Facing The Absurd

I harvest domains predominantly for their PPC revenue. Recently I’ve noticed an interesting thing with the CCTLD portfolios I create by new registrations – suddenly sales are bringing in a “noticeable” part of the portfolio’s revenue. When it comes to the cctld portfolios, this sales element is about 15% of the revenue (the remaining 85% coming from PPC). With my .com portfolios this is probably only about 3%. Interesting, can’t really find a reason to why.

Otherwise when it comes to ccltds I’ve been much more active with them recently. Since I’ve sort of overharvested the .com universe and ROI has been worsening there, I’ve been looking for other TLDs where ROI is better. So last year I did a lot in .nl, .se., .de, .co.uk, .it, .be, .com.mx, .ca, .com.br, .pl etc. Recently I’ve gone so exotic as to play around with .jp or .co.nz. Now I have around 50k CCTLDs but I think I’ve depleted them quite a bit as well

Sorry for not posting much lately. First two weeks of November I was too busy. Second two weeks I was depressed (manio-depression sucks). Last week I am hyper though again so back in work mode. Just wanted to give a little update on things I am working on and how things are going.

- Elephant Traffic – since I last posted about ET has grown tremendously, we are currently monetizing about 550k uniques a day, which is a very decent chunk of traffic. Our advertiser base is growing on a daily basis and on some domains we are peforming 10x better than parking. If you have high volume domains doing over 1k uniques a day, contact us, we can beet your current monetization by a big margin. We’ve also expanded the team and planning version 2.0 hopefully next week.

- Elephant Orchestra lead generation – Still growing very nicely, we are now doing $200k in revenue a month, however we do have some issues with profitability, so we need to work hard on our margins, 30% is not enough. We need to get it up to 40% next year and double revenue, then it will be a pretty nice business. We’ve added a lot of bluechip clients in the last two months such as the Czech Rep’s biggest bank etc, expanded into new verticals such as utilities and travel etc.

- Otherwise we continue to be chased by venture capital, we just had a meeting with a fund with over $11 billion under management, they seem to be pretty interested. Otherwise word is on the street that we are planning an IPO in Poland, funny we had Nasdaq OMX contact us as a result and pitching their exchange to us as a better option

- When it comes to my own domain portfolio, I’ve been selling off a little. I sold about 20k domains in the last two weeks alone. I don’t usually sell much, but this is probably the best time of the year to do so since ppc is high. Plan is to use the cash to deleverage a little, maybe build a little warchest for some nice acquisitions.

- I”m thinking of buying one multimillion domain at the moment, so I’ve been putting together the cash, arranging a little investor syndicate and raising some debt for it. We’ll see how it goes. Plan is, believe it or not, develop!

- Otherwise Rick Latona has a new venture called WatchBrokers.com, so I put some money into that along with my friend Ammar. Looks very promising. Basically it’s a cash4gold concept, but for luxury watches. And I also think Rick can pull it off.

- I’m also bankrolling a new start up that is playing around with some semantics, we want to build out a new news aggregation service that will have some advanced features such as sentiment, emerging story spotting, some hyperlocal features etc. More news soon.

- Otherwise my friend Ondrej Bartos finally launched his venture fund Credo Ventures, so I put in a million euros into that. Plan is to finance promissing Czech and regional IT/biotech companies. Somehow makes me feel a little bit good as well as it’s nice to plow some money back and help start-ups.

- Otherwise my facebook game development venture Viral Maniacs that I bankrolled didn’t go so well, so we had to lay off the whole gaming division, we will just be focusing on apps now. One big one coming hopefully still this year, gut feeling that it might be a killer. All is not yet lost hopefully.

- What has been absolutely hot hot hot is our online insurance broker ePojisteni.cz. We are now the biggest in the Czech Rep, doing about 4,500 car insurance contracts a month. Our staff has grown to 50 people there and is actually starting to be a bottleneck since we need more skilled phone brokers. Early next year we’ll launch a new site with more products and also run a big media campaign for around $1 mil. That should boost our dominance further.

- Otherwise I had to scratch plans for the wood pellet factory in Eastern Slovakia. Corruption there is terrible and I refused to give bribes. Nothing was simply possible there with stuffing somebodies pockets, so in the end we didn’t get the contract for wood etc.

- My lipousuction chain Slim & Go is a little shit now, a) it’s a bad season now and b) competition has gone up like crazy and everybody is discounting like hell. We opened a new one in Brno though and will open in Ceske Budejovice in january.

