18th Feb 2015

Monday, Jul. 23, 2007

Domain Names: 21st Century Real Estate

(NEW YORK)—Inside a midtown hotel, Larry Fischer is on his cell phone
with a financial backer as his partner Ari Goldberger does quick
research on a laptop computer. They are bidding furiously at this
auction of Internet domain names, with hopes of snagging
megayachts.com. The duo won’t be deterred. They want this name.

“$110,000, yes or no? Quick,” Fischer barks at Eli, the investor at the
end of the phone. Someone else makes a bid for $120,000. Fischer and
Goldberger up the ante, and then again. Going once, going twice …
sold to Fischer and Goldberger for $150,000. “You got it,” a smiling
Fischer tells Eli. Mazel tovs are exchanged.

These are boom times in an estimated $2 billion industry that involves
the buying and selling of domain names. When people type the generic
names into their Web browser’s address field, sites that generate
pay-per-click advertising revenue appear. Such “direct navigation”
bypasses search engines. “This industry is like the wild, wild West
right now and people have no idea how fast it’s growing,” said Jerry
Nolte, managing partner of Domainer’s Magazine, a new trade publication
devoted to this little-known world.

Some believe the industry’s market value could reach $4 billion by 2010
as people continue to purchase approximately 90,000 names a day and the
number of domain registrars swells.

At the end of first quarter 2007, at least 128 million domain names had
been registered worldwide, a 31 percent increase over the previous
year, according to VeriSign Inc., which runs some of the core domain
name directories for the Internet. “It’s not about words,” said Monte
Cahn, founder and CEO of Moniker.com, a company that specializes in
domain asset management and held the Manhattan auction. “It’s like real
estate. This industry is only about a decade old. People looked at
domain names as a commodity. It’s a piece of real estate on the Web
that can’t be replaced. It’s your stake in the ground, your stake in
the Internet.”

At the Manhattan auction, Fischer and Goldberger snatched up four names
for more than $1.2 million and a fifth for a client, representing only
a handful of the names sold for a total of $12.4 million during both
the live and silent auction. The auctions were held during a domain
conference in June that attracts some of the biggest players in this
niche business. One name — creditcheck.com — went for $3 million but
paled in comparison to the sale of sex.com, which sold for $12 million
last year, according to Cahn, who knew the site’s buyer and seller.

Fischer, 44, of Brooklyn, N.Y., and Goldberger, 46, of Cherry Hill,
N.J., figured there was money to be made early. Goldberger’s entry into
the business was unorthodox to say the least. In 1996, the Hearst Corp.
sued him, alleging trademark infringement after Goldberger registered
esqwire.com, which resembles one of the company’s magazines.

The two sides eventually settled and Goldberger, a lawyer, was allowed
to keep the name. Word got out that Goldberger knew something about the
thorny legal issues involving Internet domain names and people began
approaching him for advice. Goldberger’s fascination with the
burgeoning industry was sealed. “I was an entrepreneur strapped into
this suit-and-tie job,” Goldberger said. “Kind of a square peg in a
round whole and this lawsuit just kind of changed everything for me.”
He eventually left the respected Philadelphia law firm where he worked
in 1997 and joined a small startup in Manhattan called mail.com, which
was buying up domain names. Goldberger began collaborating with Fischer
in 2001, building their portfolio of domain names. Together, they
became a formidable yet quirky team (imagine George Costanza and Jerry
Seinfeld with the pioneering spirit of Lewis and Clark).

Two years later, they created a company called smartname.com, which
they sold earlier this year. The company took names and provided
content and links for owners, getting a cut of the advertising revenue.
At one point, smartname.com represented 150 owners with about 150,000
domain names, generating 50 million unique visitors a month.

Most the sites are lucrative for their advertising dollars. For
example, megayachts.com isn’t an actual yachting site, but it contains
numerous ads and links for real yacht companies, boats and cruises. The
owners of the site get paid each time a viewer clicks on one of those
links. Goldberger and Fischer declined to say how much money they make
from pay-per-click advertising.

Bob Parsons, CEO and founder of domain registration company
GoDaddy.com, says this type of business is fairly straightforward.
“They make their money in two ways,” Parsons said. “One way is through
the traffic they get and the other is the appreciation of the name.”
Parson didn’t think there was anything wrong with the practice as long
as those involved weren’t using names trademarked by others. “Domain
names are becoming 21st century real estate,” Parsons said. “Just
owning a domain name as an investment, I don’t see a problem with that.”

Anthony Malutta, a lawyer who specializes in trademark law at a San
Francisco law firm, sees fewer trademark infringement cases thanks to
improved laws. “Trademark law involving domain laws is much clearer and
much easier to understand,” he said. “It’s pretty clear that
registering a domain name that corresponds to somebody’s trademark is
actionable. As to generics, they’re just hoping to capture traffic.
You’re just counting on people typing in generic names instead of using
a search engine like Google.”

Malutta said domainers like Goldberger and Fischer are not “gaming the
system” which in his opinion would mean registering domain names and
then cybersquatting — driving revenue off somebody else’s trademarked
name like Coca-Cola. Over the years, Goldberger and Fischer have
sharpened their formula for acquiring domain names and developing the
sites using a fairly simple template, relying on research, savvy and
plenty of instinct. “You either know it or don’t by hearing the name,”
Fischer says.

They look for names that hit the “sweet spot” — short words that
describe a high-value product or services related to it. Words that
allow them to own a category such as bald.com and cardiology.com, two
of the domain names they bought at the auction. To help figure out a
word’s potential value, they see how many hits it will produce using
Google. They also troll lists of names with domain registrations set to
expire, enabling them to get a jump on buying it. They don’t bother
with dot-nets or the others. “Dot-com is king,” Goldberger said.
“Dot-net is worthless.”

But there’s a big divide between thinking of a good name and getting
it. There’s usually a chase, with Fischer trying to persuade owners to
sell the names after he locates the owners unless it’s up for auction.
“He’s kind of like a rhinoceros,” Goldberger says about Fischer. “He
chases them up a tree and waits them out. He has patience and
determination. You got to be aggressive. It’s a tough game now. It’s
like the gold rush. The first guys did really well then it became more
difficult.”

And expensive. Five years ago, the duo could get a good name for
$10,000. Now the minimum is more like $100,000 — as the auction proved.
The cheapest name they bought at the auction was blogging.com for
$135,000. Other names sold for considerably less like irishwhiskey.com
($8,000) and Jewishdeli.com ($9,000).

At the moment, Fischer, Goldberger and Eli are sitting on their names.
They’ve recently turned down million-dollar offers for stocks.com and
home.com. But as white-hot as this business has been, it might not
continue to mint millionaires. “How long will this model last?” Malutta
asked. “It’s definitely a temporal piece of real estate. As technology
evolves, maybe direct navigation will fall off the charts and there
goes your property.”

———

Associated Press investigative researcher Randy Herschaft in New York contributed to this report.