Paul Sloan's

SHOW ME THE DEALS

ANGLES: The last downturn was a great opportunity for you. Should people now be trying to build domain empires? Given that domainers have seen their income fall 40 and 50% as pay-per-click income has collapsed, I’d think there’d be screaming deals everywhere?

FRANK: This so rhymes with the ad bust of 2000 and 2001. The economy is in shambles. And people are saying, ‘I’m not going to buy like I used to because the ad model is broken and the economy is in the toilet and going to get worse, so I’m giving up.’

That’s what they’re saying. But the reality is that’s not what’s happening, at least not yet. Just yesterday someone wrote me a note—and I’ve been getting more of these lately—saying I’m selling my portfolio off at rock-bottom prices because the industry is dead. And the guy sent me a link of 100 names and then he said he wanted more than 5 figures for them. I said to myself, ‘This is not a dead industry.’ It was a pretty good deal, but not a smoking deal, not wildcatter prices.

ANGLES: There’s a surprise – domainers thinking their names are worth more than they are. When do you think the deals will start popping up?

FRANK: The opportunities come as people start to really feel pain. There’s still shock, but I don’t think the actual pain has really set in. I think there will be good deals come this fall? It’s like a sneeze. It’s still getting there.

ANGLES: But isn’t this broad-based downturn so much different than the last one? Then, people were saying the Internet was over. Internet advertising was a fraud. No one’s saying that now.

FRANK: That was really a stock downturn. Everybody’s stocks were in the toilet and no one could get free money any more for your Pets.coms. It was just a stock play, all driven by The Greater Fool. That was then. In some respects, that is replaying now. People are not in a rush to spend, and I don’t think it’s going to snap back.  It’s harder for people to raise money.

Unless the Dow goes back to 14,000, which it won’t, people will start to realize, by this fall, that this stuff is not bouncing back. The economy is not going well, and we’re going to see some serious panic selling set in and it’s going to create huge opportunity.

CASH, CASH, CASH

ANGLES: So what should people do?

FRANK: The name of the game right now is to keep your cash close. So if you’ve got cash and a good opportunity comes along, you can go for it. Look for distressed situations. But for now, save. There will come a time to spend, based on the prices that I’m seeing.

ANGLES: Isn’t one reason that prices of domains are not aligned with the economy because, no matter how hard people try, there’s not a liquid aftermarket?

FRANK: Exactly. And that’s a blessing and a curse. You can go in and buy names way below true value because not everyone knows about it. On the other hand, there’s no liquidity and names go for too much.

ANGLES: Have you been buying many names?

FRANK: We’ve been buying names the whole way. We’re buying a lot less now then we used to. We saw Gocart.com come down the chute a while back and we were hemming and hawing, should we? We came up with a sensible number and it went for three times that, over $90,000.

ANGLES: Wow.

FRANK: Right. And it’s not just gocarts.com. It’s everywhere right now.

ANGLES: Fair enough, but isn’t it in your best interest to say domains are expensive now? Whereas a few of years ago, when VCs and big money guys were prowling in the space, it was in your advantage to talk about how much names are worth?

FRANK: That statement is true, but I never felt that good “talking my own book,” because firstly people see through that, and, secondly, I’d feel terrible if somebody reads something I write, acts on it and fails. Total bad karma.

The truth is that today, while plenty of people expect way too much, some names are valued fairly, and others are cheap. But collections of portfolios still sell at a fairly large discount to intrinsic value because there are very few people who can hold each name to the light and correctly assign a fair value to each, so the PPC value of the collection becomes it’s default value (it meets GAAP rules and seems sensible) but that massively undersells the break-up value of most portfolios.  The breakup value flows to the buyer for free.

ANGLES: But who’s buying giant portfolios these days?

FRANK: Nobody. A great deal of this is moot because there are no corporate or equity buyers today—when most of the publishing world and corporate-America and the equity and investment shops are trying to keep their head above water and survive the worst global downturn in 80 years.

ANGLES: But isn’t that shortsighted? Don’t we all now know and accept that more advertising is migrating to the Web and that prices and payouts are just that things are down because the economy is a mess?

