The real estate investors packing the Renaissance Hollywood Hotel in Los Angeles this week don’t have to worry about interest rates, exploding mortgages and foreclosures. The addresses they buy and sell are on the Internet, where a good name might attract millions of people and pull in big bucks from advertising.
As with real-world property speculation, the Internet domain name business is built on limited supply and high hopes. It has booms and busts, rising corporate powers and rookies who wished they’d bought in the 1990s. Two of the biggest practitioners, Oversee.net and Demand Media Inc., are based in the Los Angeles area and have collectively received more than $450 million in venture capital investment to fuel domain name buying sprees.
The bidding paddles flew Tuesday and Wednesday in the hotel ballroom at DomainFest, a yearly gathering of participants in this highly specialized and lucrative business.
Individual speculators and deep-pocketed companies snapped up domains such as Porn.net for $400,000, Bookmarks.com for $300,000, Alimony.com for $75,000, Butcher.com for $50,000 and Satinpanties for $10,000.
The more than 600 people who paid as much as $995 to attend the conference also got to hear from one of the “domainer” idols: college dropout Frank Schilling of the Cayman Islands, who started buying Internet addresses with credit cards and eventually amassed 300,000 addresses valued by some would-be buyers at more than $100 million.
“I’m a super-normal guy,” said the unfailingly polite Schilling. “Guys like me don’t get chances like this.”
Schilling works out of his beach house, where he watches what was until recently the largest TV in the world, and clears about $20 million a year from sites as varied as Homeforeclosure.com and Crosswordpuzzles.com.
Such success stories are drawing an increasing number of people from all walks of life. Attendees at DomainFest included engineers, management consultants and mortgage industry refugees.
“I’ve got religious names, nasty names, sporty names,” seller Patrick Desper, a 60-year-old retired yacht broker from San Diego, said in his handmade booth. “I’ve got Worldchampion.com.”
They came to pick up tricks of the trade while debating the emergence of such .com alternatives as .mobi (for access from mobile phones) and the awesome power of Google Inc. to deliver Internet searchers to their ad-laden pages -- and to take them away if it doesn’t think the sites are worthy of a high search-engine ranking.
The basics of the business are what they were years ago, when Web search engines started charging advertisers to display their ads next to computer users’ search results. After such keyword advertising spread to include listings on tens of thousands of sites, domainers realized they could put up just the rudiments of a website and earn hundreds of dollars monthly from ads.
“Squatting” on a Web address related to a trademarked name belonging to a company or brand is risky business, often triggering an expensive lawsuit. But a high-quality generic name, such as Tools.com, can get loads of traffic from people who simply enter “tools.com” into their Internet browser’s address line instead of searching for the term on Google or Yahoo.
A secretive industry has emerged, with some practitioners buying up names for the ad income and others counting on flipping the online property to businesses looking for a strong Web presence.
Many domainers now complain that it has gotten harder to get rich either way. Less ad money is flowing to lower-quality sites, and a lot of the low-hanging fruit -- a simple word, or even pair of words, with a .com ending -- has been plucked.
At the top of the historic sales list is Sex.com, now an adult content directory, which sold for more than $12 million in 2006. Not far behind is the similarly oriented Porn.com, which sold last year for more than $9 million. Diamond.com, Beer.com and Business.com have all changed hands for at least $7 million.
Schilling said he too had believed the easiest money was gone -- except that he kept running into people who had made millions in the last three years.
“I just met a guy who bought Birthdaycakes, plural, and Weddingcake, singular, for $40,000,” Schilling said in an interview. “I would have thought that was fully valued. But he resold the pair for $300,000 14 months later, so that’s an opportunity I would have missed.”
A philosophical divide is emerging about whether building on a site or leaving it bare draws more traffic.
It might seem logical that more relevant content would bring in more Web surfers, who would then click on more ads, sending more money to a domainer’s account.
That’s the approach of companies including Demand Media, a Santa Monica-based firm headed by Richard Rosenblatt, the man who sold MySpace to News Corp. Rosenblatt, who has raised $320 million for his new company, adorns many of his domains with articles and online videos, aiming to make them into bona fide destinations for hobbyists.
L.A.-based Oversee.net, which hosted this week’s conference, is headed in the other direction. Chief Executive Lawrence Ng said that the more empty a site was, the more likely visitors were to click on an ad.
“Intuitively, people believe you make more money putting up a building than you do leaving something as a parking lot,” Oversee Executive Vice President Jeff Kupietzky said. “But you can usually make more from parking lots.”
Oversee this month brought in a $150-million investment round from Oak Hill Capital Partners, and Ng suggested that the next round would come from the public markets. Marchex Inc., a competitor, has already sold stock to the public, and NameMedia Inc. of Waltham, Mass., filed papers in November to raise $172.5 million in an initial public offering of stock.
Such companies are now leading the industry and in many cases have bought the portfolios of the colorful band of entrepreneurs that started things going.
Although the icons and the big companies were represented at DomainFest, the average attendee had a portfolio of about 1,000 names, organizers said.
Matt Rossi, a Web software expert from Huntington Beach, bought Forless.com for $10,000 years ago. Now, the scarcity of great cheap domains plays to his advantage: He is renting out such “subdomains” as Cars.forless.com and Mortgages.forless.com.
Pointing at the auction underway in the hotel ballroom, he said, “None of those names can touch Forless.com.”
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Going, going, gone
Some of the Web addresses,
known as Internet domains,
sold at auction during
Oversee.net’s DomainFest convention in L.A. this week: