Domain Name Journal - Sedo's Ascent: How the German Juggernaut Became A Global Giant

The trio set up shop in Cologne just as a red hot domain market was cooling off and on its way to cratering in a spectacular industry wide crash. Considering that they not only survived but thrived in that environment tells you a lot about the competitive drive they were about to unleash on the global marketplace. The name Sedo was chosen as an acronym for Search Engine for Domain Offers. The idea was to consolidate the highly fragmented marketplace for �used� domain names under one roof. Sedo installed a robust meta-search engine and initiated the industry�s first offer/counteroffer system, which allowed buyers and sellers to negotiate directly rather than deal with the uncertainties of an auction system. The idea and the way they applied it worked. While older, more established competitors were closing their doors, Sedo kept expanding. Over the last 3 years they have enjoyed an annual growth rate of over 50%!

In February 2001, barely a year after opening their doors, Sedo gained a valuable strategic partner and investor when Europe�s top web hosting company, 1&1 Internet AG, took a 41% stake in the business. By that summer, the extra capital had allowed Sedo to quickly expand throughout Europe by introducing localized sites for the UK, Spain and France. A year later a U.S. site went online and the company�s global presence has continued to grow ever since, now reaching all the way to Mainland China where their listings are seen in the local language

The Sedo management team got a key addition in mid-2002 when American Matthew Bentley came on board to head operations in English language markets. The Stanford University graduate had been in the thick of the Silicon Valley action during the late 90�s internet boom. Bentley told Domain Name Journal, �I reveled in over-exuberance, stock options, and �revolutionary� new ideas!" Bentley recalled, �the place was so rich with entrepreneurs you used to have to sign non-disclosure agreements just to carry on a conversation at many Stanford parties! I remember attending a thesis presentation by two geeky grad students about a new way of organizing data on the Internet which they were going to call �Google.� Having that early front row seat on web history helped Sedo strike a key partnership with Google this year.

Matthew S. Bentley
CEO, Sedo.com LLC
At Sedo's new Boston office

Bentley�s personal web journey began with some ill-fated web design efforts a decade ago. �I was thrilled about this new HTML technology that would let me fill virtual canvases with blinking text, swirling background images, and clear-pixel gifs! Later it evolved into sending corporate logos bouncing around the screen and igniting menu items in a holy glow through JavaScript rollovers.� Bentley said �My pi�ce de r�sistance was a splash page for a consulting company called Global Brain, Inc. that dramatically floated an image of the Earth into the corner of your screen, then illuminated a giant glowing text proclaiming, �THE GLOBAL BRAIN AWAKENS!�. This was in a very early version of DHTML, so about half the time the Earth would end in a fiery collision with the text!�

Bentley added, �fortunately for the dial-up users of the world, I quickly realized that web design was not my calling and moved into the business side of the Internet world. I worked at three non-profit Internet organizations (of course many companies were �non profit� but these were non-profit on purpose!), a now-defunct B2B marketplace focused on advertising called MediaBid.com and also spent a year at a product development consulting firm. When the bubble burst, I took the opportunity to follow another passion, and moved overseas to Europe. There I obtained a Master�s Degree in International Business from the Euromed Graduate School of Business in Marseille, France.�

While he was in Europe, Bentley crossed paths with the Sedo founders and accepted an offer to come and work with them. �When I arrived at Sedo, our international operations were essentially non-existent. My job was to develop our tiny English operations while competing with the behemoths of the day, Afternic and GreatDomains, with their tremendous corporate support and established brand image. The amazing thing is that it actually worked!�

Bentley recalled, �At the time, very few people had even heard of Sedo. The first thing I read about us on a forum was �Well, I don�t think they are a scam site!� Not exactly a ringing endorsement, but it could have been worse! �Most people thought we were only for Europeans, so we began an aggressive campaign to win hearts and minds. Every customer query was treated as if they were our only customer and they pretty much were!,� Bentley laughed.

