Saturday Musings - I'm Exhausted and Loving It!

Saturday Musings - I'm Exhausted and Loving It!

Have you ever worked so hard that you literally fall asleep at the keyboard? Well, that was me this past week. In the wee hours of the morning I awoke to the uncomfortable feeling of the “A” key pressed into my cheek. So what spurred me into this fanatical desire to work myself into a stupor?

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It all began with an idea. Ideas are very dangerous things and normally should be avoided at all costs but in my case I made the mistake of letting my idea germinate. I couldn’t stop thinking about it so I took the next step in my journey into oblivion….I picked up a pen and sketched on a piece of paper how the idea could theoretically be built.

The problem with this stage is the idea was really beginning to take shape. This of course made my singular focus even worse as it became an all-consuming fixation of seeing it come into reality. In some-ways it reminded me of Victor Frankenstein prior to throwing the switch to seeing his creation come to life.

I’ve said this to the ParkLogic tech-team and I’ll write it here. There’s nothing more dangerous than a person (ie. me) with some rusty old tools, a plan, and a vision. So I dusted off my programming skills and got to the work of breathing some life into my idea.

Like any great undertaking everything hinges on the strength of the foundations…..but they are so boring to build. You spend ages mixing the programming cement, belting together functions and working out the overall architecture. The result is more of a Picasso looking house with all of the bits seemingly in the wrong spot.

For me I, I made the fatal mistake of showing off my strange edifice to Roselyn (my wife) so she could fully appreciate the nuances and clever little bits that I’d built. After being somewhat polite she asked a really dumb but however smart question, “And this does what?”

After being somewhat flummoxed with the response towards my brilliance I ushered her out of my study with the promise of a nice cup of tea. I then returned with renewed fervour as I moved the programming bedrooms out of the garage, attached them to the hallway and made sure the toilet flushed downwards rather than upwards. All really important details that I’d neglected to finalise.

This is when I entered that state of being that many programmers only know as “the zone”. This is a point where you have a singular and intense of focus that can only be described as astonishing. The previous chaos of bits and bytes suddenly seemed to gain a sense of order as I plied my herding skills to the code. I glanced at the clock and casually noticed it was 4am…..how time fly’s when you’re in the zone.

I dragged myself away from my desk, climbed into bed and was asleep in about 3 seconds to the comforting feeling of dancing HTML and PHP code in my head. A few hours later I was back working on my regular tasks and at the end of the day I resumed my vision. Things were really beginning to take shape and I had not just a home but a castle!

So it’s now the end of the week and I’m thoroughly exhausted…..but what a week’s it’s been! For those of you that have any programming experience you’ll fully appreciate the euphoric bliss I’m talking about. It’s a wonderful feeling seeing something come into being that wasn’t there before. It’s an act of creation, built from a vision and powered by passion.

I honestly wish that I could show to you what I built…..but that is for another day. Right now I really to reintroduce myself to Roselyn, and then get some sleep that doesn’t involve a keyboard.

Have a great weekend!

Greenberg and Lieberman

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Part 3 - The EPC Opportunity

Part 3 - The EPC Opportunity

The formula outlined in the previous two articles on EPC looks a little scary but whether we like it or not it is THE formula upon which a huge amount of the domain investor community swings. Understanding how it can impact your business actually isn’t rocket science but requires a little intuition. Here is the EPC formula in its entirety.

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EPC Forumla

 

The formula now incorporates the advertisement clicks and also the Monetisation company filter in the denominator. What it does clearly show is the closer you can get to an advertiser the higher the payouts.....no surprises there! The goal is to effectively eliminate many of the margins on the top line and potentially remove one of the multipliers in the denominator.

There are two problems with managing direct advertising relationships:

1.      There’s a large hidden downside cost associated with the relationship management.

2.      Most domain owners don’t have the scale to attract the interest of the serious advertisers.

The one great thing about domain parking is that it’s scalable without scaling the direct cost base associated with matching the advertisers. The question is whether there is enough free margin available to offset the costs.

The rise of zero-click solutions is an attempt at getting closer to the advertiser in a unique manner. For those of you that are unaware, zero-click is where domain traffic is routed directly through to an advertiser’s web page and does not require a click. Behind the scenes there is a real-time auction process to determine whether the zero-click advertiser will pay more than a parking solution for the traffic….if they do, then they get the traffic.

Many of the zero click companies have moved away from working directly with domain owners because the domain owners do not have enough traffic to warrant working with them. The cost of doing business is just too high…..therefore domain owners are faced with working with traffic aggregators.

What needs to be appreciated is that as soon as you add zero click to the mix then you are effectively introducing yet another EPC. Remember that EPC is a measurement across a period of time (typically 1 day) while zero-click is an offer at a point in time. In terms of the stock market, this is comparing an average price versus a spot price….the two don’t mix.

