I don’t know what’s going on but in the last two weeks we have been approached by 3 different midsize VC/private equity firms enquiring about investment possibilities in EO. Obviously we aren’t on the radar of the big names such as Sequoia Capital or KPCB, but it still is encouraging in a way. The dilemma we have is quite funny – we really don’t know what we would use the cash for. I don’t really believe in “strategic looking” acquisitions (think Oversee buying Moniker and SnapNames) since I think they rarely create value, only opportunistic small bolt on acquisitions. Also a partial exit for our investors or me isn’t that interesting, since we really don’t need the cash either (would result in another dillema – where to put the money). So I really wonder how this will play out. In a way it is good that you really don’t need the cash, since you can really be picky and only accept a really good valuation. It also might be good to wait another year or so because I believe things will heat up again and there will be more institutional money swirling around.
This article has been pulled since Howard did the right thing and deleted his original blogpost. Tip of the day – why don’t the TRAFFIC and Oversee folks exchange tickets to their shows, so both parties could attend for free? Would be an elagant way how to end this terrible beef.
DOMAINSPONSOR® EXPANDS DOMAINFEST® TO EUROPE --Early October event in Prague will focus on networking, building European business interest in online real estate-- LOS ANGELES, Calif. and FRANKFURT, Germany. DomainSponsor®, the domain monetization business unit of Oversee.net® and organizer of the DOMAINfest® series of conferences, said today that it will expand the highly regarded franchise into Europe with a conference in Prague, Czech Republic. The two-day event will be held Wednesday and Thursday, October 6 and 7, 2010 at the landmark Hotel Intercontinental located in the heart of one of Europe’s most beautiful cities. Building on the success of last month’s event in Santa Monica, California, the October meeting will continue DOMAINfest’s focus on increasing the value of Internet real estate and will offer a rich setting for extensive networking involving topics relevant not only to domain investors from Europe, but also from around the world. Subject-matter experts will be invited to facilitate the networking sessions on Wednesday, October 6th. The first day will also include a Moniker® Premium Domain Name Auction powered by SnapNames LiveTM technology. Day 2 will be focused on social activities in and around Prague designed to provide the kind of shared experiences that can contribute to the building of long-term relationships between DOMAINfest Europe attendees. Conference details, including the agenda and speakers, will be released in June, 2010. “DOMAINfest Europe is an excellent opportunity for European publishers, online marketers, and domain-related service providers to meet and discuss ways to increase the value of domain names, which we like to refer to as Internet real estate, “ said Peter Celeste, Senior Vice President of Oversee.net and General Manger, Monetization Services. “The DomainSponsor team looks forward to becoming more engaged with the European domain investor community, and this forum is the perfect venue to exchange ideas and build relationships. As with all DOMAINfest events, we will be offering affordable registration rates to encourage maximum participation from a wide range of talented professionals from both inside and outside our industry.” In January, 2010, DomainSponsor hosted a highly successful DOMAINfest Global® conference in Santa Monica, California that attracted more than 600 professionals from a variety of internet-related industries. The conference included a variety of sessions over a three day period, including a keynote fireside chat with Tony Hsieh, CEO of Zappos.com. This recent DOMAINfest conference also featured a first-ever PITCHfest contest, structured networking sessions, and moderated general sessions with experts from the world of investment, advertising, and marketing. Videos of each session, including the keynote fireside chat, can be viewed at http://www.domainfest.com. In November 2009, DomainSponsor announced the establishment of its European head office in Frankfurt, Germany with Joerg Schnermann as General Manager. Moniker® Auction Moniker will host a live premium domain name auction on Wednesday, October 6 followed by an extended online-only auction from October 7 to October 14. Specific start and end times for each auction event will be announced June 1, 2010. The live auction offers real-time online viewing and bidding from anywhere in the world via a free software download. Details on how to bid in-person or remotely in any Moniker live auction can be found at http://domainauctions.moniker.com . Registration and Sponsorship Opportunities Registration for DOMAINfest Europe will be open June 1, 2010. The early bird registration rate will be US$395 until July 1st. A discounted rate of US$495 will then be available until September 1st, at which point the price increases to US$595. Companies interested in sponsorship opportunities can contact firstname.lastname@example.org . About DOMAINfest® Founded and hosted by DomainSponsor®, the domain monetization division of Oversee.net, the DOMAINfest® conference brings domain industry and Internet professionals together to learn, network, and do business. Attendees include online advertising experts, domain publishers, domain monetization experts, SEO and SEM specialists, website developers, online marketers, ad or affiliate network suppliers, search advertising providers, venture capitalists, bankers and trademark/legal advisors. Visit http://www.domainfest.com for more information. About Oversee.net Oversee.net® is the leader in Internet real estate, specializing in monetizing, registering, selling and developing domain names. The company provides an array of managed services to domain investors, corporations, and individuals across more than ten million web sites. Oversee owns one of the largest portfolios of domain names in the world. The company’s unique optimized technology connects consumers and advertisers with highly relevant advertisements. Headquartered in Los Angeles, the company’s core brands include DomainSponsor®, SnapNames®, Moniker® and LowFares.comTM. To learn more, please visit www.oversee.net.
