It’s a new year and I’m back (well almost) from taking a break since Christmas. Blogging is in my blood so I thought that it would be worthwhile reflecting for a moment on my last post about the charity that supports children that are HIV positive that my wife and I support called “Acres of Love”.

During the previous year I invited domain owners to support the charity with donations and about $2,500 was raised. This year the total has been $0. I could rant and rave about this being a sad indictment on our industry but I believe that it has nothing to do with people’s hearts and more to do with their wallets.

Since the economic downturn through 2008 domain owners have typically experienced a 30% decline in parking revenues. This downturn has meant that there is less money to go into purchasing domains and this has caused a decline in domain valuations.

As fear grips a relatively new burgeoning industry like domains we can often lose site of the true reason for the value of our assets. We bring traffic or brandability to advertisers and in the past the amount that they paid was largely determined by the market for traffic domains or their own perception of value for brandable domains.

The online advertising market has continued to grow in 2008 therefore logically we should have all experienced an increase in earnings per click. The only reason why we haven’t is that the advertising aggregators (Google/Yahoo) have devalued domain traffic in order to retain greater revenue for their own traffic from advertisers.

This is not the market reacting to the quality of domain traffic but a third party acting in their own self interest. I often hear domain owners complain about this but if you were Google or Yahoo would you do anything different? If you have a stratospheric share price you need to continue to bolster your quarterly earnings reports in any way possible. Reducing the smartpricing or quality score of domain traffic is a relatively easy solution to drawing additional revenue into your own traffic channel. I believe that this is the reason for the downturn that many of us have experienced in PPC revenue.

On the brandability value of domains the global downturn has negatively impacted marketing budgets to the extent that domains have dropped down the priority list for many companies. For example, when you look at the US automotive industry, banking and finance industries I wouldn’t see many marketing directors rushing out to invest a million dollars in a domain.

Ultimately, what does this all mean? It means that there are less discretionary funds for children with HIV and charities such as “Acres of Love” that provide a better life for these kids. This is sad but true.

Over the last twelve months I’ve received an enormous amount of encouragement from readers to keep on analyzing the industry and blog about the results. I would like to thank you for your kind words as you all are the inspiration that keeps me going. I will continue to blog in the new-year and I hope that a number of the articles that I’ve had on the back-burner for a while should be quite illuminating.

At this time last year I wrote about a charity that my wife and I support called “Acres of Love”. It is a not-for-profit charity that provides highest quality care for abandoned and HIV/AIDS infants and children in Africa. In this time of giving I would encourage you to consider giving to “Acres of Love” and you can do so via my paypal address (mgilmour at simcastmedia.com.au).

To assure donators that everything is above board and that all funds have been transferred through to “Acres of Love” I will be opening my paypal account to the pastor of my church (www.baysidechurch.com.au). I will also request that they write a brief article to indicate that they have received all of the funds and the total amount. I hope that you consider “Acres of Love” as a way of contributing back to children in desperate need.

I would like to wish you and your family a very Merry Christmas and a happy New Year.

I’ve been reading a lot about how Google has recently entered the domain parking game and any domain owner can now establish a direct account with them. This is an interesting change of direction for Google but one that was almost ordained to happen at sometime. I’ve spent the last week digesting this news and trying to fully understand it within the strategic context and implications that it has for the domain industry.

Let me say from the start that Google has always been in the domain parking game. There are many large domain owners that have been using direct Google feeds for quite sometime. The only change has been Google’s change in policy around how low they were going to drop the bar in order to attract additional direct customers. Now that everyone can get an account it’s my opinion that Google will shortly discover that this isn’t necessarily a good strategy.

For the first few days of ParkLogic we used to have a sign-up link on our site where we would allow anyone to establish an account, upload domains for optimization and then reap the benefits of our technology and processes. What we quickly discovered was that by opening up the sign-up process to everyone you ended up getting a lot of undesirable accounts being setup.

After the initial inrush of accounts we spent the next few weeks shutting down the great majority. Since that time we made the decision to only allow accounts that pass stringent criteria – the result has been quality traffic from quality domain owners. I think that Google will discover that there is a lot of “bad domainers” spoiling the pool for everyone and that it costs a lot to weed out the good from the bad.

Over the last few days I’ve spoken with a number of senior people in some of the major parking companies to get their thoughts on the Google announcement. The consensus appeared to be that they weren’t particularly happy but Google has assured them that they would not cut into parking companies margins. It would seem to me that there is a clear case of channel conflict where Google is now competing against their parking company customers. Then again, hasn’t this always been the case for large domainers?

The question that I ended up asking myself was, “Why?” Why is Google making this policy change, why now and why get their major customers offside?

I think that the online advertising industry is closely mimicking the mobile phone industry of about ten years ago. The major telcos created wholesalers and sales channels (ie. parking companies). These companies stimulated the market and then the telcos crushed the intermediary in a search for additional margin and an effort to support sagging profit lines.

Over the last twelve months Google’s share price has taken a dive from a high of just over $700 and is now just a tad over $300 per share. That’s nearly a 60% drop in the share price – a scary fall for any company!

An even scarier prospect would be if Google reported reduced earnings for a quarter. In today’s current economic turmoil it’s likely that the market would punish Google enormously making even $300 per share look like a pipe-dream. I believe that the “Why now?” is largely a financial decision rather than strategic.

If you’re sitting at the top of Google pondering some of these possibilities the first thing that you would need to look at is any possible margin gains from consolidating the sales channels. A sizable portion of revenue sits within the domain space and a portion of this margin (approx. 25%) can be potentially realized by going direct to domain owners.