- What’s been really fun lately is this movie we are making together with a friend. We have a pretty decent budget for a Czech film, hired the mexican cameraman who did Amorres Perros, so shots look really good. I’ll hopefully have a little teaser in a few weeks, so will post it here.

- Also have plans to open a new small club in Prague, little bit of a freak show. I’m talking midgets, women in latex, men in wehrmacht uniforms, cyberpunk music etc. Will be fun hopefully. Still early stage idea at this point only.

- Otherwise the European Poker Tour is coming to Prague next week, so will be probably playing the main event or at least the heads up event. Have had a pretty sick run in poker in the last two weeks, up more than $40k, mostly in heads up cash games.

- As for my travel plans, I’ll probably show up at Affiliate Summit in Vegas and DomainFest in LA, so if you’re coming, let me know.

P.S. Keep it real!

Some things are irrational or absurd, without explanation. One of these things seems to be a complete lack of revenue data about domains on the various aftermarket platforms. Even though a domain’s parking revenue would strongly influence the selling price of a domain, nobody is even bothered with communicating this information to potential buyers who may be interested in bidding and revenue is a key factor for them. For some unknown reason potential buyers are forced to estimate and their accuracy determines their success. Buyers focused on traffic/revenue names on the various dropcatching platforms can strongly support this argument.

Domains that generate a constant stream of parking revenue are the most liquid part of the domain universe because most smart domain investors buy on yield, not on potential development potential, end-user resale value etc since these values are just hypothetical and speculative whereas yield=cashflow. There is always somebody who wants to buy yield. The people who have had the biggest success in this business focused on yield.

Cashflow domains generally sell in bulk portfolios for a given revenue multiple. Say you buy a portfolio o 1000 domains making $10k/month for a 5 year revenue multiple, so you pay $600k for it. You are buying/selling the revenue of the entire portfolio, you are not really looking at the individual domains.

This is where the opportunity in the aftermarket lies – If you would unbundle the portfolio and sell it by individual names, you might get a total of 7 years revenue, for example, for the entire portfolio. The reason being that certain people might see more value in certain names for which they are willing to pay more (because for example they have a better way to monetize the traffic). So somebody may be willing to pay a higher multiple for your travel traffic names, somebody for finance traffic names etc. Somebody may see development potential in the name. Somebody might assess the risk of the domain differently etc.

Somebody smart can quickly carve out this niche in the aftermarket and start focusing on revenue names and include detailed parking stats with every domain for sale. Buyers will then simply be bidding based on what revenue multiple they are willing to pay for the name, ideally in an auction format.

In a previous post about Bido, I said that I think Bido will have to fundamentally change its model to start making money. This is the direction I think it should go, because this is where potentially the money is and it is an unoccupied niche. Instead of focusing on names with predominantly speculative value that usually catch the eye of 1 or 2 bidders (as hard as you try), why not focus on revenue names where you are likely to get interest from tens of different bidders if you can create a liquid marketplace.

I really enjoy reading the feature stories on DNJournal, they bring a lot of inspiration. What usually most of the profiled people share in common is a pretty comfortable middle to upper class upbringing (I’m no different) which to a large extent helped them to be successful in their future business careers.

Today I want to tell you part of the life story of a huge domainer (easily over $200k in revenue per month), because it is one of the most breathtaking and fascinating stories I have ever heard and really differs from all of us. This person comes from Eastern Europe just like me and I have got to know him pretty well in the last two years, although we have met in person only a few times. This guy is completely under the radar, so obviously I will keep his name private. Let’s just call him Igor for the purpose of this story.

