Virtual Real Estate Is a Buyer’s Market

The dot-com meltdown of the last two years has resulted in a sharp contraction in the number of Internet domain names, the first such reduction since the Web popularized the Internet.

Since reaching a peak of about 30.7 million in September 2001, the number of Net addresses ending in .com, .net and .org has dropped by at least 3.4 million through May--nearly an 11% decline, according to the most recent survey of registrars of Internet names.

That’s quite a switch from the heady early days of the Web, when cyber real estate was doubling every few months. The virtual land grab sparked a rush to register every possible name, including Diarrhea.com and Devil.com.

Today, cybersquatters--some of whom once made millions of dollars grabbing and reselling names such as WallStreet.com, Wine.com and Business.com--are finding there’s no longer any money to be made speculating in virtual real estate. Domain name resellers such as GreatDomains.com have thousands of names available for bargain-basement prices, including PopeOnline.net and Sex247.net for a few hundred dollars.

“The dot-com land grab is done,” said C. Eugene Munster, a senior research analyst at U.S. Bancorp Piper Jaffray.

The downward trend stems from the implosion of dot-com firms and the abandonment of unused addresses by major companies. Ultimately, researchers said, consumers and corporate America alike have realized that some parts of the Internet frontier just aren’t worth staking a claim to.

Analysts expect the rate of decline to slow in the coming months. Even so, the waning of the Net-name boom marks the passing of the frenzied, and often kooky, spirit of one of the biggest entrepreneurial booms of the modern age--a time when every wild idea had a chance and every dream promised instant wealth.

Lynn Atkinson learned of the slumping demand the hard way. The Redondo Beach travel consultant registered several domain names--including YoursForTheMoney.com--during the Internet boom of the late 1990s. She hoped to sell or rent the sites and pocket tens of thousands of dollars. But no one has been willing to pony up a sweet-enough bid.

“It’s been up for sale for about six months, and I’d be happy to entertain a reasonable offer,” Atkinson said. “I’m just not getting the bids I want.”

Even Fortune 500 companies expected to find value in Net names that were both brand-specific and obscurely odd. Procter & Gamble Co., the giant maker of consumer products, grabbed scores of addresses including BabyDiapers.com, Pimples.com and Cough.com.

Kraft Foods Inc. did the same, registering such wordy domain names as AmericasCheeseExperts.com. But the $64.2-billion food giant ultimately decided that it wasn’t worth spending as little as $50 a year to own that address and let its registration lapse.

For some, such as Johnson & Johnson, it was simply a case of name glut.

“It’s become clear that we’ve already registered as many domain names to protect our trademarks as we need,” said Tina Gordon, director of corporate communications for Johnson & Johnson. “We haven’t needed to buy any more this year.”

Fewer domain names, however, doesn’t mean the Net is fading away. Though estimates vary, there still are nearly 31 million addresses registered worldwide, according to statistics compiled by NetNames, a global Internet registrar based in London. Many of those end with country abbreviations such as .uk for the United Kingdom and .ca for Canada.

The number of people using the Net continues to grow, particularly overseas. Worldwide, the number of Internet users has grown to 581 million in May from 463 million a year earlier, according to Nua.com, which tracks Internet demographics. Over the same period, the proportion of the world’s population online has increased to 9.6% from 7.6%. In China, the number of Net users has tripled in the last year, reaching 37.5 million in May.

Online business activity is growing as well. Consumer e-commerce sales in the U.S. last year hit $66.6 billion, up from $44.1 billion in 2000, according to market research firm IDC. By the end of 2002, Americans are expected to have spent $94.1 billion online.

The shrinking number of domain names, however, does reflect some other trends. One is the fading of entrepreneurial aspirations.

Jonathan Gaw, a Palo Alto-based e-commerce analyst with IDC, registered the domain YouAreWhatYouSurf.com a few years ago but recently let it lapse.

“It was going to be a slogan for some company that a friend of mine had been thinking of putting together, but it never got off the ground,” Gaw said.

Many consumers just refuse to pay for addresses they once got free. Mason Cole, publisher of the market research report State of the Domain, said the industry took a hit earlier this year when contracts that involved promotional domain name giveaways began to dry up.

“Two years ago, when you’d register for a .com, a lot of companies were throwing in a .net and .org for free,” said Cole, whose survey for SnapNames.com Inc. detailed the industry slump from last fall through late spring. “Now, people want neither and aren’t renewing them.”

With less demand for domain names, fewer people are engaging in cybersquatting, the practice of registering an Internet address with the hope of selling it at a huge profit.

The Anticybersquatting Consumer Protection Act provided another deterrent.

Signed into law in 1999, it mandates fines of as much as $100,000 for people convicted of registering Internet names that infringed either a registered trademark or a person’s name.

Although names ending in .com are languishing, the land grab is still in effect for addresses ending with other suffixes, such as .us, which became available last month to U.S. entities.

Sellers of the .name suffix--which is reserved for personal names--and .info--for general use--have begun an aggressive marketing campaign.

And domain name registrars said they are starting to see some promise in corporations wanting to carve out addresses that are specific to foreign countries.

“The market’s getting smarter, and this industry needs to reinvent itself,” said Tom D’Alleva, vice president of marketing for Baltimore-based BulkRegister Inc. “Speculation is gone. The days of hunting out a real business opportunity are here.”