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March 25, 2014

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The State of the Industry January 2011: 19 Industry Leaders Identify 2010's Most Important Trends and Predict What Lies Ahead This Year

By Ron Jackson 

Domain Developers

Michael Castello and David Castello, CCIN.com

If the domain industry is the still the Wild West as some say, domain development is the Final Frontier and the stage of the game that promises the biggest payoff of all. Building real businesses on high quality domain names can free domain owners from the whims of Google and Yahoo and open up direct advertising opportunities that can make PPC and other forms of 
monetization used with undeveloped domains pale in comparison.

This is something the Castello Brothers, Michael and David (the founders of Castello Cities Internet Network) have known for a long time. That's why they have been building out their premier geo and generic domains like PalmSprings.com, Nashville.com and Whisky.com one by one with spectacular results. The home page of PalmSprings.com alone generates more than $1 million a year in revenue. Here is what they had to say about the key events in the industry in 2010: 

The Castello Brothers - Michael (left) and David
Castello Cities Internet Network Inc. 

Michael Castello: "There were some great domain sales in 2010 but I believe the most important trend was the continued development of the Internet. This is an ongoing process that will only grow as technology advances. There is a difference between 2d domains and 3d domains and I am not talking about a television experience. There are domain names that give the visitor a virtual picture. The difference between the virtual depth of a Nashville.com and a name like Wash.com. Both great names but the technological reach of Nashville.com will someday take visitors to a place that they will virtually visit. The future goes hand in hand with these types of domains that conjure up a mental image. Get your head around one now if you can."  

David Castello: The most important trend, and one that impacts all domainers, is the continuing migration of outside investors into our industry. After the Crash of 2000, domains became the Rodney Dangerfield of the investment world and every great sale since then has been greeted with some degree of mixed skepticism by those outside our industry. The sale of Sex.com for $13 million (my vote for most significant event of 2010) may be seen in the next few years as a turning point because it quickly became headline news and was too hard for people to simply write off as an anomaly – especially in this economy. As more outside investors enter our industry it will be a mixed blessing, but I believe the positives will far outweigh the negatives. On the upside, we will see sales prices unthought of in earlier years. On the downside, there is always the possibility of intrusive government regulation."

Looking ahead to 2011, Michael and David had this to say:

Michael Castello: "We see more over-saturation in our market. Facebook has reached it’s peak and you may notice many members are now using it to further their own businesses. It seems to be going from P2P to B2B, getting more confusing and not as local friendly as it used to be. I believe the internet will start to fracture globally. We are starting to see powerful entities putting their hands in the cookie jar. They will expect greater controls and in doing so will cause others to draw their own lines in the sand."

"2011 in my opinion will be one of the last years to purchase your future ticket, your safe harbor. My suggestion to fellow 

domainers is to focus on one or several great domain names as opposed to building out hundreds of mini-sites. The competition will be too great since many new domain operators will be migrating from doing business on Facebook to making the jump to site ownership and control. 2011 is a huge transitional year in my opinion."

David Castello: "For non-developers and those entering the industry, flipping appears to have replaced parking as the revenue model du jour. For developers such as the Castello Brothers, it is a continuous evolution to modify/improve our own monetization methods while constantly being on the lookout for those best suited to partner with one of our undeveloped properties (we recently signed an agreement with Bruce Marler to develop and monetize Grape.com after observing his unique success with Missouri.me)."

"The incoming tsunami of new gTLDs will be a permanent game changer and I’m glad that ICANN is taking the time to get it as right as possible before launch. After the initial shock waves (look for a plethora of dopey “Death of dotCom?” articles in the mainstream media), the legacy TLDs and ccTLDs will soar in value. Some of the new gTLDs will do quite well (especially those in the early rounds), but regardless – it’s going to open the floodgates to a lot of new investments, press and newbies to our industry."

Chad Folkening, Co-Founder, Domain Holdings

Chad Folkening, who was featured in our October 2010 Cover Story, has a long, successful history in domain acquisition and development. Chad just co-founded a new development company (Domain Holdings) with John Ferber, the man who sold Advertising.com to AOL in a $435 million deal in 2004 and they are already making big waves. Here's Chad's take on 2010:

"A trend in the market in 2010 was visible with the older investor and the investment community really truthfully starting to  respect the young entrepreneur for alternative ideas. The impact on ROI and the ability to quickly create enormous value has created a true platform for entrepreneurship.   Simple ideas executed well create new millionaires and billionaires, mostly under 35, and this trend in entrepreneurship is very active in the younger generation.  Thanks to Groupon, FaceBook and Twitter, to name a few. Young, successful entrepreneurs are nothing new, but the trend among the younger generation is to start new businesses and take a shot at creating something exciting and useful."