�We became personal consultants for many people just getting started in the domain industry. For example, we developed domain appraisals that were (and still are) 5-10 pages long and chock full of analysis and advice when our competitors were charging twice as much just for a number.� Bentley said �Let me give you an example. For one $39 appraisal of a .jp domain I called on consultants specializing in the tech industry in Japan, contacted Stanford friends working in the industry in Japan and compiled research on the growth of the new TLD!�

�Mainly we just listened to customers,� Bentley said. �What we heard was that there were a lot of domainers out there that were unhappy with the current state of the domain market and their options for selling their domains. They didn�t like the uncertainty of auctions, the scams prevalent on Afternic (Editor�s Note: Afternic is under different ownership today), or the unrealistic prices on GreatDomains and they hated the poor service from pretty much everywhere.�

Bentley continued, �So we built our site around what our users were asking for. Instead of auctions, we let them negotiate directly with a buyer or seller (today they can even send messages back and forth). To eliminate the scams and risk of domain transfers, we trained a team of transfer experts to assist people in their transfer from beginning to end. And we focused on answering every customer support mail in as short a time as possible�often this would mean management like Daniel Law and I working late nights and weekends just to get through all of the hundreds of customer service emails we received each day.�

When his tour of duty ended, Law headed to New York City to enroll at Columbia University where he studied Economics and Political Science. �I loved the diversity that New York offered. It was there that I truly gained an insight to the economic and social impact of the internet, particularly within the context of Globalization, a major focus of my dual studies.� Law told us �I decided that I wanted to be a part of this world changing dynamic so when I was offered the opportunity to go to Germany and work at the �heart� of the internet for a company with truly international clients and perspectives, I jumped at the chance and left for Cologne within days of finishing my degree.�

Law, who remains based in Cologne, was recently promoted to head up U.S. and UK operations for Sedo, a position Bentley vacated to become the CEO of Sedo.com LLC, the corporate entity the company just set up in a brand spanking new American office that opened in Boston April 1st. �I was fortunate enough to be a part of the Sedo US\UK team in its infancy and to have had a hand in forming it into the global marketplace it is today�, Law said.

�When I first arrived Matt was alone and drowning in work trying to make Sedo US\UK into a big part of Sedo�s business,� Law recalled. �I immediately recognized the goldmine that Sedo had struck in finding and hiring Matt and put all my efforts into supporting him and helping him develop and realize his ideas. With lots of hard work and many long hours we developed a customer oriented business model and turned our department into a real market force. We were rewarded with phenomenal growth and now employ 10 people in the US\UK department alone. With Matt�s promotion and move to Boston, I will primarily manage the Cologne office, support Matt�s efforts and expansion in the US, and hopefully expand the UK side of our business in a parallel manner.�

Tim Schumacher remains the top executive in the Sedo hierarchy and he is almost always on the go, traveling wherever necessary to spread the Sedo gospel and open up new business opportunities. The countless miles covered by he and his teammates has resulted in a network of localized sites that include Sedo.com, Sedo.us, Sedo.co.uk, Sedo.de, Sedo.fr, Sedo.ca, Sedo.dk, Sedo.it, Sedo.nl and Sedo.se. The entire site is translated into four languages (English, French, Spanish and German), with a front page in 10 languages. Matthew Bentley told us �This international diversity is reflected in our staff�at last count I think we represented 10 nationalities and over a dozen languages�and this in a relatively small company (around 35 but growing fast!). It makes for a very stimulating work environment (by the way, if this sounds good to your readers, we are hiring!).�

The biggest international step of all was opening that new base of operations in America. Bentley said �Opening the Boston office is a very big investment for Sedo, but it�s something that a lot of our users have asked for. Customers have told us they would like better telephone access to customer service, faster bank transfers and a site that�s better adapted to the needs of our North American users. The only way to meet these customer requests was to open an office in the US, so that�s what we did.�

Bentley added, �Our model has been extremely successful in Europe, but without a physical presence in a country, it�s difficult to get the press, potential partners�even some customers�to take you seriously. Over the next few months we�d like to have domainers hear nothing but �Sedo, Sedo, Sedo�. We�re not just going to sit on our laurels and answer customer queries�this is an opportunity for us to see if we can recreate here some of our accomplishments in Europe: namely, increasing awareness of the domain secondary market among the broader Internet community, increasing acceptance of the new TLDs, and most of all, helping domain registrars offer integrated primary and secondary market (�new and used�) domain names.