FRANK: That’s true. And you have a dominant marketplace, Google, which performs exceedingly well and could pay out much more. The next nearest market place, Yahoo, cannot pay out as well. Google knows that, so it pays out a lot less than it could, and so that’s just the way it is.

What you need is a disruptive force – or a series of disruptive forces – to come along and create another ad market place and create some competition. You can’t have a marketplace where the entire domain world is parked on Yahoo and Google and the power rests with the publisher, but that’s what we have.

THE WEB RUSH CONTINUES

ANGLES: I guess my point is that the Internet just keeps growing, and no one now is doubting its role as a dominant commercial platform.

FRANK: Right, other way you can look at it is that there’s been an inflection point and the broader populace is starting to get it, to understand the amount of business you can do with a good domain name. Now you have people thinking, my business is called HubCaps and I want hubcap.com. People are starting realize that, you know, to lease a storefront costs me $100,000 a year and here I have an opportunity to run a really great business from the domain name.

So descriptive names, like UsedHubcaps.com or whatever still have value. There’s a host of good reasons that someone would want those sorts of names. So, I don’t think it’s a bubble waiting to crash. It better not be. It costs me five figures a day to keep the doors open.

ANGLES: Have you been selling more names than you used to?

FRANK: Yes, we have actually. People come to us and try to buy names that have very little revenue or traffic but are useful for them. Where in the past, maybe we didn’t sit down and look at those offers at all, now we’ll consider.

And I’ve definitely seen a marked increase in people coming to me and saying, ‘Will you buy these names?’ And whereas before they were thoroughly crap, now they are a little bit better. But they’re still not great names.

ANGLES: People probably think, times are bad, will Frank now sell?

FRANK: We’re quoting people prices that most people would call crazy. We’re not looking for that business. It’s finding us.

ANGLES: You know, not that many years ago, Marchex bought out Yun Ye, and iREIT and Wall Street types started running around and saying, ‘Look, we have a pricing model based on revenue from PPC ads.’ I wrote about that in that first article, Masters of Their Domains. Well, what happened? Are people ignoring those metrics now that they don’t work to their advantage?

FRANK: Well, the sellers aren’t going around now and saying the metrics don’t work, I’ll just lower my price. That’s just not happening. We’ve gone from 10X to 100X on the sell side. There are no big buyers anymore. But it really doesn’t matter. The good names are being renewed and the bad names will always be the bad names, and they will cycle in a boulevard of broken dreams to come.

ANGLES: You’ve always been a proponent of dot-coms. Others extensions have gotten a lot of attention in the last couple of years. What value do you see?

FRANK: It’s just risky. It’s a big unknown as to which extensions and what. Plenty of people advocate just buy dot-coms, but people have made a fortune selling .orgs.  I know someone who sold a bundle of .infos for seven figures. But that’s rare.

ANGLES: What does the parked page model look like five years from now? Does it exist?

FRANK: Absolutely. There will always be a buyer of that traffic. It works. It converts to sales. Advertisers are happy with it at the end of the day. But if we continue in a bi-polar Google-Yahoo world and payoffs diminish, you’ll see a disruptive force come along and take some of that revenue away.

Let’s say Google tomorrow said we’re cutting our payouts in half and Yahoo does the same, for whatever reason. Now, if you’ve got a portfolio that has a lot of value – say 100,000 visitors a day – and someone’s getting paid $1,000 or $2,000 in revenue. That’s too low.

You could go to a company, say Coca Cola , and say I’ll sell you all this traffic for $5,000 a day. Let’s try it and see if it works. Eventually there comes a strike price where it’s low enough to try that. And if its good traffic, then that will break the stranglehold that’s artificially holding rates down.

SCUM OF THE WEB?

ANGLES: Isn’t the bad rep of domainers somewhat deserved? After all, it’s, an open secret the most lucrative names are typos of brands and plenty of domainers actively try to make money off of other brands.