Rumour has it that there might be another DomainFest this year in Prague, Czech Republic. Prague happens to be my hometown so it will be very nice potentially welcoming the domainer community in Prague! I’ve had quite a few people from the domain biz over last year, they can all give you a pretty good reference about it.
I’ve been strongly lobbying for a conference in Prague with both Oversee.net and also Rick Latona, who now runs the TRAFFIC franchise, for some time. It seems I have finally been heard out with Oversee making this big push into Europe this year (they already had a private event last year in Munich, which was really nice). If it’s going to happen, it will likely be early October. Let’s wait if it gets confirmed.
In my traditional fashion, I’ll probably run a private party at my new fabulous penthouse with a roof top terrace (jacuzzi baby!) with a view of the Prague castle where I will be inviting good friends. So prepare for a pretty decadent night.
DomainFest in Prague would be a pretty nice boost for the Czech domainer community, which is very numerous. With a few friends we run these one-day domainer conferences that always attract more than 100 attendees. Although DomainFest may be a bit too pricey for them, I hope to secure some kind of discount for locals with Oversee so it’s more accessible for them.
One thing that has been puzzling me for some time is the lack of institutional money in any structured way in the domain business. More institutional money is clearly a prerequisite for higher domain valuations.
When you look at it today there is only a little bit. Marchex/Fabulous/Tucows are publicly traded. Oversee, Demand Media, Skenzo, Name Media have all taken aboard funding, very decent amounts. Then we also had iReit, which sort of flopped. Various domaining companies managed to take on some debt such as Reinvent. Domain Capital at least brings a little leverage effect into the business (they have $30 million loaned out). But that’s pretty much it.
But why don’t we have more hedge fund-esque operations that would take on investor’s money, maybe even tie in a little leverage to increase ROE and start buying up portfolios? The only exceptions I sort of know of are DomainIvest.LU (they have raised their first 10 million Euro fund, which is now invested I hear), mad.biz runs some kind of private partnerships, where they bring in limited partners. I do a little bit of that as well. Maybe InternetRealEstate does some of that as well.
So what are the main reasons behind this lack of structured institutional capital?
One factor is that the first round of institutional capital that poured in sort of got burnt. This was before Google/Yahoo started heavily cutting payouts via various quality related claims, before the downturn hit etc. To really illustrate this: If you bought a portfolio in 2007, today it would be probably making 60-80% less on PPC than it did at the time of purchase.
Second is transparency. Michael Gilmour sums it up pretty well in his article here, so no need to elaborate further.
Another issue may be size. When you really think about it, the domain industry is pretty small. My estimate is that Google/Yahoo combined probably pay out about $40 million a month to the domain channel now. That’s already not much, again taking the more macro perspective (compare it to say the size of the bond market). Worse, the market is highly fragmented. There is not probably a domain portfolio owner that would own 10% of this market. Probably Oversee, Reinvent etc may be close to the 10%, but more likely in the 5-7% range, when it comes to their owned and operated portfolios. The domain biz may simply be too small to get on the radar of the big various funds.
And lastly, there is the issue of risk. There is the monetization risk (that ppc will further decline or a big upstream ad provider leaving the space and not syndicating its feeds to the domain channel), maybe a degree of type-in traffic fading away (more long term) and then there is the legal risk. I hope eventually somebody smart will find a way how to securitize the cashflow from domains and create domain derivatives that could for example separate the the yield of a portfolio and its risk. The same way that for example in the bond market you have credit default swaps (through which you can basically separate the yield of a bond from the risk of non-repayment). Doing this would be a huge boost for the business and would really help institutional money to flow in in masses.
