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section heading icon     overview

This page considers domain name portfolios, major collections of domain names formed by 'domainers' or by domain name registrars.

It covers -

It supplements discussion of domain name monetisation, domain name tasting and online resource identification.

subsection heading icon     introduction

In discussing internet searching this site notes that many users do not rely on a search engine, directory, links found in email and other sites or an offline pointer such as citation of an URL in a newspaper advertisement or the side of a bus.

They instead intuit a domain name in seeking to find specific sites, sometimes going astray because their intuition was unlucky or because they mis-typed a particular word. Others rely on 'keywords' (the name of products or services), assuming that the relevant keyword will appear in or form a domain name, for example -

- photography.com
- flowers.com.au
- bostonmotels.com
- burrito.com
- chicagoluxuryhotels.com
- japaneserestaurant.com
- neworleansrestaurant.com
- newyorkbagels.com
- lasvegasvacations.com.

Many will mis-type the chosen keyword or use a variant, such as flower.com, fower.com, flowwers.com, flowes.com.

Low domain registration costs - particular for major domain registrars - mean that it is possible for those registrars and specialists to register very large numbers of domain names and then create a basic site for each name, with the expectation that people will encounter those sites by choice or accident. That activity has two rationales.

The first is the registrant (ie the entity that 'owns' the domain name) can get some sense of traffic to the site, including -

  • the number of hits on the site (how many times it has been visited)
  • more uncertain measures such as the demographics of visits to the site (for example dissecting traffic by type of browser, broad geographic location of visitor)

That information enables determination of which sites - and therefore names - are more valuable than others. That value provides a basis for pricing domain names in the 'DNS aftermarket', including domain name auctions.

The second rationale is to exploit the so-called attention economy, with the registrant placing advertising on the particular site or automatically forwarding visitors to another site that features advertising. That advertising may or may not relate to a visitor's presumed search, for example flowes.com and flowers.com may display an ad from a vendor of nonprescription pharmaceuticals rather than an offer to sell gerberas, callas, roses and delphiniums.

The expectation is that over time substantial numbers of people will encounter a 'keyword' or other site within a portfolio of sites. That portfolio allows the registrant to garner a large number of eyeballs.

It enables portfolio owners to claim, for example, that the thousands or hundreds of thousands of visitors to a collection of domain names are equivalent to
the same number of people encountering advertising

  • in offline venues (eg newspapers, magazines and television broadcasts) or
  • in online venues with a higher profile (eg gateway sites such as MSN and Google).

subsection heading icon     the market

Portfolio building is not new, first appearing in the mid-1990s as the dot-com bubble expanded and speculators assumed that easy money could be made by large-scale registration of 'attractive' domain names. Those names would be sold individually or en bloc to other portfolio builders.

It coexisted with moves by some entities to snaffle 'their' names (and major variants) in the major gTLDs and ccTLDs. About.com for example supposedly spent US$500,000 in 2000 acquiring over 4,000 domain names as part of what one commentator breathlessly described as "a stealth effort to control the About.com domain and all possible combinations".

Speculative registration was inhibited by the US Anti-Cybersquatting Consumer Protection Act (ACPA), by effective domain registration rules in leading ccTLDs (eg restrictions developed by auDA) and by realisation that - contrary to some of the wilder claims about the information superhighway as a machine for printing money - monetisation of individual domain names can be difficult.

That resulted in many speculators relinquishing individual names and in substantial declines within the domain name aftermarket, in particular lower prices paid in domain name auctions, in claimed values and in the number of domains being onsold.

An associated effect was the decline in the share price of major domain registrars, some of which saw their market value slump from billions of dollars to much lower sums.

Portfolio building reappeared on investors' radar around 2003 and gained popular attention as it became clear that entities such as Google and Yahoo were generating substantial revenue through paid placement on their sites.

By 2006 advertising-based portfolio building was being promoted as "an embodiment of Web 2.0", an echo of pre-crash hype about the global infobahn.

VC partner Bob Davis for example claimed that "a business like this can be a multibillion-dollar franchise". One Australian promoter more problematically announced that "even if we don't get the clicks we can always offload the names to mums and dads".

Overseas, in an echo of 1990s hype, registrar GoDaddy.com proclaimed "the domain name is 21st century real estate". A competitor said in 2006 that

Now, a patient speculator can buy a name for $30,000 and, a few years later, sell it for a windfall.

Media coverage of portfolio building coincided with often uncritical reporting of incidents such as the student who aimed to make a million dollars by selling "individual pixels" on his homepage to advertisers interested in those consumers curious enough to visit that site after encountering an item in a blog or the popular press. Skeptics noted that the half-life of such media phenomena is short and that the opportunities for emulation are thin.

Proponents of the "direct navigation" industry suggested that businesses could make money in two ways.

Domain registrars would register and then host a large number of names (something which many were already doing), gaining substantial revenue from advertising to supplement money made as intermediaries between consumers and registries. Traffic data would allow them to 'taste' the best domains, determining which names were most likely to be visited (eg the most common mis-spellings of popular products/services) and reserve those names for their own portfolios.

Specialists would, in contrast, build discrete portfolios with an expectation that

  • the builder would be acquired by a competitor
  • media buyers would jump at the chance to gain exposure on several hundred thousand sites at once (rather than having to negotiate site by site) or receive traffic intended for those sites. NameMedia claims to attract over 25 million consumers each month
  • 'prime' names could be used for intensive marketing, even new services, with traffic being driven to those sites from other parts of the portfolio (a model initiated by the Adult Content sector).

That was reflected in high profile merger & acquisition activity, highlighted below.

In 2005 for example online marketer Marchex reportedly paid US$164 million for Name Development Ltd, which offered keyword advertising across more than 100,000 domains. The deal followed US$155 million paid by SAVVIS for Cable & Wireless America (including some 350,000 names) and US$176 million by Freenet for German hosting operator Tect (including 2.2 million names). US-based NameMedia acquired 650,000 names for its own portfolio, with 'rights' to a further 350,000 names registered by other entities.

By May 2007 (after injection of US$125 million from Highland Capital Partners, Summit Partners and Goldman Sachs) NameMedia was claiming that it controlled 725,000 names in its own right plus 1.4 million names licenced from other registrants. Internet REIT claimed 400,000 names as of 2006, after acquiring 50 portfolios in the preceding 15 months. Brisbane-based Dark Blue Sea claimed 550,000 names as of June 2007.

Internet Business Group paid £1.1m for three domain names - inc cheapholidaydeals.co.uk and cheapaccommodation.com - in 2006. Its chief executive commented "I agree that in their own right, domain names are worthless" but announced "this is a strategic acquisition".

Sceptics might be forgiven for asking whether the names were that much more valuable that sportingequipment.com (sold for US$7,547), cosmeticians.com (US$2,050) and rubbergloves.com (US$19,804) in 2006.


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version of June 2007
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