DNJ Newsletter

Inside iREIT: How a Startup Company Became an Industry Giant Overnight

No matter which way you turn in the domain business these days, odds are you will bump into someone from iREIT (shorthand for Internet REIT, Inc. a Houston, Texas based company that has become one of the leading forces in the wave of consolidation currently sweeping through the domain industry). Just 18 months after opening their doors, iREIT has amassed over 400,000 domains (that attract 50 million visitors a month) and signed up three dozen employees (several of whom are veteran domainers) that are devoted to keeping their company ahead of the pack.

In the second quarter of 2006 alone, iREIT spent over $11.5 million on 34 portfolios and added 40,000 new domains to their inventory. Of course, with domains quality is more important than quantity, but with such names as CreditReports.com, MutualFunds.com, Bands.com and Tablets.com dotting their roster, iREIT has both bases covered. 

 Internet REIT CEO Bob Martin (top left), 
President Marc Ostrofsky (bottom left),
Chairman Stuart Rabin (bottom right)

Several well-funded companies are racing to roll up the domain business, but few of them enjoy the kind of financial backing iREIT has. JFI (Jacobson Family Investments), Maveron (the investment firm held by Starbucks Chairman Howard Schultz and his partner Dan Levitan) and Perot Investments have all helped stock iREIT’s war chest. 

The company has become the proverbial 800-pound gorilla that creates shock waves with every step it takes. Even companies that don’t compete with iREIT for domains are affected by their impact on the market. Take pay-per-click companies for instance. When iREIT buys up 40,000 domains in a quarter, the PPC companies that those names were originally pointed to have to say goodbye to a large chunk of change as iREIT redirects their newly acquired domains to their own direct account with Google.  

So how did this kind of behemoth suddenly appear in our midst? To find out, we looked at the history of the company’s three principals (CEO Bob Martin, President Marc Ostrofsky and Chairman Stuart Rabin) and the events that brought them together as Internet REIT, Inc. 

While Martin and Rabin are from the financial world and are relatively late arrivals to this business, Ostrofsky was one of the original domainers. He started buying names in the mid 90’s and went on to become a household name in the industry when he sold Business.com in 1999 in a cash and stock deal reportedly worth $7.5 million. He had acquired the domain for $150,000 just two years earlier. 

As a resale market gradually developed for domains, Ostrofsky was able to sell names like eBusiness.com and eFlowers.com for a handsome profit. He also had success helping run domain-based ecommerce businesses, like Blinds.com where he was a co-owner and board member of a company that had $40 million in annual sales. "The company did that despite carrying no inventory at all – we simply took orders and had a third party supplier ship them out," Ostrofsky told us.  

Ostrofsky had enough diversified business interests that he was able to ride out the “dotcom bust” and subsequent lean years this industry experienced from 2000-2003. In 2004, when a powerful rebound in the domain market was just getting underway, Ostrofsky crossed paths with a business whiz from the northwest Chicago suburbs named Bob Martin. They met through the Houston Angel Network, a non-profit organization that connects angel investors with promising Texas-based companies. Ostrofsky told Martin about the big opportunity he saw in domains and Martin liked what he heard. As 2004 came to a close, Ostrofsky and Martin decided to join forces as founders of Internet REIT, Inc.

But he was smart enough to get into Harvard and industrious enough to pay his way through school by working up to 60 hours a week. He even managed to graduate from Harvard early and while he says he didn’t really learn anything practical there, he formed some great relationships. 

“After college I got a job with Advent International (a venture capital firm in Boston),” Martin said. “I learned that I didn’t want to be a venture capitalist when I found out that entrepreneurs made all of the money!”. So in 1998, Martin became a director at Trilogy, an enterprise software company that was doing well as the original Internet bubble began expanding. “We were giving away Porsche Boxters on multiple college campuses just to get resumes!,” Martin recalled. By 2000, the bubble was deflating, prompting Martin to switch gears again and help start an investment bank called Jumpstart Partners.

In early 2005, Rabin was at his Manhattan office overlooking Central Park when his old pal Bob Martin paid a visit to introduce his new partner, Marc Ostrofsky. “Marc and I originally put money into iREIT as a side investment vehicle,” Martin recalls, “but the business turned into something much more interesting with real potential.” Martin felt Rabin was the guy who could help unlock that potential. 

