consecutive year of growth shows few signs of slowing, as venture capital and
new investors like Buzz Technologies Inc invade the scene.
The surge of
new money into the domain market signals a broader acceptance of what many Web
entrepreneurs have thought for years: Web companies come and go - but as long as
there's an Internet, there will be value in generic domain names.
philosophy is built on the idea of "direct navigation." Most people rely on
Internet search engines such as Google or Yahoo to connect them to what they're
looking for online. But about 15 percent of Web surfers - often new users - type
terms directly into the address bar and add ".com" to the end, says Ron Jackson,
editor and publisher of DN Journal, which covers the domain market. So, if these
users are shopping for candy, they'll probably head to Mr. Schwartz's Candy.com.
"There's inherent value in those generic names," says Mr. Jackson.
"There's a certain number of people coming to your site every day, people that
you didn't advertise to. They simply wandered right to you."
attracts 1,500 visitors a day, says Schwartz, and 99 percent arrive via "direct
navigation." The actual site is little more than a rudimentary layout of
milk-chocolate brown and bubble-gum pink with some automated ads thrown in, but
he earns tens of thousands of dollars a year from those pay-per-click
Slowly, investors are starting to catch on. And the
purchase of domains by private investment groups is changing the
The early dotcom rush
In the mid-1990s, "lone rangers"
lassoed many of the great generic Web addresses and ruled the secondhand market
for years, says Jackson. Small companies, often built around one guy, would
amass thousands of domains. They were a seclusive bunch, happy to hoard domain
names quietly and sell only when the price was right.
Most of the
venture capital at the time went to Web companies. But when the dotcom bubble
burst in 2001, websites that were once valued at millions of dollars became
worthless. Yet Web addresses retained much of their value.
property is still beachfront property, regardless of what house or store sits on
top of it," says Rob Sequin, who entered the market in 1999 and now owns about
1,500 Web addresses. "And the beauty of domains is that you don't need to paint
them, or maintain them, or pay taxes on them."
By 2003, Web address
sales once again broke $1 million. Mr. Sequin says that's the first year he
could consider domain trading to be a full-time job.
This time, major
investors started paying attention.
Online advertising company Marchex
kicked off the trend in November 2004, when it paid $164 million for a portfolio
of more than 100,000 generic domain names. The sale was a surprise to many, says
Jackson. But most outside investors were still skeptical.
aren't purchasing a business or a loyal audience. They're often buying empty
lots. This puzzled many venture capitalists, he says.
can be developed into successful businesses, but this takes money, time, and
talent. For example, an Internet firm bought the vacant business.com domain for
$7.5 million in 1999. After years of branding and site development, the
now-successful portal was sold last August for $350 million.
ownership turns corporate
The mind-set toward domain names has shifted,
says Jackson. Several venture capitalists now consider domain names to be
appreciating commodities, much like stocks and real estate.
right over the heads of Wall Street and investors," he says. "They finally
learned in the last year or two."
Recent examples of this trend
The Internet Real Estate Investment Trust in Houston, has
gobbled up more than 400,000 domains since launching in 2005. The list includes
Bands.com, CreditReports.com, and Shows.com. Its multimillion-dollar portfolio
is backed by investment firms such as Maveron, co-founded by Starbucks chairman
Howard Schultz; and Perot Investment, started by former presidential candidate
and billionaire H. Ross Perot.
Last fall, NameMedia in Waltham, Mass.,
filed papers to go public on the NASDAQ stock exchange and raise $172 million in
its initial public offering.
At last month's DomainFest conference and
auction in Hollywood, Calif., organizers reported that about one-third of the
700 attendees said that it was their first such event. The auction brokered $3.1
million in domain sales.
A niche auction designed to sell online dating
and social-networking domains will likely bring in several hundred thousand
dollars when bidding closes on Feb. 7, according to Monte Cahn, founder of
Moniker, which ran the event.
Along with the genre-specific auctions,
Moniker holds three general domain events a year, which Mr. Cahn says rake in
between $10 million and $15 million each. As a whole, Moniker domain sales
doubled over the last year. In January, the company itself was bought by
Oversee.net, a large domain-services firm.
Overall returns on these massive
investments remains slow. Sales are growing in both price and volume, but
Jackson says most portfolios only sell 1 to 2 percent of their domains a year.
Schwartz says he has only sold six or eight of his 6,000 domain names
since 1997. It cost him about $50,000 to maintain his sites. "But those I do
sell more than make up for the rest," he says.
Last month, CNN bought
iReport.com from him for $750,000.
While the well of original ".com"
domains dries up, Cahn says there are plenty of international names yet to be
tapped. The German domain market has soared, with the country extension ".de"
surpassing ".net" and ".org" to become the second-most-popular address suffix.
"Right now there are 145 million domain names," Cahn says. "By 2010,
just two years later, it's going to be 240 million, with many of the new names
coming from China, Latin America, and some African countries."
Buzz Technologies, Inc.
Srisoonthorn Road, Cherngtalay, Phuket, Thailand