"Respect for young entrepreneurs were truly fueled by Marc Zuckerberg and other young

Chad Folkening
Co-Founder, Domain Holdings 

webpreneurs and the Angel and Venture Capital market now considers not the age of the CEO but the idea, size and execution, as the policy guideline. I think this entrepreneurship trend has expanded in 2011 and impacts how domain names are used or classified.  Domains, while barrier to entry is easy, is a true asset class that continues to expand around the world and this barrier to entry really drives more innovation, value and supply-demand, created by technology and Internet infrastructure. When I started in the domain space 15 years ago, technology combined with domains had its end user limitations.  It was either hardware, software or connectivity issues but now in today's market, the moon is the limit to what can and will be created with today's Internet infrastructure," Folkening said.

"At Domain Holdings, we often compare a domain to a piece of land that uses the newest technology to create sustainable and scalable value. Apps, Social Media, Twitter, etc. all play a part in helping create a potential value movement in domains and technology and in 2011 are set to explode."

"2010 felt a little like the dip in 2002-2004 where quality domains were becoming available for good prices.  I think the low hanging fruit is a little higher and requires more methodical planning and approach to monetizing a domain asset.  Now instead of buying and dropping the domain on a PPC  lander, it's now making the investor really consider value creation strategies once the asset is acquired so the appraisal metrics will change again soon."

As for the year ahead Chad said, "2011 is also seeing more and more major portfolio owners working together to create domain portfolio value. This openness and collaboration creates significant value to the investors and partners involved through the synergies and leveraging of resources.  Domain Holdings appreciates and respects how fast technology and communication changes industries and sees the opportunity of creating new Domain technology that truly lifts the domain asset class up another notch."

Andrew Miller, Co-Founder, Internet Real Estate Group

As a Co-Founder of the Internet Real Estate Group (featured in our Sept. 2005 Cover Story), Andrew Miller has been involved in buying and developing some of the best generic domains of all time, including CreditCards.com, Computer.com, Shop.com and Chocolate.com. With his background I have made it a habit to call on Andrew for his annual assessment of where the industry currently stands. 

"I have been honored to have had Ron Jackson include me in this great issue for the past several years. If one were to go back and read my input each January, it probably would sometimes read like a broken record, but, most certainly would be consistent," Andrew observed. "Domain names are an evolving asset class and as much as sometimes, it may seem we are in a mature space, which started in 1994-1995 and is now 16 years old, I really still see these assets as 16 years new. It is still an immature, evolving, asset class."

"In 2010, I blogged at SimpleDomains.com quite often about the noticeable trend I noticed about dotcom domain names appearing in more and more large corporation, Madison Avenue driven, prime time advertisements.  Some examples of many advertisements  I saw on TV in 2010 were Taco Bell’s DriveThroughDiet.com, Domino’s PizzaTurnaround.com, John Hancock’s FindTheAnswers.com, State Farm’s WhyAgent.com and DiscountDoubleCheck.com, the Colombian Coffee industry’s Whatsbehindthebest.com."

Andrew Miller
Internet Real Estate Group

"We also saw many companies use dotcoms to promote causes. Examples included Kraft Foods huddletofighthunger.com, American Cancer Society’s compelling and moving ad, with the domain name MoreBirthdays.com., Pepsi ads for a community giving back program, RefreshEverything.com, and RethinkReform.com, a website about healthcare reform. Notice these were .coms , not .orgs."

"I am aware my position on “other” TLDs is not a popular one with many domainers, but, I ask all to do a 2011 homework assignment. As you go about your daily routines and travel by plane, train, or automobile, look at advertisements in airports, on highway billboards; read magazines, watch Prime Time television, the Super Bowl, watch the commercials, watch the promotions during the Broadcasts. I bet you will see, as always, 99% .COM, to the tunes of billions of dollars of media. It is part of the branding. So, if someone wants to buy Chocolate.co and actually do something with it, market it, advertise it, go for it as we will get all the traffic at Chocolate.com. You see, .com is just conditioned as part of the brand experience. It is Walmart.com, Target.com, NFL.com, Superbowl.com, AmericanIdol.com, ABC.com, People.com, EBAY.com, Amazon.com, Google.com. And in 2010, it branched out to domains like I discuss above via large corporations."

As for 2011, Miller said, "The biggest challenge is also the most significant opportunity. It is essential to continue to educate the domain name asset holders and pioneers, the “domainers”, to understand that  parking pages and platforms that are billed as creating keywords and content relevant to a domain but in actuality, end up delivering a website experience that is no better than parking pages, are actually forcing domain asset value down, to be viewed for their lowest level parking revenue value rather than an asset that is worth its weight in gold to brands like Kraft, State Farm, John Hancock."