Let’s take a look at an example that will hopefully provide further insight into the challenges of zero-click. Remember the example of EPC we used in article two in this series? The EPC was made from six clicks each of $10, $10, $5, $5, $1 and $1. The final average EPC result for the day came to a value of $5.33. You don’t know the individual values that made up the $5.33 you ONLY know the $5.33.

Let’s imagine a zero-click solution offered $6 for the traffic? Since it’s more than $5.33 then it looks great! Wrong! Zero-click solutions are smart and only want the pristine traffic. They can often accept the traffic that you were previously getting paid $10 for and now pay you $6. Your average EPC for the day has now dropped to $4……which is lower than you received previously.

Correctly setting up a zero-click initially solution sounds trivial but it actually isn’t. There must be a dynamic swinging of the real-time auction process to ensure each piece of traffic receives its full value. This can get really complicated really quickly!

I hope this series of articles helps domain investors in their understanding of one of the very much taken for granted metrics that are bandied around. EPC isn’t as simple as can initially be thought about and yet coming to grips with its intricacies can pay significant dividends. If you have any questions then please don’t hesitate to leave a comment below.

Greenberg and Lieberman

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Saturday Musings - I've Got a New Job

Saturday Musings - I've Got a New Job

Starting a new job, project or business can be one of the most exciting and most stressful times in your life. It just so happens that this evening I’m about to do exactly that….I’ve decided to take on a new job as a bouncer.

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For those of you that have met me, you will undoubtedly have great concerns about by intended new vocation. My physique is not particularly suited for the job as my fingers are more used to typing on a keyboard than rough handling a few delinquents out the door. But, I know I can rise to the challenge!

At some stage in most men’s life, circumstances thrust you into making difficult decisions and whether you rise to the challenge or collapse under the burden is up to your attitude. Tonight, I intend to be triumphant in my ability to become the best bouncer that has walked this planet….so watch out!

I know this is my first night on the job but I seemed to pass the job interview pretty well….even though I'm a bit stressed knowing the success or failure of the event largely rests on my shoulders. I’ve been told that imagining various scenarios can help alleviate my stress, so in an effort to prepare myself I’m practicing my witty bouncer comeback lines. I'd be interested in your feedback...

Partier: “So why are you throwing me out?”

Me: “Because your domains really suck and you have fraudulent traffic! That’s why!”

Or how about…

Partier: “Who the hell do you think you are?”

Me: (with Dirty Harry’s voice – of course): “I bet you’re wondering just how much traffic I have left? Can I really unleash a torrent of hell down upon your website? Well, feeling lucky punk?”

 Or….and now I’m getting way ahead of myself.

Partier (Bill Paxton whining Aliens voice): “Party’s over man, party’s over.”

Me: “It is for you. I just caught you attempting a domain hijacking. You’re outta here!”

So what do you think? Do I need to improve some of them? Please provide me with any suggestions to help me through my first bouncing job……as time marches forward I’m starting to feel a little nervous.

BTW, I should also mention that tonight is my daughter’s eighteenth birthday party and me (ie. Dad) is the bouncer of choice. So it’s with great relief that it looks like my new job is more of a contract appointment that will be finishing around 1am. Who knows, if I’m any good I may launch another business……I just need to buy the domain for that!

Have a great weekend and thankfully, I'll see you at NamesCon!

Greenberg and Lieberman

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Part 2 - Understanding EPC

Part 2 - Understanding EPC

This is the second article in the series that unpacks Earnings Per Click (EPC). Click here if you wish to reach Part 1. The previous article covered the basics in how EPC is calculated while this one goes in depth into what actually lays at the heart of EPC.

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So now we have an approximation for the EPC and the formula will look like.

EPC = (Total Revenue Over a Period of Time)  /  (No. Clicks x Parking Company Filter)

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This is great but we have forgotten the other side of the whole equation. An Earnings Per Click for the domain owner is a Cost Per Click (CPC) for the advertiser. How much they will pay for each click will be dependent upon their business models and ultimately conversion rates.

If I’m an advertiser and I need 10 clicks at $1 each to make a sale and I make $20 for every sale, then I’m happily making money. But if the online auction for the traffic increases to $2 per click then my advertising is costing $20 and I’m making $0.

In a perfect world where everyone has the identical conversion rate, the advertiser with the lowest cost base will ultimately be able to outbid their competitors. It just so happens that we don’t live in a perfect world and many advertisers have widely varying margins that they can expend upon buying traffic.

Assuming economically rational advertisers (they aren’t always) we can then simplify what an advertiser is willing to pay for a click down to the following equation:

p=  Am  S  C

Where:

p= maximum price per click

Am = Advertiser gross margin on the goods/service being sold

S = total value of the sale

C = Conversion rate (0 to 100%)

What this formula suggests is that in market verticals with large margins the EPC should trend higher. We see this as domain investors know the “Sale Value” of a mortgage lead is much higher than a computer games lead, so the EPC for mortgage traffic is much more valuable. Remember we are talking about EPC rates and not revenue at this stage…..revenue will also depend upon the click through rate.

