May 11 - When a Florida man, in anticipation of the naming of the new pope, registered the Web site BenedictXVI.com, the Vatican was in luck. Rogers Cadenhead, who has since used the site to publicize a nonprofit organization and plans to transfer control to the Vatican, could have been an investor looking to get in on a booming business: the domain market. Indeed, owners of similar sites such as Benedict16.com and PopeBenedict-16.org, are looking to sell to the highest bidder.
With the advent of the Internet, speculators went wild for what they saw as prime virtual real estate. Paying $100 registration fees, they scooped up generic and popular brand-name domains by the thousands, looking to sell them off at 10 to a 100 or more times the price. With the 2000 dot-com crash, it seemed those investments were simply that, wild speculation. In some cases courts and arbitration boards ruled against cybersquatters who registered domain names of famous brand or celebrities. Just last week, actor Morgan Freeman was awarded control of morganfreeman.com by the World Intellectual Property Organization, a United Nations panel. But a turnaround last year suggests that a legitimate domain market may be booming again.
Sedo.com, a leading domain marketplace, estimates that the number of secondary (already registered) domain transactions nearly tripled between 2003 and 2004. While most sites there sell for around $1,600, the British-based Dotcom Agency has seen its average minimum offer more than double to around $3,500 since the beginning of 2004. Five- and six-figure sales are common, according to the Domain Name Journal, which tracks the transactions. Last year, CreditCards.com sold to Texas-based marketing firm ClickSuccess for $2.75 million, one of the highest reported selling prices since the bubble burst.
“This is a totally different market than in 1999,” says Matt Bentley, Sedo.com CEO. “Today it’s really a much more stable, mature market based upon existing revenue streams. These domains are actually generating money.” These days potential domain investors can quantify the value of a site by its traffic and, while they’re waiting for a buyer, register with a domain “parking service” that will create the page and set up pay-per-click advertisements. So if a Web surfer looking for a drum set types in DrumSets.com, he or she is taken to a page of sponsored-link ads. Each time a user clicks on a sponsor’s link, the domain owner receives a fee. For domain owners, “it’s a win-win situation,” says Bentley, who compares the parked domains to making rent off real estate.
Rick Schwartz, the self-proclaimed “Domain King,” also argues that Web domains are a good investment. He got in on the domain marketplace pre-bubble. “I looked at domains from the get-go as a commodity,” he says. “I was a believer that after everything collapsed and burned, that domain names would be the epicenter of the new Internet [boom].”
Schwartz says his portfolio of around 5,000 domain names has earned him tens of millions of dollars. Ron Jackson, publisher and editor of Domain Name Journal, credits Schwartz’s 2004 sale of Men.com with jumpstarting the “rebirth” of the domain market. The sale, for $1.32 million, represented an 88-fold return on Schwartz’s 1997 investment of $15,000. It’s an opportunity he believes others have been foolish to miss out on until now. “They’re 10 years late to the game,” says Schwartz, “but at least they came.” And he believes there’s still plenty of time to play. “We’re still on the ground floor.”
Perhaps a bigger indicator that the domain market is on the rebound is the recent interest shown by venture capital firms. In November, online marketing services firm Marchex, announced its purchase of a portfolio that expanded their holdings to over 100,000 domains with 17 million users a month. The price was $164.2 million, approximately eight times the sites’ current annual revenue (a rate insiders say has set a new bar for asking prices).
The company has since expanded its portfolio to more than 200,000 domains. “Traffic is a critical element in driving product sales and advertising revenue,” says Marchex Chief Strategy Officer Peter Christothoulou, who says he’s noticed “heightened awareness and interest” in the market since the publicly traded company’s announcement of the acquisition. Jackson says to expect more deals like Marchex’s. “It seems like every venture capital company in the world is nosing around in this space right now,” he says.
Marc Ostrofsky, for one, is looking to cater to that interest. The veteran domain speculator behind the record-breaking $7.5 million sale of Business.com in 1999, is forming a $250 million “Internet real estate investment trust.” He and his partner, Houston investment banker Bob Martin, have spoken with interested hedge fund managers and venture capital firms in New York, Los Angeles and Silicon Valley. “When the investment community heard what we’re playing with, they liked it,” says Ostrofsky. “They liken it to a land rush.” But Ostrofsky, who says he lost millions in the dot-com crash, is confident there’s no bubble to burst this time around. “I’m going to put 40 percent of my own net worth in this market,” he says. “The bust was made up of companies that were overvalued. We're buying in at the very early stages of a growing industry, nowhere near the top."
Not everyone is so sure. Jody Westby, managing director at PricewaterhouseCoopers says, “The more things change, the more they stay the same. Perhaps there’s renewed interest, [but] holding domain names and using them for hyperlink advertising space, to me that’s nothing new.”
Regardless, trade publications like DNJournal.com and the German site Domain-Spiegel.de, are filling the need for industry analysis. In October of last year, Schwartz helped organize the first domain trade show in Delray Beach, Fla. A second will take place this month in Las Vegas.
With new extensions, like the .biz and .info suffixes added in 2001, and registration fees down to around $8, the marketplace is expanding. Earlier this month, domain data aggregator Whois Source announced that the number of global top-level domains (.com, .net, .org, .biz, .info and .us) had passed 50 million. Everyday tens of thousands of domain names expire and become available again. “Trees don’t grow to the sky,” says Jackson, but he’s not alone in believing that there’s a lot more space for this boom to grow.