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March 25, 2014

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The State of the Industry January 2011: 19 Industry Leaders Identify 2010's Most Important Trends and Predict What Lies Ahead This Year
Page 2

By Ron Jackson 

Domain Sales & Monetization (Domain Investor Views) Plus Key Legal Issues According to Industry Attorneys

Merlin Kauffman, Domain Investor

Merlin Kauffman is another new contributor to this report. Merlin is one of several young guys who have had tremendous success in this business despite entering the field well after the pioneers had swept up most of the great domains in the 1990s. Merlin has been among those who proved, and continue to prove, that there are still major opportunities and room for growth in this business for individual investors. 

"2010 was a year of tremendous growth for myself as an individual investor and also a year of tremendous maturation for the domain industry as a whole, spurred primarily by the ascent of alternative monetization methods, such as 0 click redirections, direct affiliate relationships with major end users, and co-development partnerships," Kauffman said.

"My business strategy has become much more creative in 2010, as I have begun to leverage my domain portfolio through co-development with leaders in specific vertical markets; for instance, I own Lookup.com, and have partnered with one of the largest players in the personal data services industry for them to develop a comprehensive people and background check search engine. I own a winning name, they have a winning development strategy and now the traffic is skyrocketing - and we're both winners."

"Another newly adopted strategy for me is to stop selling names, and whenever possible, lease names out with the option to buy and become a partial owner of the company which is leasing the domain. I entered a partnership with a San Francisco based startup this year, 

Merlin Kauffman

leveraging my domain iLoan.com in a deal like this. The key to these successes was co-operation and being realistic - many people pass up strategic partnerships like this because they overvalue their domains, waiting for a million dollar offer. We need to start building stable businesses today with reliable partners, and stop dreaming of a day that will most likely never come."

"Looking ahead to 2011, I think that there are more opportunities than ever before - however, I think there are two challenges which still stand in between most domainers and these opportunities - these challenges are greed and overoptimistic valuation of your own domains. Domainers tend to think their $10,000 domains are worth $100,000, and their $100,000 domains are worth $1 million. If we keep thinking like this, we may never take money off the table from many domains. In 2011, it's time to become realistic, and realize that it is better to partner with someone to develop a site that you later sell for $2 million, which you split and end up with $1 million of, than it is to wait for a $200,000 offer which may or may not ever come. Most domainers simply do not have a development skill set, or the patience and dedication to stick by a single project for months on end; this is why it is important to partner with companies and individuals who are passionate and dedicated. May 2011 be a prosperous and abundant year for everyone!" Kauffman concluded.

Larry Fischer, DirectNavigation.com

Larry Fischer

While Larry Fischer is a new contributor to our State of the Industry Cover Story this year, he is one of the most seasoned investors in the domain industry. Larry, who blogs at DirectNavigation.com, has has a hand in buying and selling many premier generic domains and, with Ari Goldberger, was also a co-founder of SmartName, the monetization company they later sold to NameMedia

"I found 2010 to be a very interesting year," Fischer said. " The economy improved, stock prices went up and so did domain prices. A few years back, VC-backed companies were looking to do domain acquisition deals based only on  multiples  of PPC revenue. Today, that no longer seems the case. More and more generics are selling based on brand value alone, and at greater amounts than they have in many years. I am aware and have participated in a number of 6 and 7 figure domain deals over the past 12 months. Unfortunately, most of the larger domain sales go unreported due to NDAs."

"Another hot growth area that emerged last year was local search. Many search outlets, Google being the largest and most influential, 

see the local search market as the next big playing field. Daily group deal buying sites are part of the local search mix. It was reported that Google recently offered $5-6 billion for local coupon site Groupon (which was turned down). Expect to see an explosion of these types of sites, which promote localized deals."

"For 2011, I predict that generic domain sales and prices will continue to be strong. Many of us in the industry will be focused on the new TLDs. I am sure there is plenty of money to be made in this arena. However the price of admission is 6 figures just to bid on an extension. I think some of the larger companies will be buying their company name as a TLD. Others will be buying industry keywords such as .Insurance. I would not be surprised if Quinstreet ends up owning .Insurance as they have invested heavily in strong insurance related generic keyword domains in the past. Of course some groups will be buying these TLDs to operate registries to offer the registration of second-level domains and with the opportunity to reap additional profits from the sale or auction of the best domains within a TLD at premium prices," Fischer added.

Rick Schwartz, Co-Founder, T.R.A.F.F.I.C.

No discussion about domain sales and monetization from an individual investor's point of view would be complete without hearing from the Domain King, T.R.A.F.F.I.C. conference Co-Founder Rick Schwartz. The negotiating skills he has demonstrated in completing numerous six and seven figure sales, including Candy.com at $3 million, are legendary.