FRANK: Well, that’s an interesting question because it depends  on who you call a domainer and the optic through which you view trademark  law. If
you look at the word “domainer” (as I recall the word’s evolution)  it was historically used to differentiate between those who focus on the generic-domain side of the business and those who predominantly focus on TM typos as a core business.

When positive new stories began coming out in the mainstream press about “domainers” and the fortunes people were making with generic names, you had two things happen: Pure-play Cybersquatters came out and said: “Hey, I’m a domainer too”, and people who oppose Cybersquatters as well as people who despise the entire notion of anyone profiting from holding more than one domain name, came out and said:  “Look, Cybersquatters have rebranded themselves as Domainers”.

For the most part, if you ask a man on the street who they’d like their daughter to marry, they would place Domainers well above Personal injury lawyers, Politicians and Used car salepeople, so I don’t think the reputation is that bad. Still, you are correct that it is those who abuse marks on a wholesale basis thousands of direct TM typos) who sort of cast a pall over the entire industry.

My ‘optic you view trademarks through’ comment refers to the fact that almost any generic term has a trademark on it.  Multiple parties can lay claim to the same term.

Domain names are very valuable.  So if I have a name like advertisingworld.com and somebody says “my agency is called advertising  world,” I have no choice but to say “tough luck” or “see you in court” if they get piffy over the name and try to unseat me.

It is then the complainant’s natural reaction to say “You’re nothing but a no-good cybersquatter” .. I’m not.  I merely have something of value that another party would like to take from me for free, and I won’t play, so in that case it’s sticks and stones, and you have to have a thick skin and let
these types of sour-grapes comments roll off your back like water off a duck.

Anybody who owns a lot of things of value will eventually be vilified for not sharing.  So if you follow that long winded answer you can see what I mean when I say, in some respects the bad-rep is deserved and in some respects it’s not.

ANGLES: What value do domainers add?

FRANK: Ten years ago every unregistered domain had stick men and shovels, today there are pages of content, pictures, relevant advertising
etc.

If you look at today’s parking pages they are getting so good. You would have called them a “web-site” ten years ago.  Domainers collectively
have shown people the value in controlling your own destiny by running your own Website, with its own accurate identity.

Without domainers promoting names and the opportunity that names bring to the average web-preneuer the Internet would look more like Compuserve today. For all the talk of the “”billboard blight”" of parking pages, there are a great many developed sites and monetizing opportunities for the average entrepreneur which would not have materialized without the tenacity and early work of domainer entrepreneurs.

Many of the free websites we know and enjoy, pay for themselves because a domainer or developer has a quiet portfolio of parked names generating cash and paying the freight on the money losing developed site.  Take a big step back and really think about it, what would the Internet look like without entrepreneurs and small business people?

It is domainers in many respects who showed corporate America and big business the-way on the net.  The reason many of them are vilified today is because they are in the way of those large companies who would like nothing more than to take their place.

I GOT SOME CASH. WHAT DO I DO?

ANGLES: We asked some people who signed up to be notified of our launch to submit a questions. Here they are.

1. If someone came to you and said, ‘I have $25,000. I want to get into this.’ What would you do?

FRANK: I absolutely do believe you could do the one red paper clip type thing. Where you buy one or a series of names, and then trade them, for better and better names. But it would be a lot of work. You need to make wise trades – trade your $25K for a name or a few names and trade those for better names and so on. It would be a lot of phone calls, a lot of legwork.

2. What if you had $500 to play with, how would you get back in the domain business? Or would you?

FRANK: $500? I would probably get a job, because even when I began, you still needed to pay your bills, and you couldn’t just roll in, get some names and make enough to live. There was a 10-14 month build-up curve.

3. What are the most important factors in negotiating a really good domain sale? Obviously, one of your greatest skills is negotiating – most owners of great domain names would sell much, much cheaper, and thus never manage to close any really good deals?

FRANK: You’re right, but on the flip side, you could argue that I’m on the other extreme end of that spectrum: I try not to sell, I hold my portfolio in far too high esteem, and I could have generated a lot more cash had I taken some of those cheaper offers over the years.

4. I guess it depends on what you’re trying to do.  I have always thought that domains were a lifetime opportunity, that there is a very long half-life to domains.

