Google, Yahoo and Domains?

Reader Writes:

"The idea of purchasing portfolios and domains on a ROI basis from your downstream partners is being overlooked by the biggest players on the internet, namely Google and Yahoo. By choosing not to do so, large public companies who have a unique perspective and information on these gems, are failing their own investors. This may be the single most important mistake both Yahoo and Google are making. [Their] cut is bigger then their partners, their knowledge is broader then their partners, they can offer a more competetive bid to domain owners then other ROI-based buyers can. As domain owners we know, (based on historical data), domain traffic is sustainable even at most difficult times.

When the dot com bubble burst I was asked by other tech professionals how does it effect our business? My answer was always: It doesn't at all. The more we move forward the more traffic we get, the more advertisers embrace the web. When that happens, as more advertisers compete for less traffic, value goes higher.

If anything, the dot com burst proved domain traffic is as solid as the best investments you can find. By buying domains Google and Yahoo  can hedge their bets against other new companies which may come with better marketing, technology products. As we all know, looking at the search engine business history (excite, Lycos, AltaVista), this is more likely to happen then not to.

I really don't think Google or Yahoo will do this ..  Search people have just viewed things through a different optic for too long.  Back when first generation domainers were getting a 40% rev share (Overture got 60%) Overture could have bought out the entire domain space for a multiple of PPC revenue alone. No consideration was given to breakup value back then because the space was new, roll-ups were new. They didn't even kick the tires back then. Today rev shares are reversed or better and still nobody calls. If they did, the cleanest portfolio holders wouldn't sell for 20X PPC because the breakup value is wayyyy higher.

Look at woodtoys.com.  I posted my friend's name last night and it sold 8 hours later for probably 40X PPC revenue. Why?  Because it's not about the PPC revenue.. that makes money but the real value is in the site that can be built there, the value is in the resonance of that name and the amount of people who search for that string of vernacular.. Why would BIG portfolios of clean names (which are very difficult to assemble) sell for much less than single names like woodtoys.com?.. If anything they should fetch a premium (multiple).

Anyway, the domain platform is probably viewed as too crude or simplistic by highbrow search houses at the moment. It is the last great way to get organic traffic of-course. If you own enough great domain names, you effectively own the Internet because you own people's hearts and minds.

I just don't see the engines coming around. More likely a third party will roll up some significant swath of generic names and use them as a lever to out-engine the engines.  Then once the model looks formidable enough, one major engine or another will buy out the 'business' created with the names for billions.  That's how I see it playing out anyway.  The existing players don't even look at real disruptive technologies anymore. In fact the last "SMART" acquisition I saw was when Google bought Applied Semantics in 2003. That was life-changing for Google. It's the reason Yahoo and Google are where they are today.. it related (partly) to domain name traffic. Everything since then has been more fluffy.

Comments

[Sahar Sarid]

Where do I start ? :)
1. Yahoo and Google work the law in their own benefit. Just as they are able to display ads on trademark terms they can push to change the current laws to put ads on sensitive domains. Let's not forget currently there are two different treatment to the same search behavior - that won't last forever.
2. Buying based on ROI is a beginning, not the end. It's step #1. Once they get what they can at that range they can add other variables to the equation, such as development ideas, upcoming technologies, and vision.
3. While I don't see them starting to buy portfolios I think, as indicated, they are failing their investors. Their job is running a solid business and just as we in our own life diversify against catastrophic events so should they. We've seen what happened when search engines didn't.
4. 100% in agreement on Applied Semantics purchase. The other life changing purchase of course was Yaho buying Overture. MS missed out big one on this one.

***FS*** Really great points.

[Mark]

You are absolutely right Frank. When I was in my twenties, I use to file for television licenses all over America. It cost me about $500 a pop. I didn't have 500 cents to my name, yet I believed in them. Everyone laughed. These allocations (like domains for years) lied fallow since the 50's!!!! No one gave a crap. Everyone said they cost WAY too much to build and then there was cable coming onto the scene. What NOBODY saw was the rules requiring cable to PAY for carriage to the local stations and the incredible value of spectrum. And to think they were giving this away for a few bucks.

What I knew was that you could stretch out the process way into the future (sort of like parking)....ten years and more AFTER you got the license. My own sister called me an "idiot" and "dreamer" and her and her husband ridiculed me every chance they got.

Frank....remember that story of the banker who wouldn't cash that check for you and one day you went past him in the Mercedes and how you felt? When one day I got an offer that essentially retired me at 36 (I don't live in the Caymen's, but spend one hell of a lot of time sipping rum punches in Jamaica), I went to show it to my sister and her husband. He read it and mumbled "we had no idea it was worth that much". Didn't say another word....not a freakin peep.... got up and walked away. You could have heard a pin drop. They have never spoken to me since. Nice huh?

