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Domain Auctions

Domain Auctions

May 7, 2007
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" If owning a domain is such a good deal, why auction it away? "

Last January at the Internext Conference, the adult entertainment business tested the waters with its first-ever live domain auction. It was a home run. The auction produced more than $2 million in domain sales. GMail sold for $520,000. Interracial Sex sold for $150,000. BDSM.com sold for $295,000.

Think there might be more domain auctions in adult?

"It's a big player now," insists Monte Cahn, CEO of Moniker.com, which ran the live auction. "Adult wasn't a venue that was even offered in the beginning. The next auction will be at Internext in August in Hollywood, Fla., and we expect the sales to double at that event. The feedback we got from the last Internext was that our live auction was one of the neatest things that ever happened in the adult industry. First of all, to have the auctioneer rattle off some of these adult names was kind of funny. And then seeing what was strategic for some of the larger adult companies was cool, too."

Moniker is the only company right now that does live domain auctions, according to Cahn, and the firm sells more than $40 million worth of domains each year. It also holds silent auctions for those domains that did not sell in the live auction.

Here's how it all works. Prior to the auction, people are solicited to submit their domains with reserve pricing — the agreed-upon monetary worth of the domain — which is determined by behind-the-scenes mathematics. These figures are not revealed to the bidders. Then the auctioneers segregate the domains into two groups — the live auction group and the silent auction group. On opening day, the live auction opens the bidding on anywhere from 250 to 400 domains consecutively, trying to run the price up beyond the reserve price. For those domains that don't sell, this process continues for a week in a silent auction, where buyers can make bids remotely through a variety of means.

"The sales include everything from just a domain to entire sites with trademarks, packages of surrounding domains, and members," explains Evan Horowitz, co-owner of XPays, an adult affiliate marketing company. "You're paying maybe 10 years of advance revenue on a domain, so that you can develop it with the hope that the Internet will continue to grow. There's also resale potential."

If owning a domain is such a good deal, why auction it away?

"There are two schools of thought," says Horowitz. "One is sit and hold, and the majority of domain speculators out there are in that category, where they won't sell a domain no matter what. You can drive to their houses and take them to a massage parlor, and they still won't sell you a domain.

"The other school of thought is that, 'If I can get 20 or 30 times what I paid for something, I can buy something better that's going to appreciate faster.' So it's more of a parlay."

Horowitz also mentions the sellers who put their domains up for auction because they're retiring, cashing out, or just switching into a new industry, but he puts this group in the minority.

On the other side, there is plenty of incentive to buy a domain at auction.

"The buyer is getting an opportunity to buy a domain in what may be the last time that domain is ever sold," Horowitz points out. "It's now or never in some cases. Another advantage to the buyer is that it's a live auction, and they trust that the auctioneers have chosen domains that have wholesale reserve pricing that gives them something of a bargain. Also, since all the domain speculators are in one room during a live auction, they have the opportunity to mix and strike new business deals. Just being there definitely opens some doors."

For buyers, knowing the worth of a domain is vital. Otherwise, they risk overspending for the domain, which is everyone's auction nightmare. So domain speculators study the weekly sales prices listed on sites like dnjournal.com, which offers all of the top domains worth more than $2,200. They also participate in back-order auctions to keep a tab on the final sales prices of domains. Sometimes, speculators refer to cedo.com, which lists sales prices that can act as a guideline on pricing similar domains to those that might interest the buyer.

"You have to sift through a lot of data," admits Horowitz. "We list domains looking for which ones have a high overture of searches per month, or existing link popularity. We're also looking at the maximum bid prices at Google and Yahoo, so for a domain that people are paying a dollar a click for, then typically the domain is worth more. There are many different ways that we go about valuing a domain."

But at the end of the day, a domain is worth what the buyer is willing to pay for it, and this immutable law of business is the chief advantage of live domain auctions, according to Monte Cahn.

LIVE MARKET
"You actually have a live market that determines the value right in front of your eyes," he says. "That's something your rarely get on the Internet. In normal buying, you really don't know what the true market value is of a domain name. The true test is when a domain is offered for sale in a room full of buyers and sellers.

