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Many
of the experts on last year’s panel predicted the wave of
industry consolidation we saw in 2006 that resulted in new owners
taking over leading registrars (most notably eNom and BulkRegister),
a top aftermarket sales venue (Afternic), PPC companies
like GoldKey and dozens of domain portfolios. The consensus
among this year’s panel is that consolidation will remain the
most powerful force in the domain business in the months
ahead.
|
Bob
Martin
CEO, iREIT |
iREIT
CEO
Bob Martin told us “I think that the most
significant trend in the industry is the maturity and
consolidation of the domain name industry. There are
now four entities with over $100 million in
capitalization actively engaged in consolidating the space
(iREIT, Demand Media, Name Media and Marchex).
These companies are bringing a new level of scrutiny to
the industry with audits, formalized portfolio
evaluations, media attention and monetization
enhancements.”
“We
believe that the industry that today includes over 13,000
participants and is dominated by “random traffic” PPC
monetization will evolve into a more concentrated industry
whose participants will have made substantial investments
in technology and developed primarily vertically-focused
portfolios that combine a variety of monetization
activities (CPA, CPM, pay-per-call and PPC) to remain
competitive," Martin said. |
“iREIT
fared exceptionally well during 2006. We completed over 65
acquisitions throughout the year, recruited a top-tier management
team, and completed a sizable number of technical and monetization
development milestones.”
Marchex
Inc., the public company that permanently changed the face of the
domain industry with their $164 million purchase of the Ultimate
Search portfolio, spent much of 2006 adding value to their
properties. General Manager Andy Smith told us, “the
value of generic, commercially relevant domains continues to
increase and the industry continues to evolve as there are
multiple parties looking for ways to increase the value of their
assets, particularly through product innovations, such as our
focus on using technology to build Web sites with high consumer
utility.”
| Smith
cited Beijing.com,
Remodeling.com,
NewYorkDining.com
and LasVegasVacations.com
as examples of what Marchex is doing with their domains.
“While
the past couple of years have been defined largely by
acquisitions, we think the more interesting things to
watch in ’07 will revolve around the development of the
Web sites themselves,” Smith said. "A lot of
speculation and possibilities are being discussed or promised,
so we again will be interested to watch how and when
various entities will go about more fully developing their
own proprietary Web sites, in a way that increases their
ability to maximize revenue and profitability.” |
Marchex
General Manager Andy Smith (right)
speaking with iREIT's Marc Ostrofsky
|
The
company that bought both eNom and BulkRegister was Demand Media.
Investors have poured $220 million into that company’s
war chest and Demand Media will use it to keep adding assets and
strengthen their position in the battle for supremacy among the
domain conglomerates. Demand Media President and COO Paul
Stahura (who was eNom’s CEO when the company was acquired by
Demand) said the fierce competition assures “more of the same
for 2007 – acquisitions of companies, individual names, and
portfolios of names.”
|
Paul
Stahura
President & COO, Demand Media |
In
the registrar space, late 2006 witnessed large companies
like Google and Microsoft partnering with
registrars such as eNom to provide name registration
services to their users. Stahura said more large companies
will do this. Having global internet leaders like them
exposing millions of potential new customers to the
benefits of owning a domain name should add fuel to the
already hot registration and secondary sales markets.
“We
will also see even more clearly the intersection of the
domain name space and the media space,” Stahura said.
“Take .tv for example. With the explosion
of video content on the Internet, I think we will see the
.tv top level domain grow the most compared to other TLDs.”
Of course, Stahura now has a special interest in .tv since
registry owner Verisign turned management of that
extension over to eNom in the final quarter of 2006. |
However,
Stahura
isn’t alone in predicting better things for .tv. Those
who were at the T.R.A.F.F.I.C.
East conference in Hollywood, Florida in
October will remember keynote speaker Tom Gardner of the Motley
Fool predicting .tv would be the sleeper hit of 2007 (a
pronouncement greeted with stunned disbelief by his audience, but
one that now seems prescient to some).
Demand
Media is typical of the new domain industry giants that have a
hand in multiple pies. “The power and influence within our
industry will further and further be concentrated amongst a select
few,” CEO Ammar Kubba of popular PPC company TrafficZ.com
told us. “As a whole, the increased attention from the financial
community bodes well for the future of the domain industry,
however the tremendous influx of money also brings with it an
influx of inexperienced players that find themselves struggling to
grasp the intricate complexities of our space. As we've seen this
past year, just because you have a lot of money, it does not mean
that you know how to monetize domains,” Kubba said.
|
“The
advantage that money does bring these new players is the
luxury of time to learn without the fiscal pressures faced
by those who are not financially backed,” he added.
“Companies like TrafficZ are being contacted on a weekly
basis by equity firms and strategic partners looking to
buy our knowledge, experience and relationships to either
better manage their own portfolio investments or to simply
break into the space.”
“The
past year also brought the longest string of sustained
portfolio consolidations in our industry's short history
and this trend will continue into 2007, although probably
at a slower rate due to the reduced inventory of remaining
quality portfolios. Additionally, the overall
valuations (and expectations of valuations) of domain
portfolios seem to have somewhat leveled off in 2006.