Igor spent most of his teenager years still behind the iron curtain, growing up under the communist regime of the time. The times were tough then, shops were undersupplied, there was a lack of freedom, you couldn’t travel etc. Igor dropped out of school early, never finishing high school. His first major encounter with life was when his father committed suicide when he was a teenager, to be found by Igor’s brother. Igor would later attempt to committ suicide himself through a rohypnol overdose, which he fortunately survived (he woke up 48 hours later). With the revolution in 1989, Igor discovered he had an entrepreneural spirit and decided to go into business, opening a newsstand at a train station. Unfortunately he ended bancrupt with no money, he had to find a new way how to provide himself with a living quickly. During his time working at the newsstand he got acquainted with some of the homosexual prostitutes residing there, which would tell him about their “business” and the potential of making decent money from it. Because of the situation he was in, he opted for this option and moved to Germany, where he would prostitute himself for over a year (although being straight himself). He also had a stint in Switzerland, only to be banned from the country for 10 years. As his financial situation improved, he came back and went back into business, starting a book wholesale operation. This career was brought to a halt though as he got involved in a serious car accident for which he was sentenced to two years in prison. After being released from prison he again started a new business, this time in import-export, where he finally found some success. The internet was becoming integral to this business and Igor stumbled upon the relatively new Google Adsense programme, which he implemented on his export related websites. After making 50 cents in the first day, he saw potential in this and was looking at ways to scale this and was quickly drawn to domains, which he would acquire through drops. Even though he had a demon called alcohol haunting him (he would go through two bottles of vodka a night working), he would put immense amounts of work into his new passion of domains and would observe his portfolio and parking revenue grow every month, mainly through re-investing all his income back into domains. Today, his portfolio numbers tens of thousands of domains and is still growing every day.I really admire this guy because he is one of the smartest people in the business, has a huge drive to move forward and has an unbelievable sense of humour. This guy is the biggest charater in the biz and is 100% pure. I hope a movie is made out of his life one day.

My lead generation business happens to be the fastest growing department in the company, with 350% year over year growth. Over the course of a year, the lead generation business grew from 1 person to 9 employees and by the end of the year I would like to have at least 20 in lead gen. So far we are only active in the Czech Republic where we are getting the proof of concept right before we expand abroad in the next few months.

At this point we are very close to doing $100k in revenue (we should pass that level next month) a month from lead gen with a 35% gross margin. It still contributes very little profit in comparison to my domain portfolio, but it is a huge growth business that in 2 years time could be a substantial contributor to our EBITDA. Our revenue target for 2010 is $1.8 million, which should be very attainable.

In the past year we’ve done a lot of tweaking of the model, implementing new marketing channels etc and I am pretty sure we’re getting the model right now. I’d like to share our model with with you guys. Maybe it could bring some inspiration to you or you could in exchange share some of your ideas how we can further improve.

90% of our lead generation business is finance – personal loans, payday loans, mortgages, credit cards, car insurance, life insurance etc. We are trying to expand the model into other areas now such as telco and utilities, but that’s still going to take time.

We work with clients only directly. Our selling point is pretty much this – Let us handle your performance marketing, instead of clicks we will provide you with more targeted leads (where you can exactly measure the performance) and we can generate volume. And lastly, we put our money where our mouth is – we invest in all the media buying on our own account and hope we will make the money back on leads. Compare this to various SEO/SEM consultants that offer ambiguous advice.

Once we have secured the client we build a professional landing page (we now have a lot of experience with this) that will convert well. Then the integral part is the marketing mix. The marketing is really just a form of arbitrage where you want the money that you spend on advertising to make you more on leads. This involves a lot of testing, measuring conversions etc. Currently our marketing mix that we find to work looks like this:

• Killer domain – we own some of the best generics in the finance sector in the .cz namespace such as the equivalent of “loans.cz” – pujcky.cz (example of our lead gen site).
• PPC – we buy quite a lot of clicks via Seznam.cz (largest Czech portal) and Google and arbitrage that against the leads
• SEO – we work hard to get organic rankings and happen to be pretty good at that
• Affiliates – we created our own affiliate network which now has more than 360 affiliates and is on of the top5 affiliate networks in .cz
• Display advertisig – since we need to create volume, we are also a pretty big spender on display advertising. Downside is that leads from display convert worse for advertisers than say, from ppc. But you need it for the volume.
• Email – we still haven’t realized the full potential of email marketing, although we have collected an opt-in database of over 110,000 email addresses. Still a lot of potential there.
• Mobile marketing – since we usually have the mobile numbers of people, we are starting to experiment with this as well. So far we mainly use mobile marketing as a way to improve to quality of leads for our clients – for example by certifying that the customers mobile phone number is real. We could use mobile marketing more aggressively though.

So this is pretty much how our model works and I am sure we are getting it pretty right.

So how do we plan to grow our lead generation business this year? Mainly through 3 opportunities:

• Focus on more sectors – As I said, we want to diversify more into telco, utilities, travel etc.
• Take a jump up the value chain – We want to be able to offer clients not just a lead, but also the closing of the sale and hence take a bigger cut of the action. We are starting to build our own callcenter for this.
• Expand abroad – This is probably where the biggest potential is. Our marketing mix may be a little bit different though. I see a lot of potential in especially arbitraging my domain traffic to leads. I currently get about 700k uniques a day so that’s a decent supply of traffic.

