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At long last I’m continuing the series that I started at the end of last year on the risks associated with purchasing traffic domain names. You can read the previous three articles by clicking on the following links:
Part 1 Risk – Domain Business Model Analysis
Part 2 Risk – Traffic Domains
Part 3 Risk – Where did all the traffic go?
 It seems a little obvious but Earnings per Click (EPC) is a fundamental part of what it means to generate revenue from traffic domains. What is surprising is that EPC is a very misunderstood concept by many domain owners.
For instance, many of us work under the assumption that if a Google/Yahoo take 50% of the advertising revenue and the parking company shares 50% with us then we get 25% of the pie. In terms of EPC if an advertiser pays 20 cents per click the parking company gets 10 cents and the domain owner then gets 5 cents. This may be true in some instances but generally speaking it really doesn’t work like that.
To give you an idea of the challenges faced by parking companies and EPC rates we need to understand the timelines that they work to. For example, when we look at our parking account we typically see the figures change every 30 minutes and yet both Google and Yahoo only provide data on a daily basis. This means that many of the parking providers are essentially “guesstimating” what the payout rate will be for a domain in order to provide a domainer with stats that update every 30 minutes.
To make this example really simple let’s imaging that you have a portfolio of 2 domains, a.com and b.com. You look at your parking account and both a.com and b.com get paid $1 per click in the first day for the 1 click that they each receive.
The parking company then gets their G/Y report and discovers that in reality you should have received $0.10 for a.com and still $1 for b.com. This means that they actually have reported that you earned $2 in the first day and yet they only received $1.10. In reality because you are on a 50% revenue share for your whole portfolio you should only be paid $0.55. The parking company needs to recoup $1.45 just to bring things back to normal. This is going to be really hard work....
The only method to do this is to alter the EPC for each of the domains or toy with the click through rate (CTR). Let’s imagine that the CTR isn’t touched. The parking company is learning so the following day there is a single click for each domain so since they have to claw back some revenue they report back $0.08 for a.com and $0.50 for b.com. Let’s imagine that Google/Yahoo pay exactly the same as the previous day.
The balance earned by the domainer is $2 (day one) plus $0.58 (day two) which equals $2.58. The money earned by the parking company from Google/Yahoo is $2.20. Things are looking better but they are still a long way out as the domainer should only have earned 50% of $2.20 or $1.10.
The next day the domainer checks the stats and sees that both domains have had a massive drop in EPC. From a resale perspective this has massive implications on the value of a domain. For a.com that initially received $1 per day is now getting $0.08. The difference in selling this domain for 3 years revenue is $1,095 versus $87.60.
What’s worse is that b.com which should be getting $1 per day will be paid $0.50 per day for quite some time in order for the parking company to recoup their loss. The value of b.com was just halved.
Since there is a huge drop in EPC many domainers then change the nameservers for a.com and b.com and look for greener grass. Now how does the parking company recoup its funds? The only way that the parking company can get the funds back is from another domain owners account that has a different revenue share structure.....this is REALLY TOUGH!
After going through this really simple contrived example multiply the problem by thousands of accounts and millions of domains held across time. I hope this helps explain some of the crazy things that we see in our accounts from time to time and makes us all be a little nicer to our parking account executives.
The bottom line is that we created the problem for ourselves. We have all demanded up to the minute stats that are almost impossible for the parking companies to produce. Personally, I’d rather accurate stats that are old rather than up to the minute stats that are wrong. Some parking companies, such as NameDrive have adopted this philosophy and delay their revenue stats in order to provide accurate numbers from their upstream partner.
We all thought that EPC was just earnings per click but in reality it’s much, much more and can and often needs to be manipulated so that the books are balanced. In the next article I’ll see if I can break apart EPC in further.....just to add to the complexity of domaining :-)
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