In looking back at the key events of 2010 Schwartz said "I think there were many of them last year. We can start with Facebook and Social Media. That is a game changer. Everyone is now in the game or about to be. This was an easy entry for business and a way to get up to speed in a quick fashion. Facebook and Twitter icons are everywhere, but while some think that is a bad thing for domains I strongly believe the opposite. At the end of the day folks want to drive traffic to their domain name. Their website. Their business. The domain name corresponds with a brand for the older  established businesses. For newer businesses. The domain is the entire enchilada. Their name, their brand, their product their identity, their location. Their .com."

"Next is the way Main Street embraced online sales for Christmas. Compare that with a few years back when they spent all their money online scaring everyone about this or that. They finally BEGAN to understand how to use the Internet to HELP their physical store and for the first time we watched the physical store drive traffic to their website and their website driving 

Rick Schwartz

traffic to the physical store. Hallelujah!! They are getting it. How do I know? Because they are passing markers on the highway that prove they are all on course of where they should be. Just 10 years slower than they should have been!. That’s one slow bus folks," Schwartz laughed.

Looking ahead to 2011 Schwartz said, "The challenges I see are mostly from within the Industry and within us as individuals. That said I think 2011 will be a fantastic year but it may need a few months to rev up. I would say once we get past April 15th, we will see a very aggressive business climate return. I don’t know if it will be sustained or just an oasis in a desert with some more bad years to come. The mood is good, but the numbers are still painting a different picture. Lots of fragile areas throughout the economy and individual businesses."

"I do see a very robust year for domain sales. BIG sales will happen. A lot of them. The time is ripe for big deals. My only suggestion is don’t sell a domain for $500 when they (the buyer) had a $500,000 budget. And I still predict that Ron Jackson will report a record breaking year for domain sales. Even a stopped clock is right twice a day. So I am bound to be right eventually!"

"The bottom line is that business will now invest a lot of money online. What they have learned in 2009 and 2010 allows them to comfortably earmark more and more funds to our sector and less and less to other sectors. As far as I am concerned, the real Internet race starts right now," Schwartz said.

 Howard Neu, Co-Founder, T.R.A.F.F.I.C.

Howard Neu

T.R.A.F.F.I.C. Co-Founder Howard Neu wears multiple industry hats. In addition to staging T.R.A.F.F.I.C. conferences with Rick Schwartz, he is a noted domain attorney as well as a domain investor and developer. So, as you might expect, Howard's comments on the past year and what lies ahead takes all of those areas into consideration.

Regarding domain sales and monetization Neu said, "It seems that there are more "structured" transfers of domains than ever before with Leasing being the most popular, but also % of revenue generated has replaced cash up front in a number of large sales.  Also, there have been a number of payouts over 12 or 24 months with the Seller hanging on to ownership or, in the alternative, a 3rd party escrow agent (such as me) holds the domain in escrow until all payments are made."

"Due to the terrible downturn in payouts by PPC companies, most Domain Investors have sought other monetizing solutions, some of which are good (depending upon the domains) and some not so good.  Alternative companies like Epik, WhyPark, SmartName,  

DomainAdvertising and ParkLogic have picked up the slack, though a number of the results have not proven as bright as they originally seemed."

On a key legal issue for domain owners, UDRP disputes, Neu had this to say: "Insofar as UDRP proceedings are concerned, the Doctrine of Laches seems to have caught on this year and though no decisions have been made in favor of Respondents based SOLELY on that Doctrine, it was mentioned a number of times in cases where the Complainant dragged its feet in filing the action and the Panels found other reasons to deny the Complaints."

Looking ahead to 2011 Neu said, "With GoDaddy promoting .CO at the Super Bowl, with ICANN having Bill Clinton as its Keynote Speaker in San Francisco, with new gTLDs coming out and with Domain auctions in a state of flux, I believe that 2011 will be an exciting year and profitable for many who take advantage of the trends that develop.  From a multitude of Domain conferences in 2010, there are only 3 big conferences in 2011:  DomainFest in February, Domain Roundtable in March and T.R.A.F.F.I.C. once again in sunny South Florida in October. There is therefore a threefold opportunity to do business internationally and improve income streams through the networking provided at each conference."

Paul Keating, Attorney (Renova Ltd.)

Paul Keating of Renova Ltd. is one of the domain industry's most well known and respected domain attorneys. For insight into the key legal issues domain owners need to be aware of you couldn't ask for a better source.

"My largest worries for the space are the continued shrinkage of the rights of domain owners," Keating said. "We have seen the following in 2010:  (a) continued aggressive behavior by the IP lobby; (b) aggressive enforcement by governmental agencies (domain seizures and the like); and (c) the continued pro-tm lobby in the ADR providers relative to UDRP matters. The TM lobby has now joined with the larger IP lobby and they continue to push legislation “suggestions” to governments throughout the world.  The recent aggressive behavior of governmental agencies has been astounding in both breadth and lack of legal foundation.  An example is the seizure by Homeland Security of hundreds of domain names based upon legal claims/evidence that can only be said to be questionable at best.  The TM attorneys have gotten in on the act by obtaining “injunctions” that require the turn-over of domain names."

