Dan's (and Jeremy's and Jon's) awesome new adventure

Dan Kimball from ModernBill, who is one of my smartest friends, has been telling me that revenue from the secondary domains market will soon overtake sales of website hosting services. As if to prove Dan's point, domain investors (or domainers, as they are known in the business) have become the latest darlings of mainstream media:

Business 2.0 calls Kevin Ham (owner of 300,000 domains) "the owner of the Internet". The Sydney Morning Herald tells of Dan Warner's "slow and steady accumulation of domains, bought for less than $7 and sold for thousands, day in and day out for several years" (he now owns 550,000). BusinessWeek has a sweet story about the Internet Real Estate Group's $300K acquisition of Chocolate.com; the company is convinced that it will become a $100 million property. And the New York Times quotes Jefferies & Company analyst Youssef Squali that companies like NameMedia (725,000 domains) will star in the next wave of IPOs.

Industry consolidation has already begun. Oversee.net, which operations a domain parking service, recently bought SnapNames, a domains marketplace. But the real winner in this space, I think, will be Demand Media. Led by former MySpace chairman Richard Rosenblatt, the company is looking to turn undeveloped domains into user generated content sites (see Business 2.0 article) instead of collections of Adsense links (check out controversial Google case study about how parked domains generates 2x better advertising ROI than search?!).

A few weeks ago, I started reading up on the domains market, which is covered by at least two print magazines, no fewer three $1500+ per ticket conferences, a handful of discussion forums, and quite a few blogs (Frank Schilling's and Sahar Sarid's are my favorites, and the DomainTools blog offers regular updates on recent auction results). I learned about direct navigation; supposedly as many as 1 out of 6 would-be website visitors type Subject.com directly into their browsers instead of performing a search. And thanks to Frank, I gained much more appreciation for the value of descriptive (or "generic") domains: if you own car.com or travel.com, your web address says it all.

I've also spent some time checking out secondary domains markets (such as SnapNames, Sedo and GoDaddy's TDNAM) and domain parking services (ParkQuick has a list of almost 20 providers). My own experience has made me wonder how scarce obvious-sounding domains really are. After all, I spotted UKColo.com, AustraliaColo.com, PreventDowntime.com and SaaSNews.com in TDNAM's "fire sale" section. More importantly, I discovered that the infrastructure behind this $1.5 billion industry (according to a recent Sedo presentation) is far less robust than one might hope.

I listed my newly acquired domains with a leading domain parking/domain auction service on a Friday; they weren't processed until the following Monday - which seems to imply that manual labor is involved in ownership verification? Shortly thereafter, some of the domains disappeared from my account. I assumed it was a database error until I received an email that read "I am uncertain why your domains are listed in somebody else's account fraudulently... [We have] a zero tolerance policy for fakers and those who list domains
that don't belong to them. Though all domains go through an internal verification check before being listed in a user's account, unfortunately at times, one may slip through the cracks." Wow. And BTW, my experience is not unique.

So it's a very good thing that the ModernBill folks are bringing sanity into the domains market with dnZoom, an automation tool that allows owners to manage domains across multiple registration/monetization/auction providers. ModernBill knows automation, not to mention ecommerce security - tens of thousands of hosting providers use ModernBill for account provisioning and recurring revenue billing. Congratulations, guys!!

Comments

[Matt Charron]

Wow! I started reading this post and got pulled all the way through and learned a ton! Your blog is one of my go-to's for learning.

Thanks Isabel!!

PS: Is this just a giant speculation market or a sure thing? Since you listed your domains it makes me think the smart money (yours) is in to win.

[Steve Bates]

That was a great post - nice way to sum up the domain industry. I have used ModernBill before and know that it is a quality product. I can't wait to get my hands on the DNZoom product. Right now most of my work in domains is done manually (pencil and moleskine) or with an excel spreadsheet.

I think that there will be some successful people (Modernbill included) in the wave of Web 3.0 when people can use the internet EASILY. The people and companies that make it EASY to use the web will be the ones that take the web to it's next level.

[Isabel Wang]

Thanks Matt! Thanks Steve! :)

Based on what I've learned so far, the domains market feels more like a giant speculation than a sure thing, considering the lack of secure/automated infrastructure for something as simple as ownership verification.

On super premium domains like Whiskey.com or Tourist.com (both up for auction this week), the odds of making a profit are probably quite good. But until investors have better tools than Excel spreadsheets and buyers have a robust transaction system to count on, I'm not sure how liquid of an asset less prominent domains are.

[Jothan Frakes]

Isabel-

I have one minor clarification to your post. It was oversee.net, not oversee.com that acquired Snapnames.

Anyhow, I completely agree that DNZoom is a fantastic tool to help one keep their portfolio manageable.

I look forward to the panel where we discuss the secondary market and domain name industry for hosting companies at the upcoming hostingcon in Chicago at the end of July.

This will be a great session, and I think it was very visionary of the conference producers and the content committee to introduce this session for the 2007 show.

[Isabel Wang]

Oops - sorry about that; typo fixed! I'm looking forward to our panel too!

[James]

Agree with you Isabel. I could be out of this business without a tool like DNZoom. Now, i still can't image how NameMedia is doing with their 725,000 domains (oh my cat!). Is Bob Davis (Ex Lycos) working there?