Critical Insights Into the Domain Industry - Part 3

Critical Insights Into the Domain Industry - Part 3

I remember speaking at TRAFFIC Vegas 2008 and I put up the below graph on the projector. I indicated that the industry was in a mini-bubble with domains at hugely inflated prices. I had a large number of people come to me after my session and tell me that I was nuts. Was I wrong?

I believed that we were at point A in the chart and the mini-bubble was in full swing. So why did I stand up and pour call water over the partying atmosphere? To understand what I was seeing we need to understand the industry at that time. This is the state of the industry back in 2008:

  1. Market valuation were being underpinned by a few select domainers – no market depth.
  2. Domain investors were massively reinvesting their parking revenues
  3. Debt has entered the market.
  4. Flurry of new small investors hoping they weren’t too late.
  5. Lack of domain liquidity

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Anyone of these factors alone would inflate prices but combined, they created a massive bubble. Domains with little to no value went for crazy prices and traffic domains sold for insane multiples. The euphoria was like a contagion that was eating away at the heart of the industry as it danced to some strange beat. More and more people wanted to join the celebration as if there would be no end.

I’ll never forget seeing a domain magazine enter the market (remember we are niche) and then a second magazine appeared! This is when I personally sold the vast majority of my own domain portfolio….the writing was on the wall. I was out! I took the money, spent 6 months traveling, got my pilot’s license and paid for the kid’s school fees. Life was very good.

Since that time there’s been a lot of blood in the water as domain investors that had raised debt/equity capital discovered they were in a new world - point B. The Global Financial Crisis (GFC) was the icing on the cake and Google, correctly put the squeeze on payouts….don’t forget they have shareholders in a turbulent financial market.

When seeing the GFC storm first hit I read a domain blog suggesting that it was great to be in the domain industry and not be subject to the financial winds. I immediately wrote an article saying that if you believed the writer then you were living in a fool’s paradise.

Let’s think about the GFC and the factors above. Market makers left as they battened down the hatches of their own financial situations, parking revenues declined courtesy of Google, debt financing dried up and new investors vanished. I’ll deal with the final factor in my next article…so let’s hang onto that one.

During this time I know of quite a number of companies that have either had to tell investors that their ROI will now be over a much longer time frame and some even had to liquidate assets to crystalise losses. Many of those individuals that raised debt have found themselves selling their house or have gone into bankruptcy. This is a sorry tale but one that has been a nightmare reality for some.

It has been really difficult for these individuals as they were like shooting stars that shot across the sky in a blaze of glory just to burn up. Most are no longer in the industry, some stole from other domainers, others suffered massive personal problems as the financial pressures came to bear and quite a number ended up with serious health problems due to stress.

I remember calling up one such person to see what I could do to help them out. They sounded like a shadow of their former self. My advice to anyone that has gone through financial hardship is to get help sooner rather than later. For the rest of us that have survived those years….we need to thank God that we’re still here!

I say to my kids that the cheapest way to education is to learn from other people's mistakes. Our industry needs to learn from those turbulent times and learn both the good and the bad from those people that blazed across the sky. We also need to learn from those people that are still around and remember those times....there are still quite a number around.

One of the things I love doing at conferences is getting together with this group of domainers and discussing what kept their heads in the game during those years and what they're doing now. They typically don't make a big show about what they are doing but nevertheless they are inspirational individuals and are ALL in my "Hall of Fame".

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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whizzbang
I agree, Thank God we made it this far. Quite a journey full of experiences and hardship. Maybe the ones no longer here weren't me... Read More
05 June 2015
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Personal Musings - Where are the Leaders?

Personal Musings - Where are the Leaders?

Recently, I’ve been getting increasingly frustrated! It’s a state that I periodically go through as I wrestle with what’s happening in my life. So in the end, I packed my bag, kissed my wife good-bye and headed off into the country for a night and a time to get my head in the right place. No, I wasn’t leaving home….I was just needing to get a fresh sense of vision.

So what was frustrating me? Everything! You turn on the television and it pumps out endless amounts of problems; terrorism, race riots, wars, virus break-outs, droughts, floods, earthquakes…..and the list goes on and on.