I see no difference in the situation in domains.

[Rob Sequin]

"More likely a third party will roll up some significant swath of generic names and use them as a lever to out-engine the engines."

Frank?

How many portfolios can you assemble?

Form a partnership and start you own advertising network. Then, you bring in the smaller portfolio owners and then you build your own adsense type ad serving network to make even more money.

What you end up with is not JUST a giant search engine with traffic and rev but a giant search engine with traffic and rev AND tens of thousands of great domain names that NO ONE can ever take away.

That's a billion dollar idea. You could build it, launch it and test it for maybe $50k to $100k and six months time.

What do you have to loose?

What do you have to gain?

Count me in as biz dev or ad sales!

[Leon]

"Why would BIG portfolios of clean names (which are very difficult to assemble) sell for much less than single names like woodtoys.com?.. If anything they should fetch a premium (multiple)."

DITTO!

[DP]

I had some stock in Yahoo lying around, took today's pop as a good out. If MSFT does end up buying them I guess I left a few bucks on the table, but some of the things going on at Yahoo just don't make sense.

Distancing themselves from domain traffic doesn't make sense. If you're selling title loans, what could possibly be more targeted than a person going to their browser and typing in 'titleloans.com'? You could argue that typo monetization is low quality, but a direct hit on a direct non-typo phrase is about as targeted as it gets.

I have a couple of 'titleloan' domains. They get low traffic but high ctr and dollar+ clicks. It's nice pocket money, but the real value here, the real untapped potential, is that if I ever decide to get into the title loan business I have 5-10 leads per day, every day, whether google lists my site or not, for 14 bucks a year. I wonder what the CPC will be on title loans 5 years from now. It truly amazes me that so many business owners, smart business owners, smarter than me, are blind to this...

[John McCormac]

The one thing that bothers me about the future of domaining and domains is that it is linked, inextricably, with what happens between Microsoft and Yahoo. If Microsoft succeeds in taking over Yahoo, then where will the type-in and parked domain traffic go?

It would be all too easy for the resulting two super-search engines to engage in blacklisting the parked sites with advertising from the competition on them. Indeed it seems that some blacklisting of parked domains already goes on.

The toolbar issue - think combined Microsoft/Yahoo toolbar as a default component on Internet Explorer version N, has the potential to really hit the domaining business harder than Microsoft hitting Netscape. While nobody might be able to take the generic domains away from a carefully built portfolio - something (Google or Microsoft/Yahoo) might just be able to take most of the traffic away. Some indication of the risk would be in the statistics on browser data (whether they are using toolbars) on type-in traffic.

***FS*** You can only encroach on the browser's address bar so-far before users and site owners revolt. If you can get to 'Google.com' you can get to 'Anydomainintheworld.com' .. the only thing that could change is more viable websites to change users behavior (ie .web, .goog, .msn etc..) "not" less access by a few browser gatekeepers. There are too many people parking, developing names to one degree or another in 2007 to deny users access without ramification. This isn't 1994 anymore.

[John McCormac]

Yes Frank but this is where the parked domains aspect of the market is so vulnerable. The search engines could easily spin this by saying that they are directing the users to useful content (rather than parked domains with only advertising). The market in 1994 (what there was of it) was very heavily web directory orientated. Now, it is almost completely search engine orientated.

The main demographic for type-in traffic (apart from reregistered domains) would, at a guess, come from people who expect a website to exist. These would be the people who would accept the default settings on their browser and probably never even bother to change their browser homepage. More clueful users might object but they are normally the ones who change the defaults. And the website owners might not be so vociferous if they end up doing better in the search results. While it is very much a worst case scenario, it might force the evolution of the domaining business to one where content development plays a far greater role. But given the way that Microsoft has been utterly ruthless in other markets, if it gets its hands on Yahoo, all bets are off. It might never happen though.

***FS*** What is a parked name? is webhealth.com parked? (It's an elaborate content site .. but I can tell you it is technically doing what a parked name does). Who gets to call the line? Once a name is not parked any longer who turns it on again? Would google sue if 20% of their revenue went away? Look I am very much a worst case kind of guy, but I just don't see how much more the browsers can get away with, without either alienating their users or the people who own the sites those users are trying to get to. Would Microsoft like to take traffic away from me, you, Google, through the browser.. Yes.. but if they go too far we will sue them and win. If a user wants to get to my site and you put up a roadblock.. the user will try to find a way around the roadblock. That happens now with .xom, .con domains.. If the user can't find a way around then they leave that highway for another road like opera or firefox. At the same time, we will get our heavy equipment out to take down their roadbloack in the courts. That's how I see your "worst case" playing out. It is too late for wonton browser gaming.. Marchex is public, Name Media may be public at some point, I am going to (one day) be public. Too many stakeholders and shareholders are impacted. If you helped me see what you're thinking, I'd love to address it more clearly if this doesn't make sense.

