Tops and Flops of 2006:

Sedo's Chief Operating Officer, Matt Bentley, reviews some of the domain industry's tops and flops over the past year

 

As we begin 2007, we look out upon a domain market landscape that has changed dramatically from only a year ago. Every year has its ups and downs, and 2006 was certainly no exception. Even as the indefatigable strength of pay-per-click advertising pulled domain values to ever loftier heights, mistakes were made, and opportunities for fortune were missed. It doesn’t require the gift of Nostradamus to predict that 2007 will also bring its share of surprises, both positive and negative. To help ensure your 2007 turns out as well as the last year has for many domain investors, Sedo presents a look back at the Tops and Flops of 2006:


2006 TOPS

 


1. Person-to-Person Contact

Domain investing has long been an industry marked by lonely days (and nights) in front of the computer, with many strong-minded mavericks who would likely be pleased should all their domain industry colleagues one day just cease to exist. Online forums first began to give domainers a sense of community, but for many, true camaraderie began only after meeting face-to-face at the first TRAFFIC conference in October 2004. This year, the impulse to come together turned into a veritable stampede. In addition to 3 TRAFFIC shows, the well-connected Domainer could have attended Domain Roundtable, 3 ICANN meetings, perhaps an Ad-Tech or Search Engine Strategies, Domainer Dinners, Domainer Pub Nights, Domainer Golf, DomainFEST, and VIP customer events such as the SedoPro Partner Forum. Anyone for Domainer Yoga, Domainer Lawn Bowling, or Domainers Anonymous?


Yet as much as it may have seemed excessive that many of us saw our Parking Account Manager this year more than we saw our families, all of that face time seems to be bringing tangible results. Many are starting to recognize that a collective approach, including lobbying and even self-regulation, may be the best way to tackle the challenges looming along our path. The new Internet Commerce Association, formed by a group of leading domainers and companies including Sedo, iREIT, and Name Admin, Inc. is perhaps the best example of this trend.

 


2. The Auction Format

There was a time when even good domain names would go years without receiving anything more than a trickle of inquiries. Those days are now long gone. In 2006, it was much more common for good names to have a dozen or more potential suitors, each willing to pony up as much as it takes to ensure they don’t let that one-of-a-kind gem slip away. In other words, ideal conditions for an auction!

 

The past year saw the auction format come to prominence as the most effective means of liquidating premium domain inventory at fair market prices. This is something which those buying through expiring domain auction sites have understood for a long time. But only since the launch of Sedo Auctions in late October has there been an easy and effective means for domainers to sell their own inventory using the online auction format. If the first months of the service are any indication, we can expect to see a LOT more domain auction excitement in 2007!

 


3. Going Pro

Perhaps Sedo started this trend when, in late 2005, we anointed a new class of domainer: the “SedoPro.” Sedo’s decision to launch a premium brand was a response to the rise of a new breed of professional domain investors, a group which in 2006 really come into its own. Literally hundreds of millions of dollars of private equity money flooded into the domain market, creating “Mega-Domainers” with hundreds of thousands of domain names.


Some of this money also went to the companies servicing the domain industry, which spurred a certain amount of “professionalization” on the service side of the industry as well. The new Money Men wasted no time putting a nice polish on their new possessions: the corporate spin machines produced new terminology like “direct navigation”, “direct search”, “micro-vortals”, and even “domain liberation.” Equally important, the Money Men cleaned out some of the skeletons in the closet, making serious efforts to address grey areas such as vice domains, trademark risks, and typos. And as befits a more professional industry, domain companies began to invest more in grooming their image to the outside world, via PR, lobbying, and direct outreach.


As much as we may not like competing against multimillion dollar corporations in the daily drops, the corporatization of the domain industry will ultimately bring considerable benefits for all domainers. In 2007 as in 2006, one of our industry’s foremost challenges remains the lingering perception of domainers as cybersquatters, Internet cowboys, or even fraudsters. We need legitimate companies on our side with the resources to educate the Internet community on the benefits of domaining.


2006 FLOPS:


1. The Media

Even as we began to see an increase in the number of domainer-targeted outlets offering insightful and well-informed reporting, we also saw the mass media outlets consistently and dramatically bungle even the most basic domain stories. If there was a raspberry for “Complete Incompetence in Domain Reporting”, the 2006 edition would have gone to BusinessWeek. First came a sensationalized “exposé” (and cover story) last October which all but defined click fraud as something involving a domain parking site, without ever mentioning the legitimate business of direct navigation, let alone conceding that the vast majority of domain parking sites are legitimate. Then last month BusinessWeek followed this up with an article (“The Great Internet Brand Rip-Off”) which indiscriminately lumped domain tasting with cybersquatting and phishing, as if the latter two were an inevitable result of the first.