I really like destroying commonly held perceptions. So here’s another shot: The future of domaining doesn’t lie in domaining per se, but in finance. Finance is where the new domain fortunes will be made. Knowing the domain game won’t be enough to make you rich anymore.

Let’s look at the development of domaining from a slightly historical perspective. The first guys in the biz (such as Scott Day) saw the value of domains as brands, gateways to the internet, that should be valuable one day. That was their edge. Then guys like Frank Schilling and Kevin Ham came in that understood the value of type-in traffic and built their empires around that (banking on the assymetry of information – most people didn’t understand it). That was their edge. Then came the big tasters. Their edge (already understanding type-in traffic) was in technology, acquiring tasting data and seeing the opportunity that many did not see.  From this “historical” point of view we can basically break this down into three evolutionary steps, let’s call it generations – that made a killing in the domain business.

So what is the fourth generation, the next evolutionary step? I believe it is going to be about combining domaining and modern day finance. That’s where the fourth generation domain fortunes will be created.

And that’s exactly where I think my edge is (not that I would want to put myself in the vanguard of this next generation ). You see, when I came into the domain business a little over two years ago, I saw it through a different lens than most people in the business. I simply saw domains as any other asset that creates a cashflow stream (predominantly from PPC). So there was a huge arbitrage opportunity.

This lied and still lies on the ability to raise debt for cheaper than the yield that a domain generates. Say you would buy a great generic for 10 years revenue for $1 million. The cashflow stream is hence $100k per year. Now if you have the ability to raise that amount in debt say at 6% p.a., servicing the debt is going to cost you $60k per year. So you get to pocket the difference (+you have the added benefit of the capital appreciation of the domains). Then you just need to find a way to scale this to make a lot of money. Obviously raising the debt against domains is very difficult so you really have to get creative.

Bringing in aspects of financial engineering is where the new fortunes in domaining are going to be created. However with the introduction of leverage, some fortunes may be also lost (that is the downside). So if you want to make a lot of money in domaining, stop reasearching just domains and look into how private equity works.

Lookig forward to hear your thoughts in the discussion.

There’s been a lot of buzz around alternative forms of domain monetization, alternatives to domain parking. Here’s my take on it…

I think quite a few of the ideas circulating around at the moment are sort of dead end. One thing that is pretty overhyped overall I think is development (sorry to say). Domainers are not developers, developing is a defocus for them and they don’t know how to do it properly in most cases. What is the point of spending a week building a website about sharks or octopuses that ends up making $2 on ad-sense a month? Don’t get me wrong, I do believe in building out prime generic domains especially in an e-commerce/lead generation/cpa context, doing SEO, arbitraging the site via PPC etc. I just don’t believe in taking 1000 domains and producing mass content, it’s really only about tricking Google for a little while who will eventually kill it because it’s really about just littering his search index. The only fit for domain mass development is for domains that don’t get type-in traffic. Why would you want to own domains without type-in traffic anyway? Rule number 1 – always follow the traffic. If you stick to this mantra, you get the domain game. If you don’t, I guess you’re condemned to flipping domains on dnforum for $20.

Since developing is such a complex issue, let’s focus on ways of alternative monetization for type in traffic. These are the areas I think are the way to go forward and make sense, some of them overlap:

• Zero click – The whole idea of this is not sending a visitor to a parked page but directly to an advertiser for a fixed fee for every redirect, similar to PPC for advertisers
• CPA/Lead Generation – I am very strong believer in this model. I think that about 20% of traffic now going to parked pages can be monetized better via CPA/Lead gen. Could even be 30%. This year I plan to take this route and arbitrage significantly more domain traffic to CPA. I want to build a small department in my company entirely focused on this. Problem with CPA is that it is very time consuming, involves a lot of testing and is difficult to scale. I think I have a solution for this though, I will elaborate more in coming weeks.
• CPM Ads – I think this could be a very decent ad on to parking. Why not put banners or more aggressive display formats on parked pages for advertisers more focused on selling their brand. There is huge money in display advertising and this area has really been ignored by the domain industry. Say you have a domain making $10 rpm. Why not put a banner on top of the parked page making another $5 rpm on top?
• Email/list building – Another area still completely ignored by the domain industry. Say you have a domain like PersonalLoans.com (still paying my debts to Frank). Why not put on it a email submission box entitling subscribers to get hot loan deals once in a while. This could be an interesting avenue for creating another continuous source of revenue from your domains. Email marketing is seriously a huge business.

Just my few cents…

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.