"It also gives an opportunity for premiere domain name owners to get top dollar for their domain, and for buyers to get the best domain names at the fairest prices. You're not going to get ripped off, and we [Moniker] certify the sales. No one can reject or go backwards on the transactions, because we close all the transactions legally, and insure safety and security for both buyer and seller. In other venues, you often don't know who is the buyer or the seller, you don't know what happens to your funds after transfer, whether there is a cease and desist letter involved, or whether it was a stolen name. All that is removed in our option."

This is because the Moniker option introduced a new escrow process in domain name transactions. According to Cahn, when Moniker offers a domain name for sale, they change ownership of it to themselves first, which eliminates all of the risk. This is one of the bright new business models Moniker has introduced into the auction arena. Another is the fact that, counting the live auctions, Moniker now has five different ways to sell domain names.

"We have what's called the Moniker Marketplace," explains Cahn, "which allows sellers to list names for sale, and buyers to find domain names that meet their needs. After negotiating a price, they can make the purchase with a credit card, wire or check. We handle all the escrow. It's a good system for buyers who are looking for a name that's not available through registration, and find what they want in the after-market by putting in a keyword that meets their needs. We have more than two million domain names for sale in our system. Shoppers can either see a 'Buy Now' price, a 'Minimum Bid' price, or make an offer. That's how the negotiations start between buyer and seller."

Another business model lists names for sale on a private marketing platform, and Moniker finds corporate and individual buyers for these domain names, based on its database of what people want.

"We also do stealth acquisitions for customers," Cahn adds. "Let's say a buyer doesn't want the seller to know who he is. We make the stealth acquisition, so the price isn't artificially inflated by the fact the buyer is some big corporation. We do that for many adult clients.

"We have thousands of domain names that go to 'For Sale' pages on our PPC monetization system, called 'Traffic Club.' If somebody has a domain name that's parked with us, and they're earning money from type-in visitor traffic, we place information in the right-hand corner that this name may be for sale, and allow customers to place a bid. We qualify whether the bids are for real, and we do direct negotiations with the interested parties."

Other interesting new business models include the "snap names" gambit, in which buyers place back orders off expiring domains to trigger an auction with all of the other buyers who wanted to backorder the domain.

"In these cases, the auction runs three days in some cases," Horowitz reveals, "and you're bidding remotely. That's still the predominant business model for the after-market. The live auction model doesn't necessitate much change, especially when you're doing $3 million in one auction."

Moniker, like most auction companies, is paid on a performance basis. They charge no fee to list a domain, but earn 15 percent of the sale price on each auction transaction, according to Horowitz. Money matters on the buyer side, however, have new business models of their own when it comes to financing transactions.

"We offer unique domain financing opportunities with mortgaging scenarios," Cahn says. "A buyer can finance 60 percent of the purchase price, based off the amount of money he's spending for the name. If the buyer has a current property, he can have it appraised and we'll arrange for 60 percent loan financing based on that value. So you can actually finance one domain to buy others. Similar to a home sale, the domain name is held in escrow until the loan is paid off."

The old-fashioned financing methods still dominate the market, however. Some companies spend their own cash reserves. Some spend the money of the parent company's investors. In a new twist, some are spending the bank's money.

Banks Join Action
"For the first time ever, banks and lenders are starting to get hip to domains as lenders and as properties," Horowitz says. "That's a forward- looking angle, and it's changing things."

All of these new models are making auctions a no-brainer for domain speculators, but there is always the risk of overpaying for a name. Even the most prepared buyer can be snagged during an auction.

"You can be run-up very fast," Horowitz reveals. "I've seen auctions where there are groups of domain speculators who have very deep pockets. They have outside financing, and in some cases they represent a massive international corporation that specializes in buying domains, and they may spend hundreds of millions of dollars buying domains every year. You could be bidding on a domain, and a couple of these well-backed companies can just run the bid up until it becomes more of an ego trip. If you get caught up in one of those, you could end up way overpaying by hundreds of thousands of dollars."

Still, that risk aside, domain auctions are clearly the wave of the future. More of them are planned for 2007 than for any previous year. Cahn claims that Moniker intends to hold a domain auction every month in the near future. And there's little wonder why.

"Domains are the cornerstone of the entire Internet," intones Horowitz. "A great domain is one of the surest ways to help your business."


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