Supernatural Agency: Online business tales

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?

How much would a domainer think a domain like eBuild.com is worth? $500,000? A million? As a parked domain it might be valued somewhere in those ranges. And if you owned it, as a domainer, you’d probably be pretty happy with that valuation. But what if I told you that its real value is more like $220 million?

Think I’m crazy? Well, what if I told you that, as a comprehensively developed site, it brings in $22 million in annual revenues off of 300,000 unique visitors monthly? Does 10x revenues sound unreasonable?

That revenue number and visitor count are real. The site is a comprehensive source for builders to learn about and source materials and fixtures. So, one more question: Let’s say you invest 2 million into building out a site like this. Say ten full time people working two years and a pretty good PR and PPC budget for promotion. Wouldn’t $22 million in revenues and a big valuation be worth that investment?

Or would you rather sell it for $500,000?

The future of domain valuation is not in type-in, parked, PPC sites, IMHO. It’s development because the stakes, long term, are much higher. This is where the big money is going to go.

Hilarious.

Make sure you read the PowerPoint. I particularly love the ‘Buy This Company Now ($100,000)’ button.