Buying and Selling a Traffic Portfolio - Part 5

Buying and Selling a Traffic Portfolio - Part 5

Like any industry where buying and selling is involved there is a potential arbitrage gap between what the seller is generating and what the buyer can potentially earn once a transaction is complete. This can dramatically change the return on the investment.

A simple example would be if a seller has all of their domains parked at Company A and they received a 75% payout. As the buyer, you know that at the same company you receive 85%. That’s a 13.3% greater payout. This means that if you paid 24 months revenue for a portfolio you should get the payback within 20.8 months.

Escrow.com

If a seller has all of the domains at a single parking solution then there are a considerable number of additional ways that you can increase the revenue. Over the years at my company ParkLogic I’ve found that the maximum any parking company typically wins in a portfolio is 20% of the traffic.

This means that if you are acquiring a portfolio that has been parked at a single parking company then you can at least improve it 80% of the time. That’s a great outcome! At ParkLogic we also have a real-time bidding system in front of the traffic that sends the traffic direct to advertisers to provide additional revenue uplift (enough of the sales pitch!).

The reverse of the above is when you find a portfolio that is parked all over the place or where there may have been some special deals in place that underpinned the revenue line. For example, let’s imagine the portfolio had a group of domains that were all going to a particular affiliate company? Will the deal also migrate with the domains or will the deal suddenly vanish once you parted with your hard cold cash?

Likewise, for domains that have “slept around” they are likely to be fully optimised. Be careful of buying these portfolios as there is unlikely to be much of a “free” revenue uplift from optimisation. What I would recommend is to ensure that you can establish an account with the optimisation company prior to the acquisition. We have a number of ParkLogic clients buying and selling domains between them to more secure their ROI.

I’d also be careful of fad domains. These are domains that are popular for a time and then the traffic just dies off. So do your due diligence on the traffic by requesting stats across six months and then view the traffic data on a domains by domain basis to see if there are any trends that you don’t like. Spikes in traffic and downward trendlines tend to be the bad ones to look out for.

Particularly look out for what I would call the “lucky click” domains. These are domains that may be sold in amongst all the others that have a tiny amount of traffic but got a $30 click. You’ll probably never see that click again but if you buy these domains you’ll be paying a lot for them. To find them calculate the RPM for each domain (revenue / view * 1000). Sort the domain list from highest to lowest and you will discover that these domains are typically sitting right at the top…..get rid of them from the deal.

The wise purchaser will take the time to thoroughly go through a list of domains and indicate which ones they are prepared to pay for and which ones they aren’t. The seller will try and keep the portfolio together as an aggregate to stop this type of cherry picking. In the end it will become a negotiation. The strength of your position in the negotiation will be determined by how much homework you have done at the analysis stage.

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
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Stop Biting the Hand That Feeds You!

Stop Biting the Hand That Feeds You!

I’ve been in the domain industry for more years that I care to remember and I constantly hear the cry of domain owners claiming that parking companies are defrauding them. So are they defrauding you?

I'm actually Parking Company independent.....at ParkLogic we send our client’s traffic to whoever pays the most at that specific point in time. In the last 8 years I’ve have only found one parking company do something deliberately wrong....and we terminated the relationship with them.

escrow.com

On the whole the major parking companies are run by honourable, good people that are doing their best to earn money just like the rest of us. They don't have a secret bucket of money that they are stashing away and they also don't steal from domain owners. If they did, they would pay out less and we would instantly move the traffic away.

That being said, stuff sometimes goes wrong....it's technology and as we know technology isn't 100% perfect all of the time. When something stuffs up give your account manager the benefit of the doubt that they aren’t trying to screw you out of a few dollars. The typical account manager has no say what goes on with the technology anyway!

I’ve talked to our own account managers and they often share about clients yelling, swearing and generally being completely unprofessional to them. Give them a break! They’ve got feelings too you know.

What I suggest is that you pick up the phone, skype, email, IM or whatever and thank your account manager for doing all the work that they are doing for you. They often do a lot of stuff behind the scenes that they either can’t or for whatever reason don’t share with you. So go and share some love :-)

Have a great weekend!

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
Click here to arrange time with Michael
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The Evolution of Domain Parking

The Evolution of Domain Parking

Domain parking is dead and should have been buried a long, long time ago. This is what I see written in domain forums over and over again. I’m left with two questions, “Why hasn’t it died?” and “What’s next?”

There are a number of reasons why domain parking hasn’t died and the first being that domain investors continue to support the business model. Let’s face it, all you have to do is change your nameservers and voila! Money starts pouring into your bank account…..that’s the theory anyway.

The reality is that I end up spending a huge amount of my time ensuring that ParkLogic clients have their nameservers set correctly and that the domains are actually still in the right parking accounts. When was the last time you audited all of your domains? Trust me when I say that about 10% of your revenue is being lost by not doing this.

Escrow.com

There is one thing for sure about domain parking is that it’s scalable. There are very few barriers to the number of domains that you can park but there are barriers to managing your domain portfolio. For example, at about 5,000 domains you will probably discover that vlookup in Excel becomes your best friend.....even if your domains are successfully parked.

Given the alternatives for domains with more than 1 unique visitor per day domain parking is actually incredibly profitable. Sure, you could build out a domain into a business but given the cost of development you better make sure that you choose the right one that will go gang busters and make a bucket of money to offset the development cost.

This conversation is all very interesting but what I’m really interested in is what’s next?

One option would be that all domainers suddenly decided to invest in development and take all of their domains out of parking and somehow build thousands of profitable sites.

I see a couple of barriers to this business model. The cost (as mentioned above) but more importantly the management time. Let’s imagine that you have a thousand sites, how do you manage them all so that you can effectively impact each one? This is a really tough ask and one that bears a lot of thinking about.