�I realize that this represents a considerable challenge for a newcomer on the scene,� Bentley said, �but we�re prepared to invest significantly to do what it takes. We�ve already shown that willingness to invest in doing things right by purchasing Sedo.com for $80,000. Our lack of a .com domain has been a challenge for us since the very beginning, One of the first things I said when I joined the company was, �What! You want to do business in the U.S. with a .co.uk domain name?!!� Acquiring the .us helped some, but most people in the U.S. still don�t respect you without a .com. We actually had a major domain registrar tell us that they would not consider partnering with us because we did not have a .com! So much for supporting the new TLDs, which they were actually one of the largest registrars of!�

Landing Sedo.com proved to be a grueling marathon for Bentley. �When I tried to begin negotiations for the domain, the seller would hang up the phone every time I tried to explain that $1 million was unreasonable! The owner knew nothing of the domain market and current domain valuations; he just had the dumb luck to have the same last name as a company founded some place far, far away,� Bentley said. �For two years we tried nearly everything to bring the guy to his senses. We offered to fly him to Cologne so that he could see first-hand that we were not a huge multinational company, to buy him a BMW, to send his whole family to Hawaii, to pay him an increasing annuity for the rest of his life, etc. Apparently, his girlfriend eventually told him he was a fool for rejecting all of these great offers and Tim finally closed the agreement at $80,000 (I hope the IRS is paying attention)!�

Bentley added, �In the end I think we showed that a company can indeed be successful developing on a .us domain name. However, this created a slew of complications and challenges that we as a growing company could have done without. In the end, we put our money where our mouth is and paid the price. We feel that it�s an investment that will eventually pay for itself many times over. And, of course, it paved the way for the opening up of our U.S. office.�

With respect to the company's new physical presence in America, Bentley noted, �the immediate impact for our users will be improved customer service, much faster domain transfers and bank transfers, more payment options and improved usability. On a longer-term scale, they should see Sedo investing heavily in marketing and product improvements. I will make it very clear right now: the secondary market needs a single dominant player to bring everyone together, to become the eBay of domain names, and we will be doing whatever it takes to become that dominant player!�

That�s not good news for competitors, but domain owners will appreciate the scope of Sedo�s ambitions. �Another important focus will be education," Bentley said. �We�d like to put out a lot of articles in the press about the domain secondary market. We�d like to help domainers make the most money from their investment and even bring them together for seminars and conferences. It will be a fun time for everyone involved in domain names and the spill-over benefits of our marketing investment should help increase general awareness and�along with that�domain prices.�

Bentley told us there is currently a critical race underway among the major players in the domain market. He said �the race is to become the first to unify the domain primary and secondary markets. This is the key to bringing premium domains to the general population and it will allow domainers to offer their wares through the best possible channel: major registrars. Sedo has already pretty much locked up the European markets, which is why we have so many strong sales there. We�re partnered with top registrars in Germany, the UK, France, and Spain. Recently we closed a partnership with the leading domain registrar in China.�

Even so, Bentley realizes the competition isn�t sitting still. �The other players have been very active. Verisign/GreatDomains developed their Secondary Market Program, which would have used their clout in the industry to force domainers to pay $60 per domain name every 3 months just to list for sale! Fortunately, no registrars have bought into the program. The new Afternic has a great bunch of guys leading it, and they�ve done a lot to throw off the ghosts of Afternic�s past, so they can�t be counted out either. It will be a close race, but we are determined to offer registrars a seamlessly integrated, easy way for their users to access premium domains. Most importantly, we�re offering them a way to boost badly needed revenue in these tough times,� Bentley said.

He added, �We have a lot of other ideas, many contributed by customers in a recent survey we did, and we recently nearly doubled the size of our tech development team, so we�ll finally have the tools to put all of these great ideas in place.� Bentley said those expenditures will pay off in a big way for Sedo customers. �From the comfort of their couch they can use Sedo to market their domains around the world, where that new TLD, odd country code, or meaningless phrase might suddenly take on new value.� That global reach is a good explanation for Sedo�s dominance in country code and new extension sales.

One of the few areas that Sedo customers have seen glitches is in their relatively new domain parking program. There have been some technical problems (like a 15-hour server outage the first weekend in April) and broad fluctuations in payouts. We asked Bentley to address that. �Improving our parking program is the primary focus of our Technical Development team,� he said. �I think many users see so much volatility because we are constantly tweaking the system, trying to improve the users� earnings. The biggest improvement that we have made recently was partnering with Google AdWords to provide our advertisements.�

Bentley added, �Currently, we�re focusing our parking attention on improving optimization (selection of the advertising keyword) and statistics. Both of these challenges are compounded because of the international character of the Internet. Since Google targets their advertisements based upon the geographic region of the visitor, a keyword might work great for one visitor but not have any results for the next. Similarly, the same keyword might pay $.10 for one click and $.50 for the next. So the challenge for us is to generate multiple keywords for each major language area, and display the right one at the right time. It�s a pretty big technical challenge, especially across hundreds of thousands of domain names, but we are making good progress,� Bentley said.