"I want to see domains valued by where the 80% of their value is, which is in the value of the brand, memorable nature of the address/URL, and search optimization value for that keyword. This means that a category 

generic domain name should be properly developed into a website, or partnered, sold to a business that can properly develop the domain name into a valuable, rich website experience. This is both the challenge and the opportunity to change the value of this asset class and the way it is acquired, sold, and perceived.

Morgan Linton, Linton Investments

Morgan Linton hasn't been in the domain business as long as the pioneers you hear so much about, but he has made quite a splash since he entered the industry just a few years ago. Morgan has written an ebook on domains, posted a series of video interviews with industry leaders, developed dozens of websites and freely shared information with his loyal blog readers. 

Looking back at 2010 Morgan said, "I think the biggest trend I saw in the development and monetization space was the shift of focus from PPC to CPA and Lead Generation. As Domainers changed their focus from parking to development it quickly became apparent that letting Google determine how much you should be paid didn't always work out. As this shift took place Domainers began to face some of the same challenges Affiliate Marketers have experienced for years. In the end those who developed beyond mini-sites found the best success as their business grew through repeat visitors and more consistent revenue."

"For the industry as a whole I think the biggest trend was the shift from Parking to Development. While this has been happening for years, 2010 is the year where many Domainer's Parking revenue dropped to a point where owners had to develop their names into profitable businesses in order to generate meaningful revenue."

"In 2011 I think this industry will continue to see a major shift from parking to development. As search engines continue to give more focus to 

Morgan Linton
Linton Investments

brands Domainers will have to embrace social media to reach a larger audience and encourage more interactivity. The opportunity is huge, every domain name can be a living breathing brand, the challenge for many portfolio owners is focusing on just a few domains when they are used to trying to find a solution for all of them. The days of automated revenue are gone, now domain names that become real businesses will see the greatest returns and resale values. Portfolio owners with traffic and revenue will have a huge edge in 2011 as buyers will be looking more and more for domains with real business metrics behind them," Linton said.  

Jothan Frakes, Frakes On a Plane 

I'm going to close this year's State of the Industry Cover Story with comments from Jothan Frakes, a guy whose remarkably diverse industry background cuts across all of the categories we have discussed, as well as many we didn't. If you aren't already reading his Frakes on a 

Jothan Frakes


Plane blog, you should be because there are very few people in the business who have the depth of knowledge that Jothan does. Let's start with what he saw as the most important developments in 2010:

"Three major things," Frakes said:

  1. In 2010 there was a surge in the private stock trading marketplace, where shareholders of companies  that are not public can obtain some liquidity.  This drove some amazing (irrational) stock valuations when extrapolating the per share sale price against the overall number of shares.  This is driving a lot of the entrepreneurial minded towards building out their domain ideas.

  1. 2010 saw a lot of aggressive portfolio culling   One would think logically that this often led to shrinkage in the non-com GTLDs, and that this would have reduced the registrations in non-com TLDs, but instead the industry still saw expansion and growth in registrations.

  1. I had the privilege of announcing on Bob Parsons’ podcast back in 2005 when the GoDaddy group took over the #1 position from Network Solutions legacy dominance – and later as they crossed the horizon of 30 million domain names.  In 2010 they crossed the past 40 million registrations. That’s a growth of 10 million domains in 5 years.  Wow!"

Looking ahead Frakes said, "New TLDs could happen in 2011.  I think those of us cautiously optimistic about this are closely watching for the March ICANN meeting in San Francisco (where it is rumored Bill Clinton will be a keynote speaker) to be the announcement of the final version of the guidebook, with dates for when they’ll shortly thereafter start to accept applications."  

"I think it will happen, but I also am slightly skeptical as the schedule has been jacked around so much since 2008’s announcement that many of the scarred, weary, (and broke) applicants who started at the first of the announcements and trusted the dates – there are many of them losing their faith in the process with all of the protracted delays."  

"With the San Francisco meeting and its proximity to Silicon Valley, there’s an opportunity for ICANN to move it forward.  I am aware of over 250 applications as I type this."

".COM lovers – don’t be scared … it will take a long time for folks to unlearn old habits and re-learn new ones, so your portfolio won’t tank overnight if these happen."



I want to thank all of the industry leaders that took time out of their busy schedules to contribute to this year's report.  I feel certain that the knowledge you have so generously shared will help drive continued growth in the domain industry as entrepreneurs around the world come to understand just how much the right domain can contribute to their success online.

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