So will be see an influx of institutional money coming into domains in the next 3 years?
I really think so. PPC is certainly not going to fall as much as it did in the last 2 years – I actually think it may be relatively stable and new monetization techniques (refer to previous post) may actually even bring a little bit of upside. I also think there is going to be a new breed of domainers-turned-domain fund managers that will start bringing in the institutional money – because the industry is so complex it’s rather difficult for an outsider to do that. And lastly, with us getting out the recession I think investors will have a higher appetite in risk again and start exploring more alternative investments again.
The domain business is still about parking. That is still where the money is made and if you haven’t realized this yet, then you are getting something wrong. In many ways a large part of the aftermarket is held up by the parking business as parking earnings are reinvested etc.
In many ways, parking hasn’t really evolved over the last 5 years too much. It’s still quite similar. Parking companies are an entity that acquire an ad feed and are a mediator between domainers and the upstream ad providers such as Google and Yahoo. They ad a little twist with optimization etc but that’s it. Nothing fundamentally has changed over the last 5 years.
What is starting to happen and will continue is a margin squeeze for parking companies, it’s not really an envious spot to be in to be honest. A significant catalyst to that are services like Above.com (great service btw, really recommend it). Plain and simple, they send your traffic to wherever it pays best in an automated fashion. Hence parking is really becoming just a commodity because domainers are going to send their traffic simply where their traffic pays best. This should force parking companies to inovate more but also will force them to cut their margins. At least some good news to domainers!
This is really happening now and will grow even more so in the future (that is if evil Google doesn’t force the ban of redirects). DomainSponsor is now receiving more than 10% of it’s publisher traffic via Above. For namedrive I estimate it’s likely to be more like 20%. That’s a lot of revenue.
Parking companies should quickly realize that they have to start inovating more to be able to get more traffic from domainers. They should look into alternative forms of monetization like zero-click, lead generation, CPA. Or their margins will be squeezed further and eventually the middlemen could be cut out entirely.
As parking is more commoditized it looks obvious that the parking companies that built up/acquired their own portfolios have a decent hedge against this. Owning the traffic is vital. From this point of view the smart parking companies have been Oversee, HitFarm, Parked, NameMedia – they all have very sizeable portfolios of their own. Sedo has something as well of it’s own, not huge though. But for example Namedrive and Trafficz (not completely sure about Skenzo) have very limited portfolios and hence the margin squeeze could effect them much more than the others.
The second thing that will be vital in the future is owning the advertiser relationships if you don’t want to be squeezed. Parking companies should start going more direct to advertisers, it is a necessity for the future. Because in the end we are pretty much reliant on Google. Google can squeeze all of us.
It’s likely we’re going to see some industry consolidation this year, probably at least one “blockbuster deal” for the industry, maybe even two. So what are my thoughts on this and what I think should happen?
I think this “blockbuster deal” will somehow involve Namedrive. Namedrive is the fastest growing parking company, they are very aggressive, smart and flexible. They have a strong foothold in Europe. They have a lot of expertize in monetizing international traffic (international traffic is the next battleground me thinks), especially using the AFD feed. My personal thought on this is that Oversee.net should take over Namedrive, it would be a pretty good fit. Oversee has just opened a Frankfurt office and they are clearly signalling they are interested in Europe. I think Skenzo could be a buyer as well. Sedo probably not, the antipathy between Namedrive and Sedo is simply too big.
Also, I see Fabulous really getting marginalized over the last 2 years. I think it’s an option for them to sell the parking side of their business. Could be a nice scoop up for Sedo, which seems to specialize on these smaller bolt on deals (e.g Parking Panel, acquiring the parking biz of Dotster etc).
On the Yahoo! side of the fence I can see potential of something happening. I can see Skenzo being acquisitive, they have the institutional capital and can make a move. Parked.com would be a decent target I think, it’s relatively small, could be picked up well and would be a good fit. HitFarm/Reinvent won’t probably take part in these consolidation games.
And then there are the deals that look unthinkable at the moment, but could happen. Oversee.net is probably looking for an exit eventually. It could be bought by somebody, likely coming from outside the direct domain business. Why not Google for example? Sounds crazy, you can never rule it out though. Could be an ad network as well, would be a pretty decent fit. Why not Verisign. Sounds even crazier. But they clearly have the fire power to do it. Something similar could happen with Sedo as well.
I’m just really thinking out loud here what can happen….