Sunday Telegraph: The Maverick: Owning the right domain is the name of the game

By Luke Johnson (Filed: 05/02/2006)
Almost every asset class known to man has boomed in the past few years; shares, bonds, property, commodities, art – you name it, the price has soared. Easy money and worldwide growth have fuelled extraordinary gains across the board.
So what's next for the hungry speculator? Well one particular niche is currently enjoying something of a resurgence after a period of underperformance: internet domain names.
Buying and selling internet Universal Resource Locations (urls) is a bit like trading virtual real estate. The prices of prime website addresses can be enormous. For example, the site www.sex.com was sold last month for a reported $12m (£6.8m) in cash and stock to an investor group called Escom LLC by Gary Kramen, the owner of dating site match.com.
Certain valuable generic domain names can generate hundreds of dollars a day in income due to the sharp growth in online advertising and pay-per-click revenue. Obvious internet names attract thousands of daily visits, and aggregators design links to giants such as Google and Yahoo who then split the advertising income. This “type-in traffic” generates as much as 10 per cent of paid internet search business, which is estimated to be worth more than $10bn this year.
Now institutional investors are getting involved. Marchex, a Nasdaq stock capitalised at $900m, has spent hundreds of millions of dollars accumulating a huge portfolio of domains. It says its model is local and vertical consumer search and the delivery of online traffic to merchants.
It projects overall operating profit margins in excess of 30 per cent. It doesn't aim to resell its names: it plans to collect the rent, like any sensible property landlord. Another player is Internet REIT, backed by various large private family offices, with plans to build a group of sites, and develop their income streams.
But the sector has its issues. The matter of how online names are registered is contentious. The internet oversight body is Internet Corporation for Assigned Names and Addresses (Icann), a private-sector non-profit Californian organisation. It was granted its contract by the US Department of Commerce, thanks to Washington's pioneering role in creating the internet.
Since 2001 Icann has delegated the task of registering web names to Network Solutions, a subsidiary of VeriSign, a web “infrastructure” conglomerate. VeriSign is very much a for-profit business and will both increase the cost of registering urls and potentially repossess lapsing names. But many domain punters are opposed to the deal, which may allow VeriSign to seize profits on expiring domains – currently prime territory for domain speculators.
The Coalition for Icann Transparency is attempting to block the arrangement. It is backed a by Canadian internet millionaire Rob Hall and is working with the World Association of Domain Name Developers, which accuses VeriSign and Icann of antitrust crimes and illegal price fixing. The entire community of domain dealers is worried that their livelihoods are threatened; they have even managed to persuade the EU to investigate Icann's behaviour. Poor Icann is caught between a rock and a hard place – menaced with litigation by both VeriSign and CFIT.
Meanwhile, there are rafts of websites where you can get advice about trading domains and so avoid some of the pitfalls. After all, most names registered to date are valueless, so vigilance is essential. You can also attend TRAFFIC conferences to acquire an education. These are jamborees of domain speculators, aggregators, online ad players and search engines. The frenzy is almost reminiscent of the dotcom bubble.
As with any form of trading, basic rules apply: do your homework, caveat emptor and only risk what you can afford to lose.
The irony is that the internet was meant to be a free medium. Visionaries such as Tim Berners-Lee conceived the World Wide Web as a non-profit system of information exchange. But the profit motive is irrepressible: the über-capitalists of Silicon Valley infiltrated this new world. Up sprouted the domainers, eBay, Google, amazon, VeriSign, the venture capitalists and the rest, all looking to make a turn.
And between them they are undermining the old business models of shopping, trading, dating, advertising, recruiting, researching, entertaining and so forth. Media and retail industries are suffering convulsions and this may affect property values.
So perhaps a modest play on intellectual property on the web – a clutch of domain names – makes sense. But take care!
• Luke Johnson is chairman of Channel 4 and Risk Capital Partners
The owner of this website, Alfred Donovan also owns the dotcom domain name of Royal Dutch Shell Plc – the unified company worth £223 billion USD. Shell has already tried unsuccessfully to seize it. As Shell is aware, the name is not for sale (this item inserted by ShellNews.net)