetizing that traffic. As online markets in Europe and Asia mature, we’ll see more advertisers participating in domain traffic. Those markets will continue to provide attractive investment opportunities for our industry," Kupietzky said.

"We’ll see the idea of new top-level domains develop further this year. ICANN is very keen to make this happen, if they can get all the objections and procedures out of the way. It will be interesting to see how this develops when they finally get closer to market."

"While still emerging, I think we’ll start to see successful examples of name build-out strategies that can bridge what I call the “development gap” – how to produce unique content and user experiences at scale across multiple domains," Kupietzky said. "Monetization of domain traffic will also expand to include newer forms of traffic such as social networking, user-generated content, and mobile." 

"It’s safe to bet that consolidation should play a fairly big role," Kupietzky added. "The players with more resources who invest well will get even stronger and I believe we’ll see exits by the weaker ones. People and companies will need to be well-equipped in capital, capabilities and talent to grow further into this space."

"Finally, I believe there will be a rise in European and Asian traffic, and they’ll be considered valid markets for advertisers and publishers to pursue. That’s already happening, but it should become more pronounced in 2010."

Tim Schumacher (Sedo.com)

2009 was a big year for Sedo.com CEO and company Co-Founder Tim Schumacher as he also became the CEO of Sedo's parent company, AdLINK  Group. The past year also gave Schumacher reason to believe that the industry has turned the corner.

Tim Schumacher
CEO, Sedo.com and AdLINK Group

"The year 2009 started very grim, but it certainly improved nicely in the second half of the year," Schumacher said. "We even made some of our best domain sales ever – Fly.com ($1.6 million), Russia.com ($1.5 million), Call.com ($1.1 million) and Server.com ($770,000) and also our newly launched flagship marketplace product SedoMLS is picking up steam. Parking followed a similar pattern, with CPCs (cost per clicks) being totally depressed earlier in the year – a time during which we were fortunate to acquire RevenueDirect for a very reasonable price. Later in the year, prices recovered, and several product improvements like our new 2-click pages, clicks in new windows and improved related links improved both CPCs and CTRs (click through rates)."

"For Sedo and me personally, our re-organization of the AdLINK Group in September was a milestone: we exchanged our remaining Sedo shares into shares of our public parent company, AdLINK Group. This move came perfectly timed together with the group selling its display marketing unit to French Hi-Media. As a result, the new group is now 100% focused on performance marketing, with Sedo as the 
domain marketing business, and Affili.net (one of Europe’s leading affiliate marketing shops) as two market-leading and profitable units, which I am very happy to lead as the new CEO."

"The combined group continues to be public, at an annual 2009 revenue of over $200 million (about €140 million). And thanks to the sale of the display unit, we are completely debt-free," Schumacher noted. "The group will be renamed in order to reflect the new strategy - and also simply because we’ve sold the unit which carries the same names as the group - “AdLINK Media”, and that’s kind of confusing. The change and the new name will be finally decided by the annual shareholder meeting in 2010, and I’m very open to any suggestions. Anyone got a good domain name? I’ve heard the good ones are all taken," Schumacher smiled.

"For Sedo and our customers, this will have the benefit of better earnings through additional monetization in the group, and new access to agencies and advertisers who also more and more turn to us to buy domain names for their clients – which are exactly the end-user buyers of domain name the market needs to avoid that domain trading is purely a game played between domain investors themselves. Nothing wrong with the latter, but for prices to go up, new capital needs to flow into the market. This actually already helped us in 2009 – while parking was down and Sedo’s year over year  revenue also is (slightly) down, we have increased domain sales again and even topped our pay-out to clients – both domain sales and parking revenues combined – of last year’s $100 million."

While he is optimistic, Schumacher also knows the industry is not out of the woods yet. "In 2010, I do see very similar challenges as last year: Advertising providers have still not given the domain channel the revenue share, dedication, transparency and freedom to innovate it deserves – and by ‘innovating’, I don’t mean ‘going direct’ for the sake of squeezing out domain name owners in the long run," Schumacher said. 

"I again urge advertising providers to create an environment where innovative reseller companies specialized into domains can utilize the ad providers’ advertiser base and technical solutions to compete fairly against each other in finding the best value-added solution for their clients, the domain name owners. However, despite this continued grim outlook on advertising, I have still not seen a break-through in alternative advertising, or direct monetization, and domain owners and their monetization companies to step to provide their valuable traffic directly to advertisers at fair rates. There are many innovative start-ups around, and all established companies in the space are working on their own various models, but none have so far reached critical mass. I hope one of them will in 2010," Schumacher said.

Schumacher welcoming guests to the 
2009 SedoPro Forum in Key West, 
Florida (October 2009)

"I predict that we will see one – or maybe two – big mergers in this industry in 2010. Capital is more readily available again after the capital crunch in 2009. Investors are sitting on liquidity, and with ballooning government debt everywhere and corporate bonds paying small change, money is seeking other investments. Many online marketing companies, domain companies in particular, provide an attractive profit, while operating in a growing market (let’s not forget, the Internet continues to be one of the most attractive growth engines with usage and user population growing steadily!). So - all of our own complaints in honor - that’s not something many industries can offer. So investments will flow into both private and public companies," Schumacher concluded.

Donny Simonton (Parked.com)

Donny Simonton is the President of one of the industry's leading PPC companies, Parked.com. His company also diversified into the mini-site development space in 2009 by acquiring one of the innovators in that space - WhyPark.com. Simonton is hoping that a new partnership between two search engine giants announced in 2009 will help revive parking revenues. 

Donny Simonton
President, Parked.com

"There were many significant events that affected the parking industry in 2009. Potentially the most important is the Yahoo and Microsoft search and advertising deal if/when it is approved by the Department of Justice," Simonton said. "If it is approved, it will affect the entire parking industry as Microsoft will now officially enter the space, but in many ways they will still be on the sideline. The combination of Yahoo and Microsoft’s ad networks could provide some much needed competition against Google."

