Supernatural Agency: Online business tales

I am a bit mystified by the hoopla over pizza.com going for 2.6 million dollars. I think the buyer got a major bargain. The current site isn’t much of anything and probably makes some money but revenues are not what this is all about. This is a brand issue even though it is a generic type-in domain.

If I ran one of the major pizza chains I’d spend a lot more than this to keep this out of my competitor’s hands. The person or company that owns a domain like this owns the gateway to a global pizza business. The URL is unforgettable and a major ad campaign could be built around it, a campaign with longevity and flexibility.

Somewhere in the pizza marketing world heads should be rolling for letting this thing go for a bargain price.

I have about 20 blogs in my reader that are domaining-related. I read through them frequently and went from initial excitement about the potential of a domain market explosion to frustration at how primitive and out of touch this market is with much of the rest of the online world. We are search marketers and developers and have been for a relatively long time (ten years each). As such I’m mystified by the focus on parking as a business model and on the short-term perspective of many domain traders who are happy to sell for a multiple of what it costs them to register each year. The very short term, least effort approach in other words.

I know this has worked extremely well for some pioneers but, if you read between the lines, you’ll find that most of them are now focused on building businesses around their domains rather than parking. Parking is a holding strategy at best. My opinion of course

Selling Domains

We occasionally get an offer for one of our domains. Since we don’t register unless we can imagine how we would build a business around that domain, we don’t have a lot of things we want to part with. I’ve ranted about some of the silly names people tout but that is really an indicator of amateurs entering the market. If you own something good the only reason to sell is that you need the money- and that’s the worst reason possible (but understandable if you’ve been there). When I think about selling a domain I can’t help but think about what we would do with it if it was our primary focus. That makes it very hard to let them go. It’s like owning hundreds of potentially profitable business concepts.

Finally, I’ve come full circle and no longer consider our company to be domainers because we don’t park, we don’t sell and we develop. That’s no insult to the domain world and I’m going to keep contributing but my perspective has shifted to our core competencies- always a good business plan.

Just posted this and then went on to read Julia on the same subject of domaining and arbitrage. Couldn’t agree more.

I’ve been following Hecta since they went public in London last year and I spoke with Clark Landry regarding their plans a few months ago. Now, they’ve made a few big purchases of domain portfolios, notably a 60,000 name group bought for $1.42 million US. or about $24 per domain. They project a gross annual revenue of about $750,000. from these domains or an average of $12.50 annually per domain.

Clark told me their business plan was to look for domains that were underdeveloped due to lack of cash or bandwidth to do so. This purchase, even without any idea what domains it includes, looks like a no-brainer. I’m guessing the owner was looking to cash out but selling for 2x revenue doesn’t look that great to me. As has been pointed out by others, domain registrations are going to eat about one third of the revenue each year. I’d guess Hecta will cherry pick the good domains and offload the rest, especially if they are going the development route. It will be interesting to learn more about their approach.

A sale like this should be an increasingly rare event in the domain world going forward. Until recently domainers have looked like land speculators, grabbing swathes of swampy land, marginally improving it and selling off parcels to the next wannabe magnates. As the domain world wakes up to the fact that being a developer is where the big money is they’re going to be keeping the choice pieces for themselves and building luxury condo towers on them. Instead of a nice 300% return (like the Hecta deal), you’re going to be looking at much bigger returns on much smaller portfolios, IMHO.

If this is the case we could see a flattening of the resale market for marginal domain names as big portfolio holders dump the crap. While we don’t sell much, I do watch the auctions, Sedo and Afternic, etc., and it looks like this is already taking place. Personally I’d rather have one strong dot com domain than 1000 oddball ones. The definition of a ’strong’ domain for me is one with an obvious development roadmap and a high potential for monetization.

Are we domainers or web site owners? Are we in the media business or trading commodities? Are we more interested in the value of a domain or the site associated with that domain?

Increasingly as I’ve been participating in the domain blogosphere I end up asking myself these questions. Unlike many domainers we came into this as hard core Internet marketers and site developers (one partner) and content developers (me). I have to admit that it seems stupid to me to buy very marginal domains, park them and then flip them as opposed to development. Yet I have to admit that what got me into this originally a few years ago was selling a domain I’d registered a month earlier for $3000, a 3000% gain. That’s not bad except…that domain, developed as envisioned, would be worth a lot more than that now.

So I think we’re coming full circle and viewing ourselves as an online media network rather than as domain investors. We’ve bought domains based on this model and bought domains just because they would get type-in traffic. In doing an analysis of our portfolios, the obvious priority, given our strengths is to develop the strong domains, those with an obvious long term value as media properties, and sit on the rest. Maybe we’ll hold a garage sale: Anyone interested in GetLaidEveryNight.com? We bought it but it doesn’t interest us much at this point.

We’ve been developing a site at KitchenDesignInsights.com. It’s not a type-in domain but it is a brandable site and the revenue and traffic potential is off the charts. As a domain this might be worth 4-low 5 figures. As a fully functioning media property a year from now with good traffic and sponsors, affiliates, etc., how much will it be worth? Suppose it were throwing off $10k/month, maybe with a major appliance site sponsor like SubZero or GE?