Think about all the times domains have been called out as “dead” or “over,” yet the business quietly soldiers on, generating greater sale prices and development potential. So my time horizon is longer than the average person.

My kids, kids will probably be selling my names. So I ask prices that most folks would consider way too high today, and try not to sell the large majority of my portfolio.

That said, as prices mature I may ramp up sales.  None of us live forever and it would be great to harvest the fruit of my labor in the coming years. But not today.

5. What do you think of opportunities with International Domain Names (IDN)?

FRANK: I’ve always been tepid on IDN tld’s because they are purely regional and impractical for the global commerce the Internet invites.  India, South American, Europe and North America are not going to run out and adopt Farsi, Cyrillic, Chinese keyboards, nor are those with Arabic keyboards going to rush out to buy Chinese, Cyrillic, Farsi keyboards.

But all these Countries will continue to have Latin keyboards. My point is that this puts IDN names at a huge disadvantage in global commerce.  That said, I agree that these names are relevant and useful in regional commerce and that there will be great fortunes made investing and selling in these extensions.  Your point is extremely valid IMO.  To channel Peter Drucker for a moment, we are not in the domain business, we are all in the human behavior business, and it will be a long arduous process to unwind the .com juggernaut.

6. How do you see the future of offline niches -far down the long tail- being connected to online presences?

FRANK: We are still in the early enough days of the Internet that I could see industries that have never operated significantly online, move to the Internet.  Not all offline industries are active online today.  Take my old industry (flat glass).  Imagine one large manufacturer beginning an e-commerce site to sell remnant crates of glass directly to business and consumer. Other manufacturers would follow and soon there would be a new market to sell glass-traffic where none exists today.

That’s one reason time is on your side when you own descriptive names, although it may not always feel like it as we slog through the PPC dark-ages and the worst global recession in 80 years.

7. Your blog was one of the best sources for industry insight and analysis.  Unfortunately your last blog post was in March of 2008. Do you have any plans to blog again?

FRANK: Blogging was a terrific outlet for me and at the time when I began few openly spoke about the domain industry in a meaningful way.  Since, however, many others have begun disseminating correct and timely information about the space (including dnjournal.com, thedomains.com, domainnnamewire.com, domainnamenews.com).

Additionally, blogging puts me in a bit of a bind.  My kids are getting older and pull more of my time, business challenges abound in these recessionary years, and I lose a tactical advantage by openly espousing my ideas and beliefs about business. If I tell everyone everything I’m up to, I lose a competitive edge.

8. According to your Name Administration website: “Years ago, our founders had the foresight to register thousands of really generic, meaningful domain names.” Exactly who were your founders?

FRANK: My wife Michele and I, and assorted family members.

9. Do people ever confuse Name Administration for a government agency? It’s sort of like the Department of Motor Vehicles—one would assume this is where one goes to register their name. If it was intentional, brilliant move.

FRANK: Very flattering but the name was chosen in the earliest days of the company just because it was generic and descriptive, although as we grew very large, some folks found the name kind of cryptic.

I’ve had people accuse me of being part of a new world order conspiracy and others who thought we were logging their thoughts because we owned every name they had thought of.

Today things are much quieter in that regard and Name Administration stands as one of the oldest in the domain space. We’ve been around nearly half as long as the modern Internet.

10. Are you still enamored of city/keyword domains, and you plan to monetize them differently in the future?

FRANK: I liked these names purely because you could register them as available in 2006, 7, 8  for $7.00 and resell them quite easily in the hundreds or thousands of dollars.  I wrote a post about this several years ago and more than any other, people sent me thank you notes because they were able to make tens of thousands of dollars in sales on names created for a fist-full of dollars. It was a lovely time, and frankly I was surprised that this particular opportunity lasted so late in the game.

A friend of mine brokers high-end wristwatches, that may come close, but the capital costs are much higher there and the free-cash-flow from an investment much lower. I would love anyone to comment on a spot they think where they can generate the kind of alpha that can be generated here, because I’m not inflexible, if I could find something like this, I’d do it.

