Part 3 - A History of RPM

Please click on the below link to view the first two parts of A History of RPM:
Part 1 - A History of RPM
Part 2 - A History of RPM

The volume of domains being dropped was so high that Verisign found it was being buffeted by the Google margin grab. During this time, you could track the impact a one cent PPC drop would have on Verisign’s revenue line.

I remember conducting an analysis that concluded it would be financially viable for Verisign to underpin the entire domain investment industry so domains weren’t dropped. From memory it showed that every domain dropped cost Verisign $73 of market capitalisation. By underpinning the PPC payouts by diverting marketing dollars directly into the monetisation companies Verisign could halt the tsunami of drops from marginally profitable domains.

Several years after the GFC Google had reached rock bottom with the margin grab. I can only surmise that if they kept on increasing their margin then the partner network would essentially collapse. This would not be a good thing to happen right in the middle of rumblings about monopolistic behaviour at the legislative levels.

What we shouldn't miss in this whole saga is that Google's behaviour has been completely economically rational. They have the interests of shareholders to consider and not the domain industry. Those domain investors that moaned about what Google was doing needed to make changes to their businesses and do something different.

Also, we mustn't forget that one of the things that Google has done very well is leverage mass scale on the advertising side of the ledger. If you have a domain about knitting, then Google has advertisers that want that traffic. This scalability makes Google the easy ideal solution for domain traffic. All investors had to do was buy domain names, set nameservers, collect money…..it was as easy as that.

What the margin squeeze did was allow new, innovative advertising networks to flourish and many of them have aggregated enough advertisers together to make them competitive versus Google in some market verticals.

How did they do this? From what I observe, they burned the shoe leather talking to advertisers and then backfilled with an often-forgotten company called Yahoo. Yes, Yahoo still exists and used to rule the domain space until Google wanted it…..but that story is for another day.

Let’s look back at the RPM formula to understand what happened in terms of RPM. The direct global advertising networks used the margin (G, T, Mg - from article 1) Google  was taking to make it more profitable for advertisers. What they needed was a source of good quality traffic.....and this is where domain traffic comes in.

To lock out potential competitors, Google had contractually prevented parking companies from sending any traffic that could be monetised by them elsewhere. This, combined with the introduction of CAF (Google's Custom Ad Frame) essentially caused a stagnation in the evolution of domain monetisation and industry wide innovative effort was put into domain sales. It’s also one of the reasons why we still have the typical parking page.

The problem for domain investors was how to take advantage of this change in the market. Intuitively, most investors understand that to move their traffic from one provider to another was counter productive and entailed a LOT of work. This became a market opportunity and companies such as my own, ParkLogic, stepped into this gap.

When ParkLogic was first founded twelve years go we essentially routed traffic across all the different traditional parking companies. We found that each company had developed a unique intellectual property that enabled them to perform differently to their competitors. We then routed domain traffic to the winning solution at that point in time.

As time went by, we began plugging in global advertising networks to the ParkLogic platform and running a real-time auction within 100 milliseconds. Whoever paid the most for the traffic would then receive it. The floor price for the auction was the best Google monetisation partner.

Initially, prior to Google grabbing more margin we saw only about 5% of the traffic won by the direct advertisers. Today, we are seeing in excess of 65%. This is a huge swing and unless you are with a company like ParkLogic then you will be leaving money on the table.

I should state that we are firm believers that every player in the domain monetisation ecosystem has a valid part to play. For example, traditional parking companies monetise a segment of the traffic that no one else is able to monetise.

The final article in the series will be digging further into the direct advertising networks and the fact that there is yet another RPM value to take into account.