BusinessWeek, however, is not the only mass media outlet that’s missing the boat. A report by an Internet security company, F-Secure, kicked off a series of misinformative articles in the mass media warning that typo domains are being harvested in preparation for phishing attacks. Yes, registering typos of famous trademarks is bad, but the practice is called cybersquatting or typosquatting and has much more to do with PPC revenue than it does with phishing. By sending the media off on the wrong path, F-Secure has only managed to further confuse an already murky situation—and boost sales of their own security products, which was clearly the idea in the first place.


But perhaps the most irking media blunder in 2006 was their incessant focus on “Domain Kiting”. This term, invented by GoDaddy CEO, Bob Parsons, tries to equate domain tasting with check kiting and other forms of prohibited fraud. Again, domain tasting is an issue which needs to be addressed, but “domain kiting”, the repetitive add-drop of the same domain names every 5 days to avoid paying for them, is at most a small minority of the registrations being deleted in the add-drop cycle, not the intent of the practice as the media consistently suggests. The intent of domain tasting is to identify domains that receive traffic, and then return the remaining domains after the 5-day “tasting” period. In other words, tasting has over the past years generated millions of legitimate paid domain registrations, a fact which may have been omitted in Bob Parson’s comments on the subject because, well, they weren’t through his company.


2. New TLD Launches

Considering the central role they play in the operation of the Internet, the various registries sure do seem to be making frightening decisions. In 2006, the registries, along with their close partner, ICANN, provided more than adequate reinforcement for this suspicion, and nowhere more so than in their implementation of the new TLD launch process.


Although EUrid, the registry behind .EU, did many things right, they left gaping holes in their sunrise phase policy for trademark holders which allowed for registrants of bogus trademarks like “S/ &ex, Inc.” to unfairly claim rights to top generics. (The policy allowed trademark holders to remove special characters when registering a domain, so the holder of a TM on “S/ &ex” could claim rights to Sex.eu, for example). The problem was compounded when PriceWaterhouseCoopers, the firm charged with processing the domain applications, adamantly refused to apply any modicum of common sense to their judgments. (Who really deserves the domain Frankfurt.eu, the German city, or the owner of a Belgian trademark on “Frank & Furt”?) Finally, once EUrid discovered they’d screwed up, they then attempted to cover for their blunder with clumsy litigation and lip-service about preventing speculation. The ultimate result is a launch which enriched a few but potentially impeded the mainstream adoption of .EU by making it too difficult for large corporations and other end-users to get the name they wanted.


.Mobi seems to have learned at least a little from EUrid’s experience: they reserved several thousand top generic terms which could not be claimed by trademark holders. After dabbling with a few different methods of fairly distributing the premium domains, .Mobi now seems to have concluded that an open and transparent online auction is the only fair means of distributing such unique assets to the most motivated owner.

 


3. Gray-Area Cowboys

 

Perhaps the greatest disappointment of 2006 was that despite all the progress we’ve made and the success we’ve shared, the Domaining community has yet to gain control of their seedy underbelly. Despite increasing crackdowns, there are still a frighteningly large number of people choosing to chase the quick and dirty buck via typosquatting, cybersquatting, or click fraud, rather than building a legitimate domain portfolio. Perhaps even more disturbing, there are still companies willing to service these individuals. Just as the major established players like Fabulous, Afternic, DomainSponsor and Sedo ramp up their investments in combating fraud, new players pop up who are willing to look the other way—and sometimes even add a few abuses of their own.

 


Friends, the damage inflicted by abusive domainers hurts you more than anyone. It generally only takes one brush with a cybersquatter or click fraudster to sour advertisers on the concept of domain traffic. Self-policing, avoiding companies who don’t respect the rights of advertisers and trademark holders, and always sticking to the high road with our own business practices is the best insurance we have against a potential backlash towards domain traffic.

 


LOOKING FORWARD TO 2007

I hope this glance back at the ups and downs of the past year has helped spur enthusiasm for attacking the challenges and opportunities we will face together in 2007. Change is the only constant, and with change comes opportunity. Here’s to hoping that the choices you make in the coming year bring a 2007 full of domaining success!