By Michael Gilmour
This article continues directly from Part 1
in the series "Critical Insights Into the
Google’s response to the aggregation of
traffic by parking companies was to instantly grant a number of additional
domain feeds to new parking companies. Some of these feeds had a honeymoon
clause that allowed them to have a competitive advantage versus the larger
incumbents. Many domain investors flocked to these new companies as they were
seen as their salvation to paying renewal fees. This instantly re-fragmented
Now that the market was split up again,
Google instituted DRID’s (Domain Registrant ID) to reduce fraud (this was a
good move IMHO) and CAF (Custom Ad Frame). CAF is where Google controls
everything on the lander for a parked page.
Personally, I think that this overall
strategy was a really clever part on Google. It allowed them to decrease PPC
rates and completely control the entire domain channel without the threat of a
wounded Yahoo stepping up to the plate. Some people get really upset by
Google’s behaviour. What domain investors need to understand is that Google is
obligated to behave in such a fashion on behalf of their shareholders.
In fact, if you look at the Google TAC
(Traffic Acquisition Costs) graph over the last years you can see the TAC in a
constant decline as Google buys traffic at cheaper and cheaper rates. The
domain channel is but one part of the overall TAC number....sadly, this is not broken
out as a separate number. It would appear that the TAC is now at the point
where tier 2 players are a serous contender for the traffic. This has really
made zero click a feasible option for domain traffic. The challenge for
individual domain investors is to actually take advantage of this...
So let’s get back to the story. So who bought
the domains being sold by investors and how did they buy them? Many of the
buyers of the traffic domains did so with debt or investor backed money raised
just before the financial crash. Post the GFC this became problematic as:
1.Promised investor returns weren’t realised.
2.Debt payments couldn’t be funded.
A number of funds that raised a lot of money
found themselves in the awkward situation of dealing with boards that were
screaming for results. Here’s what’s interesting. In the past it was good
enough to buy a domain and get phenomenal returns from the traffic but now
things were different. A different set of skills were required to extract every
bit of value from the domain traffic.
A good way of thinking about the problem is
like this. Previously you could bend down and pick up a nugget of gold while
now you need to drill three miles deep and run a shaft two miles horizontally
to find the seams of gold in the traffic. The gold is still there but it just
takes more effort to get it out.
The individuals and companies that raised
cash to acquire domains now needed a different set of skills to extract the
value. For most companies the individuals have skills to find domains, do deals
and do basic monetisation. Very few, to none of them had the skills necessary
to extract every dollar out of the traffic.
The problem then became one of ego. For the
years before the GFC many of the individuals that had established these domain
funds had been lauded as geniuses. They were partying like there was no
tomorrow and almost overnight they were completely out of their depth. Picking
gold up off the ground is very different from driving shafts into the bedrock.
I remember being in a meeting with one such
fund where my company, ParkLogic, had increased the revenue by 32% (versus a
direct Google feed). The company refused to admit that this was possible and
turned their back on the additional revenue. It turned out that there was massive
political infighting and egos were being threatened because they didn’t have
the skills to produce the same results. Lesson learned, it’s always easier to
deny the facts then to admit you’re wrong.
These same portfolios are now being broken up
into pieces as investors (and debtors) endeavour to get some of their money
back. Domains that were purchased for 40+ months revenue are now being sold for
Michael Gilmour has been in business for over
32 years and has both a BSC in Electronics and Computer Science and an MBA. He
was the former vice-chairman of the Internet Industry Association in Australia
and is in demand as a speaker at Internet conferences the world over. He
has also recently published his first science fiction book, Battleframe.
Michael is passionate about working with online
entrepreneurs to help them navigate their new ventures around the many pitfalls
that all businesses face.