“Bob and Marc told me about the idea they had to build a business focused on the aggregation and development of Internet domain names,” Rabin said. “I immediately thought that this was a potentially very exciting business with great opportunity. Our initial discussion reminded me of the outdoor advertising or billboard business and the consolidation that took place in that industry some years ago."

“In speaking with Bob and Marc it seemed to me that all of this and perhaps more was possible in the domain name business, given the attributes of the on-line advertising economy - or what I like to call the “Google ecosystem,” Rabin said.  “The growth dynamics for on-line ad spending are spectacular and the “real estate” or advertising space (the quality venues for advertising on-line) is a relatively scarce commodity."

"It also occurred to the three of us that no one was really doing what we thought was possible in the industry, in a professional and focused way.  We knew that there would be others to “get it” eventually, but that we also had a relative head-start in putting together a well-organized and hopefully world class company in this large and fast growing market. Overall, we saw great industry fundamentals and saw that the industry was still early in the process of consolidation.  We also believed that we collectively had the necessary ingredients to build iREIT into something very special," Rabin said.

Left to right: Stuart Rabin, Bob Martin & Marc Ostrofsky
conducting a seminar at T.R.A.F.F.I.C. East 2005 in Delray Beach, Florida

“I did some real research into the economic model for on-line advertising, into the industry dynamics generally, and the specifics of the domain name and direct navigation world. I then got quite comfortable with the asset class, the risks, and the industry,” Rabin added.  

Rabin is technically not a company executive and he is not employed by iREIT. His role is to be a very active board member and a close advisor and partner to the team and to the company in general. Rabin’s investment group, JFI, agreed to provide much of the initial funding for iREIT if Martin would leave Jumpstart and work as the full time CEO of the new venture. Martin agreed and the trio was on their way. 

Rabin has certainly upheld his end of the bargain, keeping the iREIT coffers full of funds from co-investors. “When I called Dan Levitan at Maveron and Steve Blasnik at Perot Investments to introduce each of them to the concept behind iREIT they each “got it” immediately. They saw what I saw originally – a great concept and a focused effort in an industry ripe for consolidation and in need of professional management and best practices. Also, they agreed that there was an opportunity to continue to build a real company and a world class organization in an industry where few such businesses existed,” Rabin said. 

iREIT’s original business plan was a simple one. Ostrosky said, “We felt if someone could "roll up" this industry - put enough traffic sources together to be a force in the internet traffic market, they could have a very good business model and an exceptional cash flow machine for a long time to come. Internet REIT, Inc. became just that.”

Martin agreed, saying the trio’s goals have changed very little with one exception. “We are more focused now on content development and development of Internet media properties vs. simple acquisition of domain names. In June, iREIT announced a partnership with Associated Content, a leading community of user-generated content producers, to provide original content for various iREIT sites including Consulting.com, Netster.com, HispanoMundo.com, MovieClips.com and VietnamWar.com.

Indeed, the iREIT leaders seems to be in perpetual personnel recruiting mode. Rabin said “I encourage anyone reading this article that might be interested in being at the forefront of the domain industry, or in partnering with an industry leader as it rapidly scales towards success, to reach out to Bob or to me to find out how you can get involved with our very exciting and fast growing company. We believe that at iREIT we are doing something that will change the industry for the better and will be very profitable and rewarding for all of our stakeholders."

"Our mission is very specific. We do not get into all sorts of businesses - we buy, sell, create and build cash flows stemming from the real estate we purchase from others in the market. Our management team is very strong and growing weekly.  Our tech team is first rate. Our management is in the market and understands what domainers want. I believe one of our strongest assets is the proprietary monetization system that our team has developed. This allows us to realize value in domains that may not interest our competitors. For those looking to sell their portfolio or assets, this means that we are often able to bid more than other potential buyers.” 

Rabin said, “The industry is certainly big enough for more than one competitor and also more than one “winner.”  iREIT will stay true to its goals and will stay focused on achieving success. We are well on our way and we believe our competitive strengths including a domainer friendly culture, a flexible company environment, a well-financed organization, a great board of directors and advisory talent, and excellent team of employees will all result in a very successful and profitable business for iREIT.” 

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