[Sahar Sarid]

"the only thing that could change is more viable websites to change users behavior (ie .web, .goog, .msn etc..) "not" less access by a few browser gatekeepers"

While these extensions may get a slice of the pie, if someone is able to do it to a point of impacting current extensions, it will grow the pie substantially, where even if your slice is smaller relative to the bigger pie, it is still bigger then the current slice you're getting.

This exact philosophy is why I never paid too much attention to small revshare increases between different aggregators. For me it's about increasing the whole pie where you have unlimited growth potential, not increasing your current share of the current pie as that piece is limited in growth.

[David Wrixon (aka Rubber Duck)]

John, by "two super-search engines", I guess you must be talking Google and Baidu, right?

[Mark]

I think Google and the boys are on perilously thin ice if they start interfering with typed in traffic. First, they will only hurt themselves as someone will clean their clock. More importantly, they would be setting themselves up for one hell of a lawsuit, I think, based on any number of grounds. First anti-trust. They clearly have market power, and would be using that to put others out of business. Second, they would, I think, be involved with a tortuous interference of a contractual arrangement. It is well known what kind of placement most of these parked pages get, and they might very well be able to pull that one. But to start tampering with what a user types in is another story altogether, and that should be rather easy to document.

Personally, what I would be MUCH more worried about, and what I feel quite certain they could get away with, is this voice recognition stuff and steer people wherever the hell they wanted to. They could ask certain questions to the user, just enough that they could justify whatever they did unless the user said "I want to go to "onetotallyuselessdomainaddress.com and no where else". This thing has the potential to really muck up the works.

While it may very well be true that .com addresses are entrenched and people have spent a fortune, voice recognition would do little to harm "ElmerFuddsfancyfurniture.com" and could theoretically actually help him. It would be hard to see how just a generic term for that could fair well in a voice recognition environment. There wouldn't be enough information. The argument can be made (and apparently already has been to the computer manufacturers and the business community) that this is beneficial and easy for the user. That it could lessen the gap between first or second page or page five hundred, or at least equalize the process. At least that was the gist of the presentation.

[John McCormac]

"What is a parked name? is webhealth.com parked?"

A parked name is essentially landing page with advertising and no original content. It can be the hoster/ISP parking the domain or it can be a user monetising it. From search engine building work I've done, the same elements tend to appear in these pages which makes it easier for spiders to spot them. It has different characteristics to an active domain in that certain keywords and links exist, almost exclusively on these sites.

"Who gets to call the line? Once a name is not parked any longer who turns it on again?"

In this scenario, it is the search engine operators that decide. A domain that goes active should be detected in the next spider run - that's if it is included in the target list. If it has changed sufficiently and does not meet the set of rules for a parked domain (perhaps including the nameservers), it may get released into the main index. Part of this would, I think, tie in to Google's work dealing with domain name history as an element of a website's trustworthiness.

"Would google sue if 20% of their revenue went away?"

If that 20% is taken from it by Microsoft/Yahoo, it would probably get just as aggressive. And what worries me is that the domaining business is stuck right between these behemoths. It might work out for the best and turn into more of a sellers market for advertising web real estate. But if Microsoft does take over Yahoo, developing content on sites will become a far more important part of monetisation.

"but if they go too far we will sue them and win"

Microsoft are the masters of taking out the competition - where are Lotus 123, DR-Dos, Wordstar, Wordperfect, Netscape now? If the whole thing ends up in court, everyone loses money except the lawyers and there is no guarantee of a clear resolution at the end. In the meantime, the domaining business gets put under a lot of pressure. If the search engines managed to produce a natural language search plugin for browsers, that would give them the lock-in they need in the guise of helping the users. Though that would be the Holy Grail of search engine development and would be heavily tied in with the search engines.

Perhaps the point that I had in mind was that all markets, even the domains market, are vulnerable to change. Often the speed of adapting to that change is the critical factor in survival. A change of the magnitude of Microsoft taking over Yahoo has the capability to seriously alter the landscape of the domains business and domains monetisation. And it might be the small players who get hit hardest.