"The continuation of the pro-tm lobby in the 

Paul Keating
Renova Ltd.

ADR provider context can be seen in UDRP decisions such as Jappy v. Satoshi in which a 3-member panel recently resuscitated the Octogen decision after the panel in Natternmann v. Sanofi-Aventis rejected it (with the author of Octogen dissenting)."

"All of the above will get much worse for domainers," Keating predicted. "The industry really needs to start standing up and voicing its concern.  I and others try our best to “right the wrongs” when we see them.  For example, I am funding the appeal in the Parvi.org matter.  I know others (Nat Cohen) have also pitched in regularly to litigate or fund litigation.  However, this is no longer something that can be left to a few of the more vocal individuals in the industry. "

"The IP lobby doesn’t remember (or recognize) the benefits they have obtained.  I still remember the pre-UDRP days when disputes were resolved in formal (and expensive) litigation.  Not being satisfied with the UDRP they clamored for the “express” UDRP (which they do not seem to use).  They forget that the UDRP has essentially granted them global trademark rights even though their “rights” are inherently national.  They continually complain about the cost of enforcement and continue to seek more automated results that are founded upon the presumption that their “rights” are paramount.  They forget that trademarks are an exception to the language of the 1st amendment. They seem to amplify the phrase that “no good deed goes unpunished” and 

 Image: nuttakit/freedigitalphotos.net 

there is nothing that is enough.  Without a balancing force we may well see 2011 develop into a continuing erosion of the rights of domain registrants."  

"On the domain side, I see an unfortunate trend of service providers trying to carve out their own exclusive niche.  Examples of this can be found in the recent 2010 actions of GoDaddy to restrict access to their WHOIS and filing a patent application relative to obvious innovations to a system long in place and long relied upon by everyone.  It seems that everyone will soon be taking cues from the IP lobby and the Internet is at risk of becoming ever-more restrictive," Keating said.

Ari Goldberger, Attorney (ESQWire.com)

You've heard it said of some people that they are so well known they need no introduction. In the domain industry, such is the case with Ari Goldberger (the subject of our June 2006 Cover Story). As an attorney who has won countless key decisions for domain owners threatened with the loss of a valuable asset, Ari has earned his reputation as one of the very best in his business. Here's Ari's take on the key industry trends from a legal standpoint.

"As an attorney I continue to see increases in UDRP case filings," Goldberger said. "I believe this is a good sign for domainers because it demonstrates the value and importance of domains. Many of the cases are a direct result of the continuing growth of Internet  commerce – domain names being the door to the marketplace.  For example, I am seeing more UDRPs brought because the alleged offending domain name has a high or higher Google ranking than the trademark owner.  It’s cheaper to file a UDRP, grab the high-ranking web site than pay someone to search engine optimize it.  I am also seeing an increase in UDRP cases brought because infringing PPC ads have appeared on parked domain web  pages.  Domainers should be aware of what ads are showing up on their domains."

"On the flip-side I have also seen increased recognition by UDRP panels that PPC parking sites constitute bona fide and lawful use of domain names. In addition to the legal trends I have seen continued high-level interest in premium domain names by end-users and recognition of their high values with very large offers.  This is a good news for domainers who are, otherwise, seeing greatly reduced PPC payments over the past couple years."

Ari Goldberger

With respect to the prospects for 2011 Goldberger noted, "In 2010 domainers saw across-the-board decreases in PPC revenue. This opens the door for alternative monetization solutions in 2011 as reduced PPC revenues lower the opportunity costs of other opportunities which may not have made economic sense when the PPC money was better.  Improved domain name monetization applications can have a positive effect on all domain names,  raising their profile among consumers and end-users alike."

"As for the legal trends, I believe that the increase in new TLDs will fuel additional domain name disputes as stakeholders move to protect their brands in an ever-growing namescape. While not directly related to domain names, I also see an increase in legal issues associated with Internet personal communications.  Identity theft, privacy, defamation, cyber-harassment, and fraud are but a few of the legal issues that will continue to increase as more and more commerce and discourse moves online," Goldberger concluded. 

Coming up on Page 3: Domain Developers

Featuring exclusive commentary from:

  • The Castello Brothers
    (Castello Cities Internet Network)

  • Chad Folkening
    (Domain Holdings)

  • Andrew Miller
    (Internet Real Estate Group)

  • Morgan Linton
    (Linton Investments)

  • Jothan Frakes
    (Frakes On a Plane!)

 Image: Salvatore Vuono/freedigitalphotos.net

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