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The biggest problem that I see in the world right now is not all those terrible issues but something much more insidious. Right now, there is lack of vision of where we are going as a species.

Where are the leaders that stand up and put the seemingly impossible before us so that we all respond by saying "we can do it!" JFK said the following in his speech about man going to the moon…

We choose to go to the Moon in this decade and do the other things,not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win ...

What an incredible sense of vision that galvanised an entire country into action. Sure, there was a cost but he was making this speech in the middle of the cold war and dealing with issues like the Cuban Missile Crisis!

I like the fact that he stated that it would be difficult. Why should we be told that everything should be easy? I like a challenge and believe you can only have real victory when you’ve overcome adversity.

So where are the leaders like JFK that say, “I’ve had enough! I’m not going to run the country via an opinion poll but by the ‘content of my character’?”

Aren’t you tired of billions of dollars being wasted, being stolen or being completely mismanaged? We’ve just had a new class of destroyers being built in Australia that has had a near billion dollar over-run in the budget for a project that was supposed to cost $7.2 billion. For a start, $7.2 billion seems to me like a lot of money and secondly, how in the heck did they have such a massive overspend????

A few years ago I fired my accountant that did my personal tax. Why? Because it worked out that he was charging me the equivalent of $30 per line item in my bank statements….it was gross over charging. Where’s the leader that stands up and fires the shipping company that’s building the destroyers, demands reparations for delays and uses the money more effectively….maybe build a centre for science that’s funded, like, forever!

The challenges that we now face are not just American, Australian, European or any other region. Our species is now faced by global issues and what's amazing is that the average person is seeing themselves more as a global citizen rather than a citizen of a single country. Our leaders just need to catchup with what the globalisation that the Internet has really fostered. Individuals have broken down barriers between nations and cultures that are leaders are still yet to embrace.

What we really need are new leaders that can stand up and lead other leaders around the world in a common direction…this is no small task to ask. So where are these leaders? Most of us couldn’t even say who the Secretary-General of the United Nations is…..so it’s unlikely to be Ban Ki-moon that issues a “call to action”.

If humanity is to explore the solar system and beyond then we need the world to invest in that future. If we are to solve poverty and hunger then we need to world to work on that. How about disease that knows no international boundaries? We need to all work on that one as well. But what we need more than anything is some real leaders to stand up and point the way….heck, I’ll follow!

As a planet, we are faced with the very real problem of climate change. I’m not wanting to debate whether it is caused by man or not….the fact is, we are having massive extremes in weather. You only have to look at the droughts in Australia, floods in Texas and the retreat in the glaciers worldwide to know somethings up. So where is the leader that says, “Let’s stop debating and get some action that will assist those in need?”

I’m tired of half the world fighting obesity while the other half fights malnutrition. What is it that motivates a person to blow themselves up and a nation to execute rehabilitated prisoners? what I really desire is to turn my television on and be swamped with positive news about; new cancer drugs, AIDS has been solved, poverty addressed, diseases erradicated and rockets soaring to the moon. Let's demand with the flick of a switch that our media focuses on the good not the bad.

I look at the current self-absorbed generation that is constantly staring at their smart phones and say to them…go and do some time in the equivalent of the peace-corps! See what you can do to help your fellow man rather than complain that it’s taking 2 seconds for a signal to bounce of a satellite and get routed halfway around the world to the device in your pocket. The problem is that there aren’t any leaders for this generation pointing a direction for them to rally behind.

Sure, these are the big problems but how out the domain industry issues? There is still a lack of transparency in why we get paid what we get paid, no organisation that verifies statistics, a single dominant advertising network, advertisers that pay pennies for traffic that earns thousands of dollars to name but a few! The question I’m asking is, “Who’s working on fixing these problems?”

These are the questions drive me nuts….so that’s why I went away for some serious thinking time. What I was looking for was not an evolution in the domain industry but a revolution! There are so many ways that we can monetise valuable traffic that it makes my head spin but there are some very real problems to overcome.

For example, would you rather your cash paid every month for traffic or ten times what you normally get paid with a 120 day delay? For many domainers with mortgages they would instantly say, “pay now please” but how about those that can afford to wait for the long-term? Is there a way of effectively funding both groups?