Bentley believes that domain parking should be a key component of every domain investor�s strategy. �It�s like investing in a stock,� he said. "You receive a regular dividend (the parking earnings) but also have the chance for a big payoff at the end when you sell your domain/ stock. Parking your domain is without question the #1 thing that you can do to improve your chances of selling your domain name. However, if you only park but don�t sell, you�re missing out on the chance to trade in your existing assets (remember the stock analogy) for one that might have a more lucrative payout.�

Bentley continued, �through our domain parking program (http://www.sedoparking.com), suddenly even Joe DomainHolder could earn enough from his traffic to pay for his domain registration costs (thus eliminating the downside risk of domain speculation) and those with good names could earn much, much more! Sedo is first and foremost a domain marketplace. We offer domain parking to help users increase their chances of making a sale. That�s why we�re willing to be more aggressive with our payouts than other parking programs, because we know that if you park with us, you have a much better chance of selling your domain name,� he concluded.

The domain market is currently enjoying a strong rebound, one that Bentley thinks will continue for some time. �If you consider the number of Internet users currently online worldwide, versus what the number is projected to be 5-10 years from now, you realize that demand will continue to grow. Companies will always need a good domain for their website. That is a constant. What might change is the definition of a good domain,� Bentley said. �Today that might be a .com, but tomorrow it might be a .info or a few country code TLDs.�

Bentley also said �I believe that much of the recent growth in the industry has come from increasing recognition of the value of traffic. Traffic is the lifeblood of the web and domain names are the vessels that channel that traffic to the websites that need it to survive. From this perspective, the domain community is at the center of the action! As more and more eMarketing professionals recognize the untapped traffic-generating potential of domain names, they will continue to divert their budgets away from less-effective methods such as banner advertising and print and towards investing in domain names. At least, that�s what we�re telling them to do!�

Of course a wise businessman will also keep an eye out for any potential downside. Bentley said �I think the most significant risk to the current growth is that the market still does not behave like a mature market. There is little agreement on the true value of domain names�you still see some people asking 7 figures for worthless domain names, and others going for less than they would generate in 1 month parked at Sedo!�

He added, �both domain sellers and buyers (the general public) need to do more to educate themselves about fair domain values. Most of us will tend to think that buyers are the ignorant ones, but I can think of at least three instances of domains that most of us would not give our lunch money for that have standing six-figure offers on them! If only the sellers would come to their senses�this still happens a lot, even today. If domain sellers start to feel that this is �Bubble Part II�, this tendency could get worse.�

Bentley said �to help counteract this, we try to give both parties as much information about a domain as possible. Bring visitor numbers, CPC (cost per click), CTR (click through rate), origin of traffic, etc. all out in the open and it becomes easier to find a �fair value� price.� Bentley added, �another risk to increasing prices would be a collapse in pay per click prices. Many people are remarkably good at accurately estimating how much they will earn from a given domain name via domain parking. If the CPC falls, prices would follow pretty quickly (so don�t go clicking on your parked domains and send CPCs down!). Of course, if it rises, prices will too.�

Though no one can predict the future for certain, Bentley likes what he is seeing at his company today. �Sedo has the largest database of any domain marketplace�over 1 million domain names. Sales have been great and February was our first $1 million dollar month�we sold over a million dollars of domain names in just 29 days. Just two years ago, our monthly volume of domain sales processed was measured in the tens of thousands.� Bentley also said, �the number of visitors to our network of sites has increased 100 fold, we�ve become a community of over 150,000 domain professionals (members) and that figure increases by around 7,500 new members each month!�

Bentley claims that �compared to the erstwhile �giants�, we now have the highest traffic (compare the Alexa numbers of their single sites to the numbers of our multiple sites), the largest database, the most international presence, the best parking program and the largest number of entries on DNJournal.com�s Top Sales list - my personal favorite measure of success!"

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