This causes me to think about the other side of the equation, the parking companies themselves. If you really think about it, all of them have roughly the same Google contracts (ignoring Yahoo companies) so they’re really competing on their technology….I like that!

So let's picture what a parking company does for business. They work really hard at securing a client for a trial with a great revenue share, guarantees or a stack of other inducements. Essentially the parking company is using their balance sheet to try and fund their sales process into traffic opportunities. Sounds good except that ultimately it's not very sustainable.

Let's continue this scenario. The domain investor moves their domains for the trial and due to differing time frames the parking company rolls the dice to find out if they perform as well as the provided baseline where the domains were previously parked. I can almost guarantee that the new parking company will perform better on some domains but for the vast majority there will be lower revenue…..which means overall the portfolio doesn’t perform as well.

Just as an aside, some unscrupulous parking providers may artificially inflate the numbers and hope the domain owner hangs around long enough that they can “take” some of the revenue back later on. This means that they are playing around with the revenue share AFTER the revenue share has been agreed.

Have you ever fallen in love with a parking company, taken your eye off the numbers and then discover that the revenue has declined considerably? What’s really not good is that the domainer typically doesn’t have any way of proving that this is actually happening.....this is the result of a non-transparent industry.

So now that the test is a bust what does the domainer do? They look for the greener grass and move again. This isn’t a good outcome for the parking company because they really have to wait about eighteen months before they can convince the domain owner to try them out again……and so the cycle begins.

Let me propose something really radical here…..and a little bit self-interested. The domain owners place all of their domains with an intelligent switching company like ParkLogic (remember I’m a founder) or they can spend about 8 years building their own. The traffic will then flow to the winning parking solution on a continuous basis and also sample to ensure that the winning solution is actually still the winner.

This is great news for the domainer! They no longer have to move their domains around from one company to another as it automatically happens.

Let’s look at this from the perspective of the parking company. Any new clients should be directed to use a system like this…..why you may ask? It’s really simple. Where they win, they get the traffic. Where they lose, they get regularly resampled. There is no longer an 18 month sales cycle, fancy deals etc. It just automatically happens.

What it also means is that the parking providers are now competing on their technology rather than sales muscle. So this means that more resources are migrated into being innovative through development and away from sales efforts.

The ultimate outcome is that the parking providers become wholesalers to companies that intelligently switch, optimise and add value to the traffic. The parking providers have maybe half a dozen customers and the rest are routed through these other companies.

Parking providers can continue with the status quo. This will mean a race to lower margins and spending the cash in their balance sheets on fancy deals…..only to find the client vanishes. I actually wouldn't recommend this approach.

The wholesaling model is the best solution for both parking companies AND domain owners because it gets to the true value added provided by the parking solutions and closer to the true value of the traffic. In my opinion, this is exactly the type of innovation that the domain parking industry requires.

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
Click here to arrange time with Michael
Click here to advertising on whizzbangsblog.com

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Saturday Musings - Relationships Not Things

Saturday Musings - Relationships Not Things

I’ve had a lot of people asking me why I’m not at TRAFFIC in Miami. I’ve been to every TRAFFIC conference for the past 10 years (other than the very first) and I’ve found them exceptional events for developing business. So why aren’t I attending this time?

It just so happens that my daughter Elise is turning 16 and despite my love for TRAFFIC she trumps it. I wouldn’t miss her birthday for anything. So I am really sorry to all of my great friends at TRAFFIC but you got beat out this time……but I will be there in 2015!

When I think of my decision it’s all about what I regard as important in my life. Do we work to live or live to work? I love my work but the reason why I work is so that I can live a more fulfilled life. It's focusing on people and relationships not things and money that provide a richer better life. In this case it was my relationships with my daughter that won the day.

The order of importance for me is my relationships with God, Roselyn (wife), my kids, work colleagues, friends etc.  I find that if I have these priorities in the right alignment then life is good. Sure, I can break the rules for a time but there’s always a cost.

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Buying and Selling a Traffic Portfolio - Part 4

Buying and Selling a Traffic Portfolio - Part 4

So you’ve done your due diligence on the domain portfolio that you wish to acquire and everything looks like it’s good. All you have to do is part with your hard earned cash and wait for the authorisation codes so that you can transfer the domains into your registrar. So what’s the problem? A lot!

What happens if you send off your money and the seller decides not to transfer the domains. They now have your cash and the domains. What happens if you send your money and the domain statistics have been fabricated? What happens if you transfer your dollars and discover that the stats have been pumped up with purchased traffic? These are all good questions and I’ve heard story after story of people who have been burned by unscrupulous sellers…..so my advice is BEWARE!

Some buyers try and solve this problem with a contract. Personally I find that they are almost worthless. If you have a person that is prepared to steal your money then reneging on a signed contract is probably nothing big for them. So what’s the solution?

In a nutshell I would recommend using an escrow service. With a good quality escrow service both parties (ie. the buyer and seller) can agree to specific terms and a middle-man handles the actual transaction.

For example, you transfer your money to the escrow service and the funds are not sent onto the domain owner until the domains are under your control. This at least stops people from running off with your money and the domains. You can actually specify a variety of conditions that are agreed by both the buyer and the seller that the escrow company can verify before the seller can get their hands on your cash.

Seller financing has become very popular. The escrow company holds the domain in their account while the financial obligations are met. Say $12000 being paid in 12 monthly instalments of $1000. My only caution is can you imagine the headaches involved if the escrow company ceases to operate or becomes insolvent during a transaction of this kind. This wouldn’t be pretty!

There are a number of Escrow companies that domain owners use with Escrow.com being by far the most popular and the longest established. Over the years, they’ve spent a huge sum to ensure that they are in compliance with the various governmental authorities that manage the escrow industry and ensure that it’s clean.

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