Back in the mid 20th century there was a man who’s opinion mattered, who was very powerful and who could write very well. He came from a business very much like the domain name business, a world of roughnecks and fringe players who became very rich, very quickly. He thought out of the box like many of us:

“”In business as in politics, it is never easy to go against the beliefs and attitudes held by the majority.  The businessman who moves counter to the tide of prevailing opinion must expect to be obstructed, derided and damned””. – J. Paul Getty

Getty wasn’t just your average lucky sperm type.  He was born rich, but he was a clever guy with an ability to make money on his own, and the oil business he helped shape, rhymed very much with the domain name business of today.  Wildcatters, and risk takers, ridiculed as unsophisticated speculators.  Getty didn’t have a blog.  He was wealthy and powerful though, and that made him interesting to the publisher of Playboy magazine:

“”Why did I choose PLAYBOY as the medium through which to express my views?  PLAYBOY enjoys a very high readership among young executives and college students. These are the individuals who will be the businessmen and business leaders of the future. These are precisely the individuals who would be likely to benefit from any information I might impart as a result of my own experience in the business world.””

Getty’s reasons for sharing were very altruistic:

“”If, by writing, I have passed my message on—even if only to a receptive few—then I shall have achieved my purpose and received a very rich reward in the form of personal gratification from the thought that I have in some small measure helped spread and strengthen the principles in which I believe.””

Well done and well said Mr. Getty. Everyone who blogs today, shares that sentiment on some level. Consider for a moment how his oil business had great similarities and parallels to the present day domain-name space:

“”In the late fall of 1915, a half-interest in an oil lease was offered for sale at public auction. I inspected the property and thought it highly promising. I knew other independent operators were interested in obtaining the lease, and this worried me. I didn’t have much money at my disposal—certainly not enough to match the prices older, established oilmen would be able to offer. For this reason, I requested my bank to have one of its representatives bid for me at the sale without revealing my identity as the real bidder.

Surprisingly enough, this rather transparent stratagem accomplished the purpose I intended. The unexpected appearance of the well-known bank executive who bid for me unnerved the wildcatters. They assumed that if a banker was present at the auction, it could only mean that some large oil company was also interested in the property and was prepared to top any and all offers. The independents glumly decided it would be futile to bid and, in the end, I secured the lease for $500—a bargain-basement price!

Soon thereafter, a corporation was formed to finance the drilling of a test well on the property. I, as a wildcatter with no capital of my own, received a modest 15-percent interest in the corporation. I assembled a crack drilling crew, and my men and I labored to erect the necessary wooden derrick and to rush the actual drilling operations. I remained on the site night and day until the drilling went into its final stages. Then, as I’ve related, I found it impossible to stand the nervous strain and fled to Tulsa, where my friend J. Carl Smith brought me the news that the well had come in.

The lease on the property was sold to a producing oil company two weeks after that, and I realized $12,000 as my share of the profits. The amount was not very impressive when compared to the huge sums others were making, but it was enough to convince me that I should—and would—remain in the oil business as a wildcatter.””

How many of us have been down a similar road, had similar ROI’s, been just as nervous or employed familiar strategies and tactics to secure the domain-name we need?   Thumbing through Mr. Getty’s exploits I came across this vignette which had chilling parallels to the paid search traffic side of the domain name business in 2010:

“”As soon as I d brought in Cleaver Well Number One— which produced an impressive 5100 barrels a day—I cast about to find a buyer for my crude production. To my dismay, the firms I approached refused to deal with me. The motives behind this evident boycott became infuriatingly clear within a few days, when I received several calls from brokers offering to buy the Cleaver Lease at a very low price. The brokers refused to name the principals they represented.

Certain interests wanted my lease. Either I sold out at a ridiculously low price, or I would be left without any market for the oil produced by the wells on the property.

Unable to sell my oil, I had to find some way to store it. The only storage facilities available in the Los Angeles area were in a defunct refinery—two storage tanks with a total 155,000-barrel capacity, which I immediately leased. In the meantime, even while I was vainly seeking a buyer for the 5100 barrels of crude my Well Number One was producing every 24 hours, Well Number Two came in for a 5000-barrel daily production. This was followed in short order by Number Three, which produced 5100 barrels a day, then by Number Four, the runt of the litter, which brought up 2100 barrels daily. This production rate was rapidly filling the two storage tanks—and I was still unable to find an outlet for the oil. I knew that when the tanks were topped off, I’d have no choice but to shut down my operation entirely.

Obviously, I was receiving no income from the four wells. My fluid cash resources—already strained by drilling costs— dwindled rapidly as I paid for leasing the tanks and for trucking my crude several miles from wells to storage. The situation could have easily turned into financial disaster. I decided to make a frontal attack on one of the biggest of all the major oil companies—Shell Oil. By a fortunate coincidence, Sir George Legh-Jones, then the Shell Company’s president, happened to be visiting in Los Angeles. In desperation, I aimed high, asked for an interview with him personally, and was informed that he would be happy to see me during his visit.

A warm, friendly man, Sir George listened attentively to what I had to say. The deepening scowl that etched across his face as he heard me was all the proof I needed that his firm was not a party to the boycott and that he heartily disapproved of such tactics. When I finished talking, he smiled his reassurance.

