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And
yet even as the market changes and grows, it is
maturing. There are now over 1,000 active domainers, as
many as 100 million registered domains and a robust
secondary market for domain names. Advertisers are
becoming more savvy and demanding better results and
more information. Companies are getting smarter and more
strategic about how they work together to maximize their
share of the advertising dollar. New players are
entering the market, bringing new business models and
fresh perspectives. Most importantly, legal and
regulatory issues are now a big part of the
conversation.
As
the CEO of Internet
REIT, I am tasked with helping our team of
domainers and other industry professionals navigate
these often rocky waters so we can continue to build on
our successes from the past decade. As part of that
effort, we spend a lot of time talking about how shifts
in the market landscape will affect the domain
community. This article examines key areas of
significant industry change that domainers should be
watching closely in order to inform their future
strategies and thrive in this dynamic market.
Consolidation
Perhaps
the most dramatic shift we’re seeing today is industry
consolidation, which is having a ripple effect on both
the advertising value chain and domain valuations.
As
the market has matured and experience with direct
navigation has increased, advertisers are becoming
increasingly focused on traffic quality and ROI rather
than just “eyeballs” or clicks. Changes in Google
and Yahoo! advertising models, such as
“Smart Pricing”, are facilitating these changes.
In addition, we are seeing more direct deals with
advertisers and more technology-based advertising
solutions that improve monetization rates.
Figure 1. ADVERTISING VALUE CHAIN
  
In
order to effectively serve more demanding advertisers,
domainers will need to invest in content development,
better keyword optimization and other Web analytics.
This shift naturally favors large domainers who are
consolidating properties and investing in staff with the
relevant expertise. With the resources to invest in
infrastructure and apply sophisticated techniques to
increase PPC, large domainers can often improve the
monetization of particular sites more effectively than a
smaller player. Larger domainers may also be in a
position to “disintermediate” the middlemen in the
value chain and deal directly with advertisers once they
have the volume to support this model, further improving
the monetization of any given site.
The
good news for the industry is that, this improvement in
efficiency may have the effect of driving up valuations
for everyone. Why? If a larger player can
make 5% more on a domain than the current owner because
they can more effectively monetize the property, the
owner will be in a position to sell an underperforming
domain for a premium: it is worth more to someone else
than it is to him. It’s a win-win all around.
Valuations
As
the market matures, valuations are becoming less about
speculation and more about proven performance. At
Internet REIT, we look at quality of assets, quality of
earnings, the extent to which monetization and
development activities have already been proven, and
about twenty other metrics – both soft and hard -
in determining the value of a domain. This
methodology is in stark contrast to the “Wild West”
approach of guessing at potential value.
With
market maturity also comes a greater need for
predictability, which is putting the value of certain
types of domain name portfolios at risk. For
instance, we see lower valuations on the horizon for
anything trademark-related; portfolios with a majority
of “at risk” categories (gambling, XXX, etc.) and
portfolios with a high percentage of unprofitable domain
names or high suspected click fraud activities are also
less desirable in today’s market.
Legal
and Regulatory Issues
Like
other fast-growing technology industries, the domain
industry has evolved beyond the scope of existing
regulations. The most critical legal issue which has not
been resolved is whether domain names are “property”
or “trademarks.” Why is this important?
If domain names are trademarks, any domain remotely
resembling a company’s trademark could be taken away
from you.
There
are currently different rulings on the trademark issue
in different states; for example, Virginia says
domains have property rights, California says
domains are just trademarks and can be assigned.
It’s difficult to know which way the wind will blow
with this issue, because there are no federal or
international rulings. Even the criteria for deciding
what constitutes a trademark are highly subjective.
While “Starbucs” may closely resemble the name of a
major coffee company, what of “Starbooks”?
(currently the site of an Israeli architect,
incidentally… and for sale).
Any
rulings or legislation on this issue will clearly have a
major impact on the industry, and new rulings are no
doubt on the horizon. Unfortunately, while trademark
holders have been given huge latitude to prosecute, the
domain industry does not have a common voice with which
to offer an opinion or lobby for our rights.
Industry
Cooperation
This
community has a real opportunity – and, some would
argue, an obligation – to come together with a common
voice to promote and protect our industry. Initial
efforts are already underway to form an industry
association to serve this purpose. An association would
continue to teach advertisers the value of direct
navigation, lobby against harmful legislation and for a
federal law on trademarks. It would look for ways to
self-regulate so that others do not intervene on our
behalf.
On a
grassroots level, we should all be advocates for the
industry, whether we’re talking to the press,
discussing the industry in a keynote presentation, or
working with partners outside the industry. As a
community, we need to change the conversation in a way
that promotes positive market perceptions about the
domain business and counters some of the negative
perceptions that are a legacy of the Wild West years.
When
we at Internet REIT talk to people about our industry,
we like to stress precisely the points I’ve covered
this article: the market is growing, solidifying and
becoming more professional. We tell them that there is
an increased sense of community and collaboration, with
attendance at conferences such as T.R.A.F.F.I.C, ad:tech
and the Domain Roundtable growing every year. We
also point out that our industry has reached a critical
point in its development, where veteran domainers and
other professionals have a real understanding of the
issues facing our business, the key drivers behind
value, and what it will take to influence our own
destiny.
Most
importantly, we tell them that it’s an exciting time
to be in our industry, as businesspeople and
entrepreneurs converge to create the next Internet
frontier.
At Internet REIT, we
believe that talent is the most precious resource. Not
only are we looking to purchase portfolios of Internet
domains names (both large and small), but we're also
looking to hire people of high moral standing, a strong
work ethic, with a passion for the business and who love
a challenge. Please contact us if you have a portfolio
that you'd be interested in selling or are looking for
the next opportunity in your career (or ideally, both!)
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