How can we get conversion rate reporting rather than just clicks? This is the core value of quality traffic….how many people actually buy from being routed via a domain?

So after returning from my time away I have about 20 pages of notes and brimming full of ideas. So the next stage is testing, implementation and then again more testing. What I really want to get my teeth stuck into is some of the global problems…..and I’ll continue doing my bit by donating some of my time to a local charity. You have to start somewhere!

If you’re as tired as I am about the state of the world and our industry then please comment. If you’re one of the potential leaders that has a vision then scream it from the mountain tops as I’d love to hear about it.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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mgilmour
Chris, thank you for your kind comments. As to answering your questions.....I started by taking some time out. No matter how busy ... Read More
01 June 2015
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Critical Insights Into the Domain Industry - Part 2

Critical Insights Into the Domain Industry - Part 2

This article continues directly from Part 1 in the series "Critical Insights Into the Domain Industry"

Google’s response to the aggregation of traffic by parking companies was to instantly grant a number of additional domain feeds to new parking companies. Some of these feeds had a honeymoon clause that allowed them to have a competitive advantage versus the larger incumbents. Many domain investors flocked to these new companies as they were seen as their salvation to paying renewal fees. This instantly re-fragmented the marketplace.

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Now that the market was split up again, Google instituted DRID’s (Domain Registrant ID) to reduce fraud (this was a good move IMHO) and CAF (Custom Ad Frame). CAF is where Google controls everything on the lander for a parked page.

Personally, I think that this overall strategy was a really clever part on Google. It allowed them to decrease PPC rates and completely control the entire domain channel without the threat of a wounded Yahoo stepping up to the plate. Some people get really upset by Google’s behaviour. What domain investors need to understand is that Google is obligated to behave in such a fashion on behalf of their shareholders.

In fact, if you look at the Google TAC (Traffic Acquisition Costs) graph over the last years you can see the TAC in a constant decline as Google buys traffic at cheaper and cheaper rates. The domain channel is but one part of the overall TAC number....sadly, this is not broken out as a separate number. It would appear that the TAC is now at the point where tier 2 players are a serious contender for the traffic. This has really made zero click a feasible option for domain traffic. The challenge for individual domain investors is to actually take advantage of this...

TAC

 

So let’s get back to the story. So who bought the domains being sold by investors and how did they buy them? Many of the buyers of the traffic domains did so with debt or investor backed money raised just before the financial crash. Post the GFC this became problematic as:

1.            Promised investor returns weren’t realised.
2.            Debt payments couldn’t be funded.

A number of funds that raised a lot of money found themselves in the awkward situation of dealing with boards that were screaming for results. Here’s what’s interesting. In the past it was good enough to buy a domain and get phenomenal returns from the traffic but now things were different. A different set of skills were required to extract every bit of value from the domain traffic.

A good way of thinking about the problem is like this. Previously you could bend down and pick up a nugget of gold while now you need to drill three miles deep and run a shaft two miles horizontally to find the seams of gold in the traffic. The gold is still there but it just takes more effort to get it out.

The individuals and companies that raised cash to acquire domains now needed a different set of skills to extract the value. For most companies the individuals have skills to find domains, do deals and do basic monetisation. Very few, to none of them had the skills necessary to extract every dollar out of the traffic.

The problem then became one of ego. For the years before the GFC many of the individuals that had established these domain funds had been lauded as geniuses. They were partying like there was no tomorrow and almost overnight they were completely out of their depth. Picking gold up off the ground is very different from driving shafts into the bedrock.

I remember being in a meeting with one such fund where my company, ParkLogic, had increased the revenue by 32% (versus a direct Google feed). The company refused to admit that this was possible and turned their back on the additional revenue. It turned out that there was massive political infighting and egos were being threatened because they didn’t have the skills to produce the same results. Lesson learned, it’s always easier to deny the facts then to admit you’re wrong.