"One trend that we started hearing from Yahoo and Google was that they both were working hard to make sure that they were only receiving quality traffic. Both worked on cleaning up their systems and charging advertisers less for traffic that was not of the highest quality. This is also why most of the parking revenues were flat for the second straight year," Simonton said.

"The Snapnames scandal was the biggest shock of the year. I remember bidding against Halvarez over the years and never thought anything about it. Since this scandal was announced I’ve wondered how many domainers are still bidding on auctions every day."

Looking ahead, Simonton said "In 2010, we will continue to see more consolidation in the domain parking and site development industries. We will also see some companies who just close up shop and disappear. This isn’t the “wild west” anymore, you can’t make millions with a dream, one programmer and a server like you could in the past. Today you need a very good business plan, a marketing plan, industry knowledge, a great domain, a realistic vision, and plenty of capital."

"ICANN will continue to terminate the accreditation of domain registrars who don’t live up to their responsibilities. They shutdown or didn’t renew 22 different domain registrars in 2009 and I’m sure this trend will continue. As a domainer you should remember to always keep your domains at a domain registrar that you can trust and who will be around for years to come," Simonton advised.

"In the parking business you will continue to see companies innovate and break out of your typical parking page designs. PPC will continue to exceed all other sources of income, but you will start to see more content, display ads, and CPA (cost per action) based ads being added on domains."

"The big question I think all companies in our industry should be asking themselves, is how can you make more with less traffic, more competition, less advertisers, lower bid prices, and more restrictions from our providers. Innovate!"

Gregg McNair (PPX International)

Innovate has also been the rallying cry for Gregg McNair, the Executive Chairman of Hong Kong based domain management and monetization firm PPX International Ltd. (McNair was profiled in our October 2009 Cover Story). In 2009 McNair decided the best way to overcome the declining PPC revenue blues was to focus on a CPA model.

Gregg McNair
Executive Chairman, PPX International

"Without doubt for the PPX International domain division, the opportunity to own and control a chunk of our future and that of our clients through CPA has provided the breakthrough we have sought for almost two years," McNair said. "The purchase by our Group of the Canadian PPX business this year has opened a new window of opportunity for significant revenue generation. Being able to invest in existing and new verticals without the influence and concern of PPC industry moguls has ushered in a new era of confidence and control of our own destiny, absent in previous business models."

"Overall, clients are experiencing an increase in revenues in excess of 20-30% in the available verticals. Perhaps the most reassuring aspect of this increase is its independence and sustainability. Going forward we are planning to offer CPA options to provide superior optimization for around 30% of domain traffic. This provides a strong and growing hedge for those who have expressed concern about industry domination or manipulation."

"Whilst regarding the PPC and CPA models as being sustainable at least for the medium term and being heavily involved in those domain sectors, we continue to practice prudent diversification policies. The market place has been flooded with very attractive, proven opportunities simply requiring capital for survival and expansion."

"In a more general context the economic challenges faced by most of the world over the past year or so have delivered new diverse, non domain related opportunities. These opportunities are primarily related to being cashed up and having the capacity to act quickly in both evaluation and investment modes. Our Group has been active acquirers and expects to reap strong growth benefits going forward," McNair said.

McNair believes the current downturn brought a lot of things into focus for domain investors at large and that they will benefit from what they have learned in the long run. "The past year has caused many domain owners to look seriously at their portfolios and to consider the need to actually do more than simply park and forget about their names. So I guess from that perspective we are all on the same page now."

"The challenges facing the industry are both within and without - of course the puppeteers will continue to pull the strings and expect that we will dance to the new tune. If past form is any guide, this will result in flattened returns unless a rebounding economy creates insatiable on line advertising demand. Most domain owners have been forced to learn how to actually make a difference to their returns over the past 18 months and that knowledge should be valuable going forward. Most of us believe that the days of insanely easy money are long gone and we need to be accepting of having to work on improving revenues like the ‘real’ world!" McNair said.

"As the global domain monetization infrastructure above us consolidates and rationalizes, that will bring new challenges and opportunities for those prepared and/or able to be involved. Some believe that by the end of 2010 the number of significant players will have shrunk considerably."

McNair says the days of easy money 
are gone - domain owners will have 
to work to improve revenues.

"One of the much neglected challenges for our industry has been the role of the Internet Commerce Association (ICA) which despite minimal support has upheld the interests of domain owners well beyond its substance. In fact it is worth publicly placing on record the invaluable input of ICA President Jeremiah Johnston in achieving with his small team the sterling results over the past year. All domain owners need to realize that those who set their sights on taking a name, whether justified or not, will actually succeed in the vast majority of cases under the current arbitration regime. Almost every generic name that is registered has been trademarked somewhere, and for many, it is only a matter of time before someone makes a claim."

"Irrespective of that claim being spurious or well founded, we will all be spending much more in defending our assets in years to come unless we all rally behind the ICA as our only voice within ICANN against further incursions on the rights of domain owners. Why not resolve, at this time of making decisions for the coming year, to become a member, or to upgrade your membership to support our lone voice in many peak body negotiations?" McNair said.

Coming up on Page 2: Domain Developers

Featuring exclusive commentary from:

  • The Castello Brothers 
    - Michael and David - 
    (Castello Cities Internet Network, Inc.)

  • Andrew Miller
    (Internet Real Estate Group)

  • Michael Mann
    (Co-Founder of BuyDomains & Founder of WashingtonVC)

  • Howard Neu
    (Co-Founder of T.R.A.F.F.I.C., Attorney & Domain Developer)

Go to Page 2 (Domain Developers)

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