By adding the conversion rate into the equation, we can clearly see why Google wants conversions to be as high as possible. The higher the conversion rate, the higher an advertiser can bid for traffic. I read in a forum recently that Google doesn’t care about the conversion rate…..this formula debunks that theory and provides an economic rational why Google wants higher conversions.

Ideally for a domain investor we want high traffic domains in market verticals that have big margins and large sale prices. Sadly, these are few and far between…

So we now know what an advertiser is willing to pay for a click but what’s our percentage? If we were to simplify the whole advertising auction system, then the formula for revenue now looks like the scary one below.

EPC forumla

Where:

p= Price advertisers pay per click
f(p)= p x Advertising clicks
G= Google margin
Mg = Additional Google tier margin
T = Tag smart pricing
M= Monetisation company margin

What does this complicated equation actually mean? Once you get past the sigma notation (ie. Sum) you have a function which is essentially what an advertiser pays for a click multiplied by the number of clicks.

The (1 – G) is the Google margin and the “T” is some “smart pricing” factor that is applied to the tag that your particular account at a parking provider happens to be on. The (1 + Mg) is the increase in margin due to the Google tiers that a particular parking company may be on….this typically has a very small impact on the results. The (1 – M) is the margin taken by the parking provider. This will then become the numerator for the EPC equation.

The sigma or sum just means sum all of the revenue earned for all of the values of "p" for the function f(p). In other words, just add up all of the revenue. So let's move on.....

The denominator (ie. Number of clicks) is different to the advertising clicks. This is where it can get a little tricky. An advertiser may still pay for a click but it is still not registered as a click in a parking company interface due to their filters. By rights, the revenue should still flow through (fingers crossed) but the clicks may not.

The question domain investors should ask is what can they influence in the equation? Assuming Google has the targeting right (they don’t always) then there isn’t that much at a single parking provider. If you’re big enough you can squeeze parking company margins but other than that an individual domain owner typically neither has the scale nor the technology to take advantage of other optimisation solutions. Don’t worry…..there is light at the end of the tunnel.

A few things should be said…..given the volatility of the domain parking market the parking companies do not have any spare margin to hand around to domain owners. In other words, there isn’t some secret slush fund that any of them have. If this were the case, then it would come out and as soon as they paid out with the slush fund it would be soaked up as domain owners migrate their traffic across to them. It’s the market at work….

On a personal note, as one of the founders of ParkLogic I've found that getting underneath the mathematics really provides dividends for clients. Understanding the maths and coming to grips with the fact that its constantly changing ís one of the reasons why large domain investors utilise our service.

In the next article I will go through the opportunities and pitfalls that understanding EPC presents for domain investors.

Greenberg and Lieberman

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Saturday Musings - A Journey Through Time

Saturday Musings - A Journey Through Time

When I attended the recent Domain Conference in Florida I had a few copies of my science fiction book, Battleframe, to hand out as giveaways. It provoked a lot of discussion about scifi and one of the members of the Godaddy team ended up telling me about a book called “Read Player One”.

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Ready Player OneBy the time I’d finally returned to Australia I’d completely forgotten the conversation until I received an Amazon delivery with a copy of the book inside. For a start the cover intrigued me, it had a picture of a young man climbing a stack of caravans……so I thought I’d give the book a shot and started reading.

What surprised me was the fact that the central theme running the whole way through “Ready Player One” was everything about the eighties. Computers, board games, computer games and music were all fodder for creating elaborate puzzle clues that the protagonist had to solve.

To be quite honest with you I cared less about the plot (which was a little simplistic) and more for the fact that it was a personal journey through time. Trash 80 computers with 16K or RAM, cassette loaders and Atari 2600 game consoles were carefully weaved into the overall story. I loved it!

My first computer was a Trash 80 clone and it sites under the stair in its box to this day! My second computer was a Commodore 64 and the games the characters played were straight from my childhood. Including Joust, Zaxxon, Defender (I loved that game) and the D&D (Dungeons and Dragons for the uninitiated) module “Tomb of Horrors”. I’d played and loved them all!

In fact, at one point I was desperately hoping the author would actually mention some of the games that I programmed…..but sadly no. The original “Lord of the Rings” and “Mugsy’s Revenge” weren’t mentioned. Maybe in book two JI can only hope!

Was it the best thing I’ve ever read? No. Was it just good mindless fun? Heck yeah! It managed to keep me up to the small hours of the morning which is all you can really ask from a book.

I would like to thank the entire Godaddy team for inspiring me to read “Ready Player One” and to the particular team member that sent me a copy of the book. I’ve already passed it onto my closest friend who is also one of the characters in Battleframe (Bosk).

Have a great weekend!

Greenberg & Lieberman

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