These same portfolios are now being broken up into pieces as investors (and debtors) endeavour to get some of their money back. Domains that were purchased for 40+ months revenue are now being sold for 12-18 months.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Saturday Musings - From Pain to Gain

Saturday Musings - From Pain to Gain

There’s nothing like a reworked root canal to stop you dead in your tracks. This week, through the auspices of my dentist, my body decided to take control of my mind and laid me up in bed with waves of headaches. To say wave’s makes it sound like they were lapping on the shore….it would be better to describe them more as tsunamis.

There is a good side to all of this. As well as a lot of sleep (got to love those pain meds) it gave me time to reflect on a multitude of vitally important topics. Such as, why the education system will teach my children calculus but not how to manage money. The next step in improving the sales of my book. Why the rain against the window seemed incessantly loud.

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In my delirium, I also contemplated why the dog in the first episode of “House of Cards” didn’t bite Kevin Spacey’s hand and give him rabies. How many jelly beans fit into the glass jar in the cupboard above my desk? Why is it that terrorists seem to keep on wanting to blow things up versus build something that lasts?

As you can see, my thinking was solving life’s big issues.

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Critical Insights Into the Domain Industry - Part 1

Critical Insights Into the Domain Industry - Part 1

I’ve spoken and attended a lot of conferences over the years….and clocked up quite a few airline miles in the process! During this time I’ve seen so many people come and go, businesses launched only to vanish and domain investments completely mismanaged.

So why am I reflecting on these things? I was speaking with a client this morning and the conversation caused me to journey down memory lane and review a few of my old presentations that I’ve shared at conferences.

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I had a bit of a laugh when I looked at a presentation that I did at TRAFFIC Vegas 2008. One of the slides predicted the recession and the collapse of domain valuations and PPC revenue. Guess what….it happened.

Am I a living genius? My wife would be the first to say, not at all! What I try and do is take in what is happening in the complete industry and then ask the reason “Why?” This is quickly followed up by, “So what does this mean?”

So let’s take a look at the state of the domain industry with these two questions in mind.

Why do many people think that domain parking is dead? Back when the revenue squeeze came on many domainers were left holding two types of domains, traffic and brandable domains. At the time brandable domains weren’t in fashion because there was a global recession. Despite this everyone believed that they knew their domains would be worth a fortune (wink, wink).

Many investors convinced themselves that PPC rates were declining and that soon all of their traffic domains would be worthless. So they sold them off at discount prices to help fund the registrations of the brandable domains.

You see, brandable domains are like a ticket in the lottery. You have to have a ticket if you will have any chance of winning….the only problem is that the domain lottery ticket has to be paid each year. When you don’t have the funds to finance registrations you have no choice but to look at selling the one thing that does have value now……that’s traffic domains.

As PPC rates decreased there was pressure to sell while you still could. Very few people thought about how to increase PPC rates and maintain their revenue lines. A herd mentality developed and traffic domains began flying out the door while at the same time domainers dropped more speculative domains.

I want to say upfront that although PPC rates did decrease they have not decreased as much as many domain investors have experienced. Here’s some data that I think you’ll find interesting. The most that ANY parking company wins is 25% of the traffic. This means that in the absolute best case scenario, if you left all of your domains with one parking provider then 75% of the time the domains can perform better elsewhere!

Some domain investors caught onto this and began manually moving their domains around to find the best monetisation solution. Here’s another stat that most people aren’t going to like. After nearly nine years of running what I believe is one of the most sophisticated optimisation system in the world I have found that around 33% of domains move providers every 3 months. The problem is that it’s a different set of solutions and a different set of domains!

So why did PPC rates decrease? It was really simple, because they could. Google is the dominant provider of PPC revenue to the entire domain channel and to maintain its position in the industry it logically did two things. To fully understand this we need to first understand the industry at the time.

Traffic had begun consolidating around several large hubs of monetisation providers, the largest two of which were Domain Sponsor and Sedo. The problem with a consolidating market is that the tail could end up wagging the “Google dog”.

While traffic was spread throughout the industry Google could play one player off against another. The problem became when Domain Sponsor raised a lot of capital via Oakhill Capital Partners and Sedo became part of United Internet and developed a domain sales revenue stream that was not dependent upon Google. Both these actions meant that the companies could now buy vast amounts of traffic and potentially break the Google exclusivity stranglehold.

The next article will continue the story of the domain industry and how Google responded to this threat.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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