I foresee that there will be a couple of difficulties with this strategy:
1.  There is no point establishing a direct channel if you give all the margin away to get the direct relationships. This means that it’s very unlikely that Google will ever give the parking companies revenue to the domainer – there just isn’t any reason for them to do this.

2. I think that Google has underestimated the value that parking companies bring to the table. Over the past five years parking companies have developed incredibly sophisticated systems to filter “bad traffic”, create valuable additional targeting tools and many have spent incredible amounts of time analyzing the impact of huge varieties of templates and graphics on user behaviour. All of this is incredibly valuable intellectual property that has been developed through the school of hard knocks.

Our experience has shown that with the correct optimization tools and processes in place we consistently beat the revenue numbers of larger domainers with direct Google feeds by routing the traffic through parking companies. Our conclusion has been that the parking companies are the unsung heroes of the domain industry and that they add value.

Let me come back to my mobile phone industry example that I discussed briefly earlier. I think that the difference between the mobile phone industry and the parking industry is intellectual property.

The wholesalers in the mobile phone industry were truly just a distribution channel that added very little value to the sales channel other than being a distribution point for product. The problem with this is that it could be very easily duplicated by the telco going directly to the consumer.

As I’ve already stated the parking companies do add value. They are not simply a distribution system where traffic and advertisers meet. This is the fundamental difference between the two industries and the classic margin game that is currently being played out. Add to this mix the fact that there is Yahoo, they may be down but they aren’t out.

So where is my thinking on the whole Google issue? I wouldn’t be surprised if it fizzles out and that we find ourselves in a very similar world to the one we were in six months ago. There will be one difference.

For the first time parking companies will be aware of the power that they actually wield against their upstream advertising partner. The margin claw-back game that Google has been exacting via Smart Pricing will be up and the shoe will potentially be on the other foot. This is a high stakes game and one that is likely to take the next six months to play out but it is alway a must pay attention game for the whole industry.

I recently had the privilege of being asked to speak at TRAFFIC Downunder on the topic of “Risk Analysis”. This breadth of the topic was a little bit of challenge as each facet of risk is a specialist topic in itself.

You can also download the entire presentation by clicking here.
(registered users only) 

There are four dominant business models that have been adopted to a greater or lesser extent by the domaining community and they include treating domains as:

Stock Items
Having a large volume of domains where the goal is to move from 2% to 3% sales volume per year. The challenge is to develop the channel relationships for continuing to sell the domains while at the same time refresh your inventory for new potential purchasers.

High value sales
These are typically low volume high priced sales that are typically arranged via a broker. Often it is the case of the right domain at the right time in the right place.

Traffic
The goal is to identify domains with traffic that produce revenue in excess of the registration fee required to retain the domains profitably. Risks associated with these are centred around traffic decline and a reduction in earnings per click.

Development
Development is typically conducted in low volumes and requires turning a domain into a real business. True development has all of the problems associated with normal businesses – such as; staff, stock, customers etc. There is currently no scalable solution for large domain portfolios to be developed.

The business model that you choose for the development of your domains will greatly influence the levels of risk and types of risk associated with the domain.

I just received this press release at the end of last week. It indicates that a registrar in Australia is standing up for their rights against the domain governing body auDA. This has wide ranging implications for the com.au name space including whether registrants have clear title over their domain "assets". Enjoy the reading!

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Registrar continues to challenge auDA
Brisbane, Australia
4 December 2008
FOR IMMEDIATE RELEASE
Domain Directors, and its associated company, Instra Corporation, an auDA and ICANN accredited registrar, is continuing with its litigation against auDA.

The Supreme Court of Queensland today set down this litigation for trial for 2 February 2009. In November, Domain Directors, an auDA and ICANN accredited registrar, commenced legal proceedings against auDA, the Australian domain name policy and regulatory body. auDA had unilaterally suspended the registration of the domain name auregistry.com.au, and was in the process of cancelling Domain Director’s registration of this domain name.

auDA had asserted that a third party had made a complaint regarding Domain Director’s eligibility to own this domain name.
Domain Directors has owned and used the auregistry.com.au domain name for over eight years, without any issue. Once challenged, auDA backed down and revealed that there was no third party complaint. auDA also reinstated the domain name and consented to court orders.

Days later, auDA then restarted the cancellation process, stating that there was a second complaint to auDA. When auDA was challenged regarding the second complaint, Chris Disspain, the CEO of auDA responded “I am handling this issue. The request for eligibility information is not the result of an external complaint.”

Today in court, Mr Justice Chesterman asked the parties, “where does auDA’s power to cancel domain names come from?” He decided that the issues raised in Domain Director’s lawsuit were important commercial issues that required speedy resolution.

Tony Lentino, the CEO of Domain Directors, was pleased with the court’s actions. “I look forward to my day in court. auDA is not above the law and must behave properly. Chris Disspain cannot just decide to delete someone’s domain name without good reason.”

Mr Lentino said that Domain Directors is preparing for trial. “auDA’s actions in deleting one of our long standing domain names was the final straw. We had no choice but to stand up to them. auDA should be subject to more external scrutiny. They are supposed to be a custodian of the Internet in Australia.”

John Swinson, partner of Mallesons Stephen Jaques, representing Domain Directors said: “This case will set important precedent in Australia and clarify auDA’s roles and powers.”

About Domain Directors
Domain Directors is an international registrar and provides an extensive range of over 200 country code Top Level Domain name extensions across Europe, America, and the Asia Pacific regions.

Domain Directors is a global supplier in the Domain Name and ENUM industry, with its head office in Melbourne, and offices in New Zealand and China.

For more information about Domain Directors, and its associated company, Instra Corporation, please visit http://www.instra.com
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