*NEWS*MASTER OF THEIR DOMAINS

[Anonymous]

Masters of their domains
Forget condos. Domain names, the real estate of the Web, have been delivering far greater returns.
NEW
YORK  – Remember those Internet bubble headlines about domain names
fetching millions of dollars? Well, those days have returned — with a
vengeance.
Just ask Mike Bahlitzanakis of Astoria, Queens. He just
negotiated a deal to sell a single name — http://www.cellphones.com — for
$4.2 million in cash, making it one of the richest deals ever. He paid
$90 for the name in 1996. “I just went to my 10th high school reunion,
and I thought to myself, ‘Who’s laughing now?'” says Bahlitzanakis, 29.
In
fact, plenty of domainers, as they call themselves, are having the last
laugh. The boom in Internet advertising and the success of the
pay-per-click ad model are making the go-go ’90s look sluggish by
comparison. Back then, buying a domain name was pure speculation: Snap
up Whatever.com and sit back until some big company with a
get-on-the-Internet-at-any-cost mentality offers you a set-for-life
payday to buy it.
Now it’s all about the income stream. A single
good domain name — Candy.com, Cellphones.com, Athletesfoot.com — can
bring in hundreds of dollars a day while the owner hardly lifts a
finger.
“I don’t like to work,” says longtime domainer Rick
Schwartz, almost yelling as if to convince everyone within earshot that
they’re fools if they do. “I figure any moron in the world can generate
work for themselves and tie up their time. I have one laptop, no
employees, and no product whatsoever — none! This is magic.” Magic, he
claims, that’s earning him $2 million a year.
Schwartz, for
instance, directs the traffic from his 5,000 sites to one of the many
small companies that serve as go-betweens with Google and Yahoo, the
two giants that make this all possible. The middlemen, known as
aggregators, do all the heavy lifting, designing the sites and tapping
into one of the search engines’ advertising networks to add the
best-paying links. Many other big domainers cut out the middlemen,
creating their own Web pages and working directly with Google
(Research) or Yahoo (Research).
The secret? It has to do with what’s
known as type-in traffic, or, in Wall Street jargon, direct navigation.
Though it may seem odd in the era of powerful search engines, it turns
out that millions of Internet surfers don’t use search at all. Instead,
they type what they’re looking for right into the top of their Web
browser.
Looking to buy candy? Type in Candy.com, a name Schwartz
bought in May 2002 for $108,000. A page filled with links to
candy-related products comes up. Click on one of the ads and the
advertiser pays Google, which in turn sends a share to Schwartz and the
company that runs Candy.com. Some days Candy.com makes Schwartz $300 in
profits; the site paid for itself in a year and a half.
No one knows
for sure how much Web traffic comes from type-ins, and Google and Yahoo
execs won’t discuss it. But privately, one Yahoo official estimates
that type-ins could make up 15 percent of its search business. Marchex,
a Seattle-based public startup whose strategy rests largely on type-in
traffic, estimates that it accounts for nearly 10 percent of the global
paid search market, which is projected to soar from $9 billion this
year to $23 billion in 2009.
That’s why some domain names are now
commanding six- and seven-figure price tags and attracting big-money
players. Private money manager Stuart Rabin is cutting those kinds of
checks to domainers two to three times a week. In November 2004,
Marchex shelled out $164 million for a single domainer’s portfolio.
Even
a few venture capital firms are now placing bets. Earlier this year,
Boston-based Highland Capital paid $80 million to acquire BuyDomains, a
company with 500,000 names, according to people familiar with the deal.
Says Highland principal Richard de Silva, who wouldn’t confirm the
price, “These are profit machines.”
That’s why Rabin is on a domain
shopping spree. Rabin runs a private fund called Jacobson Family
Investments from the 56th floor of Carnegie Hall Tower, a suite with
sweeping views of uptown New York City. It’s a fitting view, since the
Internet in 2005 looks to Rabin a lot like Manhattan 100 years ago —
awash in real estate opportunities.
Rabin teamed up a year ago with
a Harvard-trained finance whiz named Bob Martin and domain speculator
Marc Ostrofsky. They named their company Internet REIT and, according
to Ostrofsky, are spending $250 million, probably far more, buying out
domain owners as fast as they can find good names.
(Ostrofsky, for
the record, was the man who pulled off the much-publicized sale of
Business.com for a reported $7.5 million in December 1999.)
When
Martin and Ostrofsky approached Rabin about forming a business, Rabin
knew little about domains. Then he did some research and was astounded.
Type-in traffic is a growing phenomenon, the fixed costs are minimal,
and U.S. advertisers are expected to spend $26 billion on the Internet
by 2010 — roughly double the current level. He immediately thought of
the billboard industry a decade ago, before Clear Channel (Research)
and Viacom (Research) bought up the small operators. “We’ve only just
begun the roll-up phase,” says Rabin, 39. “This market will likely be
in the billions.

[Author]

December 1, 2005 at 10:11 AM