Facing The Absurd

Affiliate Summit ended tuesday in Vegas and we were obviously there with Elephant Traffic. Since a lot of our advertisers our affiliate marketers that arbitrage domain traffic to CPA, AS is a really good avenue for us to acquire new advertisers. Our cost to take part with 5 people including booth, flight, accomodation, parties with clients was about $40k. However we usually make this money back in 3 months time from new advertisers, so it’s definitely worth it. We also take part in the Ad:Tech and LeadsCon conferences, which bring us a similar return.

Our booth was sort of stylized to Prague since we were offering a draw for a vacation worth $5k there. This is how it looked (Jeremy Lopez, GM of ET in the photo):

Otherwise Vegas was pretty fun as usual, although didn’t do as much partying as when I was there last year. Surprisingly even managed to win some money and finally learned the basics of craps, courtesy of our head salesman Yancy. Looking forward to DomainFest in LA now…

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!

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.

I happen to live and run my businesses from a country that most Americans can’t point out on a map or still call Czechoslovakia (which is totally understandable, I couldn’t name the 50 US States either). Although I am obviously a big Czech patriot, I would still like to ventilate my frustrations of operating a business from a country that has a population of 10 million. It makes competing on a global scale much more difficult and me and my team have to go the extra yard to be better.

The most frustrating thing is the size of the market – 10 million people with a GDP per capita of $24k at PPP. Compare that to the U.S. with 300 million people / $46k and you find out that the US is roughly a 60x bigger market than the Czech Rep when it comes to buying power. Because of all the language barriers and unique aspects of every European country, it is very difficult to scale a project/service once you reach a certain level. Being part of the EU has certainly helped, but the EU is certainly not a federation of states like the US. Just to illustrate this frustration with an example – take our lead generation department within Elephant Orchestra. Lead Generation is in many ways a local service – you have to be close to your customers (lead buyers) and you have to understand the local market for acquiring traffic. What is currently frustrating us here is that we are hitting  a major constraint in the amount of traffic we can profitably buy and convert. If we want to grow, we have to expand into other lead gen niches (like health, education) or expand abroad. But expanding abroad is very difficult since you have to build up your knowledge and a team from zero and that costs money. Whereas if we would have a US presence, it would be much more easy to scale our model and maintain margins.

Then there are several frustrations of running a global business from here, again to illustrate, I will use the example of Elephant Traffic. First of all, if we want to sell in the US, we have to understand the language. The HR pool of native speakers is really tied to the expat community. Or we have to “import” the people. Second is the travel barrier, if we want to meet our clients, we have to be constantly travelling, which increases costs.  Then there is the time difference, hence our sales people and account managers have to work the US time zone, which means coming to work at 3 p.m. and finishing at 12 p.m. Again that limits the HR pool, a lot of people don’t want to work those hours. Then there is the issue of knowledge exchange – there are virtually no people that would be in a similar business as us, so you can’t refine your ideas, network etc. Then there is the mindset. Czechs typically have a pretty provincial way of thinking (recommend reading the book Good Soldier Svejk to understand). It is difficult to transplant “global thinking” into them.

Obviously there are certainn advantages of operating from the CZ such as well educated cheaper labour, maybe a more favourable tax climate, it’s easier to become a market leader here etc. But really the dissadvantages are still much bigger. Hence I think it is inevitable for us to open a US presence next year. That will allow us to both exploit some of the favourable aspects of the CZ but also make it easier for us to compete with the global players. Take the best of both.

Congratulations to Moniker and associated parties on the sale of guns.com for $800k. I was interested in the domain as well submitting a $700k offer. Monte did a great job trying to do a deal and I can confess I almost got irritated by him sending me emails everyday if I am willing to go higher (I’m good friends with Monte, so just a joke). This is just proof how Moniker works hard to do these deals for their clients.

Why this domain really caught my attentions was a) because of the stable type-in traffic (1,000 uniques/day for years) and paradoxically b) the fact google doesn’t allow firearms ads. That’s why the true earning potential of the domain was depressed and I had a belief I could probably double to tripple the current monetization level going direct to advertisers via our zero-click model because this source of traffic is one of the few available for them to advertise on the internet.

There’s been a lot of buzz lately about sex.com hitting the auction block soon. So how much can this beauty make on parking? My educated guess is about $80-100k a month, so let’s say $1 mil a year. That’s a pretty decent passive income for the buyer who picks it up.

One thing I never understood is why the current owner never really monetized the US traffic, just redirecting it to some kind of informational resource. He only monetized the non-US traffic via DomainSponsor. Lot of money wasted there…

The potential with sex.com is to monetize via selling directly to advertisers, CPA etc. I think the potential there strictly from the type-in traffic is about $1.5-$2 million a year.

It will be very interesting to see who ends up buying sex.com. I don’t think this time it will really be a domainer. There are not that many domainers out there that could do a deal this big on such a short notice and are generally involved with adult. Really only A1 National Advertising and Xedoc Holding pop on my mind.

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.

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.

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.