Whereas individual domain prices have been consistently
and steadily rising, whole portfolio valuations are
leveling off. I believe that this is primarily a
function of the more sophisticated investors bringing
money into the space, employing more traditional financial
analysis models and valuation methods. Sellers may not
necessarily be getting the multiples that they had been
dreaming of, but they are getting liquidity,” Kubba
said. |
Ammar
Kubba
COO, TrafficZ.com |
Oversee.net
(operators of PPC leader DomainSponsor.com)
is one of the major companies that got involved in purchasing
portfolios in 2006. Their Director of Business Development, Ron
Sheridan, commented on the move into domain ownership being
made by traffic aggregators like DomainSponsor “The great
consolidation of the domain space this past year, with aggregators
acquiring significant portfolios, is a signal of more and
different types of consolidation to come. I expect there to be a
continued number of domainers looking to cash out at what they
perceive to be the peak of the market. Still, many will hold
and see where the industry goes.”
|
Ron
Sheridan
Director of Business Development
DomainSponsor.com |
That
wait and see attitude among the holdouts has been fueled
by steadily increasing domain prices. Sheridan said “We
saw tremendous growth in the domain aftermarket.
With decreasing and, in some cases, non-existent available
generic domains in the primary market, the sales and value
of these domains in the aftermarket shot up.”
Sheridan
sees another potential bright spot in the year ahead.
“IDNs (International Domain Names) could be big in 2007. We’re already seeing
a rush to scoop up generics in this category. The
recent release of the IE7 browser has a lot to do with the boost of
interest here, with its ability to support non-Romanized
characters. Parking services will need to cater to
these domains with relevant foreign language keywords and
ads,” Sheridan noted.
“Parking
revenues overall will gradually increase in 2007, with the
potential exception of high-risk names and portfolios.
Publishers will continue to demand higher levels of
consistency and performance from their parking vendors.
Those with technical expertise, disciplined management and
financial strength will continue to force the weaker
players out,” Sheridan said. |
“On
the opposite side of the spectrum, more risky names weren’t as
valuable in 2006 as they were in past years. Domainers are
consistently moving away from these types of domains because, in many
cases, the reward isn’t worth the risk anymore.”
On
that point, Sheridan was alluding to domain names that potentially
infringe on existing trademarks. This has been a lingering problem
for the industry but one that prominent attorney, Paul Keating
of Renova
Ltd. thinks may be brought under control by the influx
of a new breed of investors. “In 2006, serious money was brought
into the industry by professional (non-domainer) investors for the
second year in a row,” Keating said. “This shows that the
returns being generated are becoming more widely known and that
the nature of the industry is becoming more widely understood. The
latter is important as it helps respond to the bad reputation the
industry has had in the past and the former is important because
it adds credibility to the model.”
|
“Second,
the fact that litigation has been undertaken against the
likes of Dotster. This shows the level of risk
associated with the industry if one does not run a clean
ship. This and the presence of professional investors
will bring the domain industry more into conformity
with typical businesses - raising the importance of
documentation, due diligence and proper risk
management.”
“I
see a more and more aggressive stance being taken by
trademark holders who, taking the lead from litigation
such as that involving Dotster (and bowing to pressure
from IP counsel in need of billable hours) will become
more aggressive in enforcement,” Keating said. “This
should in turn lead to a general "cleaning"
house by registrants and parking services. Because of
the inherent cash-flow benefits of trademarks, I believe
this will in turn will lead undoubtedly to a concentration
of registrants holding "challenged" portfolios
(those containing domains with potential trademark
conflicts) in intelligent and risk-managed structures." |
Attorney
Paul
Keating
Renova Ltd. |
"The
final solution will be when trademark holders begin to
realize that the best defense against inappropriate
registrations is for the trademark holder to start
registering them for their own use in capturing
traffic," Keating said.
|
Ari
Goldberger, ESQwire.com |
Attorney
Ari Goldberger of ESQwire.com
has also noticed the chaging legal winds. "ESQwire.com saw a tremendous increase in domain name disputes in 2006 initiated by trademark owners in the form of cease and desist letters as well as actions under the Uniform Domain Dispute Policy and
litigation," Goldberger said.
"This is a natural progression as trademark owners continue to recognize the value of domain names and the importance of owning all variations of their brands including typos. I see this trend continuing. Just as the
Industrial Revolution greatly increased legal disputes among manufacturers, resellers and consumers, the
Internet Revolution will continue to see more disputes. As interactions among users worldwide continue to increase so will clashes. The challenge for lawyers is to assist with keeping these disputes to a minimum and helping to enhance trust and stability in the system. |
When
people assess risks to continuation of the current domain market
boom, they often cite click fraud as trademark
infringement’s evil twin. TrafficZ’s Kubba said, “As we
predicted in your January 2006 cover story, the greatest risk we
faced last year was the specter of click fraud. The issue
came to a head in the middle of the year with a series of negative
articles published that exposed the reality of the click fraud
"epidemic" and sent advertisers into a frenzy."
"Although the problem certainly was real, it was also somewhat
dramatized and exaggerated, which resulted in a significant
advertiser backlash and declining bids across the paid search
networks. As Yahoo!, Google and industry leaders like
TrafficZ and other parking services stepped up our efforts to weed
out the guilty parties, the negative press has died down
considerably and advertiser confidence is back on the rise.
I
don't believe that click fraud will be a major issue for 2007," Kubba concluded.
Next
Page:
-
Sedo's
Matt Bentley Blasts Mass Media's Domain Reporting Blunders
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2007
Forecast from Frank Schilling - The Man Many Say
Is The World's Most Successful Domain Investor
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Moniker
CEO Monte Cahn on His Company's
Multi-Million Dollar Live Domain Auctions
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Co-Founder
Howard Neu Has the Inside Scoop on 2007 T.R.A.F.F.I.C.
Conferences in Las Vegas, New York City and South Florida
Continue
to Page 2 of this story
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