11. Where do you see the domain opportunity now?

FRANK: Short of beating the bushes for single names to acquire inexpensively (I just recently acquired sextherapist.com and angles.com in a trade), short of finding individual deals like these (which still exist), the bigger opportunities are in making more money from the traffic that currently exists.

There are lots of domainers with traffic. I am not talking about a parking company; rather I mean different implementations that sell traffic for more.

We all know that traffic volumes are fairly sound but the dominant keyword marketplaces are engaged in a game of chicken with their publisher partners where they are re-pricing traffic payments before the rev-share gets applied (discard rates, smart pricing, traffic quality scores) and this re-pricing (while well intentioned to serve advertisers and shareholders) is dumbing down traffic prices to such a level that there is a huge disruptive opportunity to sell traffic better.

I think traffic pay rates have fallen so far that there are opportunities to sell traffic for more money on a flat-rate basis, to display markets, pay per unique, and so on. I could see some parking companies reinvent themselves as these opportunities become more apparent.

12. Given how loose the whole method of pricing domains is, how do you conclude something is a good deal?  

FRANK: A lot of this is gut instinct and common sense.  You have to look at the meaning of the name, the products one can sell there, the size of the product’s market, the value of the product, the permanence of the product or service in commerce – A host of other parameters.

Then you compare the name’s cost to other real-world comparables that relate to the product or service. Seeing this stuff is second nature to some people, but seemingly impossible for others.  Not all people are cut out to do this stuff on the fly.

13. Isn’t part of the problem that, in so many cases, there’s really no way to value a name in so many cases? That it’s really not like real estate because so often comps don’t exist?

FRANK: Yes but real-world comps exist. Take any name—and I’m pulling this out of the air—“Hair Styles” (actually, my wife just suggested it). There may be ZERO comparables for hair and hairstyle related names, but we know that a cut costs $15 at Supercuts and $600 at the Christophe Salon in Beverly Hills, then I know that products range from $15 to $100s, I know that a monthly rent or an ad in a national magazine can cost thousands or tens of thousands, so with that sort of back-of-the-envelop-thinking, and without much effort, I can set a floor of ten or twenty thousand dollars for the name.

That’s a price I’d consider paying, that would make it worthwhile to part with the cash and carry the name.

Then you have external factors such as competitors and other hair companies who may be willing to buy the name and relatively quickly you can see how something with no obvious comparables can still have a high market value.

There are always traffic that the name gets but we rarely actually price these into the value of the name. Traffic is just the bonus for owning the name.

14. Have you ever paid too much because you could?

FRANK: A few years back I was driving down the road while an automated script bid more than $20,000 for Advertisingworld.com. Yes, I could afford it, but it probably wasn’t a good value. In this business (like any business) you are going to make mistakes. The key is not to make too many of them. We’ve all been guilty of over-bidding or driving the price of the name much higher than it’s value.

Here’s another example: I had a really good experience with hyperbaric oxygen and own a large hyperbaric chamber in my home.I find the effects of oxygen rejuvenating and bid $60,000 for hyperbaric.com. Was it worth it from an investment perspective?  No. But that day I was an end user.

15. Are you doing any developing?

FRANK: We are, but it probably looks tiny because we have such a broad network of sites. Additionally, the profits live in selling ads. For better or worse, many of our visitors view our landing pages as the site they wished to visit.

From their perspective, they are “at” their destination.  For all the talk of our sites being placeholders, parking pages, landers, under-construction pages, empty-pages of ads etc., the vast majority of our visitors simply accept that for better or worse they have arrived at the site they were looking for.  They typed it.  They got it.  End of story.

Now they are leaning forward, looking at those links and ready to click.  And click they do.

For all the talk of development, I would be doing my visitors a great disservice if I tried to shoo them away to some drab hastily created content that doesn’t interest them.

Give the people what they want and you will thrive in this business.  The majority of our visitors want the products or services that the name describes, so my goal is to display those products or services and to be paid for facilitating that.

ANGLES: Paid really, really well, I might add.

FRANK: Not as well as it used to, but I’m not going to worry about where my next Big Mac is going to come  from.

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