“Relax,” he grinned. “We’ll help you.”

As a starter, the company would buy the next 1,750,000 barrels of crude oil produced by my Cleaver Lease wells, Sir George told me. In addition, a pipeline would be constructed to link my wells with the Shell Oil Company’s pipeline network—and construction work was to commence the very next day.

Sir George and the Shell Company were as good as their word. Shell’s work crews arrived on my Cleaver site bright and early the following morning and started to lay the pipeline. The boycott was broken—and the Cleaver Lease was safely and profitably mine!””

The present day Domain Name traffic business needs it’s version of “Sir George” to reach past Google and Yahoo, unlocking the value of our traffic.

We all know that domain name traffic is the best quality crude-oil of web traffic.  Increasingly the major keyword marketplaces such  as Yahoo and Google have taken that high quality traffic and dumped it into the same keyword marketplace hopper with arbitrage, garbitrage, and other forms of toolbar crap.  That traffic then gets smart priced and shaved down under the guise of “quality control” resulting in pay-rates for domain traffic which are held artificially low. Our traffic underperforms it’s historical averages and we get paid way less than we should. The domain name channel should be included at a parity (un-smartpriced) to Google and Yahoo Owned and Operated Search-box traffic. It is at least as good and often better in quality than Yahoo’s O&O search-box search and it has no place being dressed down and dumped in with other low quality forms of traffic.

The way to break this stranglehold is obvious, stop selling your PPC traffic to Yahoo and Google’s keyword marketplaces.  That’s easier said than done because Google and Yahoo have created a system which pays out just enough to enslave network operators and keep them at heel. Their stranglehold on the market has created a strange bi-polar world which makes it difficult for new paid-search networks to gain scale and become viable.  They can crush would-be competitors as they rise from the crib. We are approaching the tipping-point though, where disintermediation like that employed by Mr.Getty in the example above is not only possible, but certain. Pay-rates to domain name owners and publishers are just too low.  We are at the point where it is becoming illogical to sell traffic. The consequence of pulling traffic away from PPC and selling directly to large advertisers is shrinking dramatically.

The fact that flat rate sales could be contemplated by high quality “owned and operated” domain publishers, shows you how broken the present PPC marketplaces are.  Our high quality traffic employed as a crutch to carry low quality crap traffic from arbitrage, mixed with mud and laundered back into the Yahoo / Google marketplaces from 3rd and 4th tier networks. Domain publishers even tacitly encouraged by those marketplaces to consider arbitraging grey traffic in with their whitest whites as a viable way to gin revenues.  It’s such a shame but a fitting tell of the times we live in; where the game is just rigged.  False metrics designed to obfuscate real economic values. People deliberately turning a blind eye to logic in favor of the applause meter.  All justified and guided by a broken compass.

The bright spot of name sales shows us the way up, or “out”.  The values of domain names and multiple offers we receive prove that traffic is still valuable outside of the paid-search networks.

A savvy group of lead generation experts are the new wildcatters, working the fields of domains and trying to strike black gold.   As the guy who owns many of the fields with pay-dirt potential, I am thrilled that there’s a healthy and vibrant marketplace for the leases I have to offer, and I’m clearly glad to be generating healthy cash-flows in such trying economic times. But I am saddened by what has happened to the nature of what was once a much more transparent and honest business.

Most advertising buyers are blissfully unaware how the traffic they buy is really generated. And most analysts reading the latest Comscore rankings are unaware how those big traffic numbers they see are generated. They imagine people dutifully typing into Google or their browser to visit all those high-ranking sites. Well there is a real mess in that slaughterhouse. Enough to turn most ad-buyers and analysts into vegitarians. Even the experts are oblivious to the gaming and buying of outside low-quality traffic in order to increase the Com-score numbers for a better quarterly story on the earnings call.

While all these things are disheartening, the biggest disapointment for me is the business I’m closest to. I’m shocked that the dominant paid-search keyword marketplaces are so greedy and short-sighted that they would risk losing control of a valuable resource like domain traffic. Lose it they will.  I predict within the next 5 years or so, most high quality name traffic will leave it’s present PPC deal looking for something better.  Too many operators are quietly and not so quietly milling about. The seats will change. I just wonder what these networks will use to add to the mix when the light sweet crude of web traffic: type-in domains, begins to slip between their fingers and into stronger arms.  You may want to collar that search-stock price gain, if you haven’t already.

My reflections on Malibu and how the town looks a bit more hardscrabble this year, got me noodling on the consequences of a secular period when “taking shortcuts” seemed like a good thing to do. It’s the Gordon Gecko “Greed is Good” meme, which brought us (and Malibu) to this point. First noticeable to me in the 80’s, but accelerating since the .com bubble and September 11th – Greed (the hunger for stuff) has acted like a crutch to move us forward, but at a non-trivial expense. The low interest rates which followed the .com bubble and 9-11 allowed speculators to build second and third homes in Calabasas and Point Dume. It allowed private equity guys to pump companies like yours full of debt so they could flip them to the public markets. This leveraging came during a period when population growth (the number of new consumers born) began to stagnate. It was this slowing of population “growth” which Bill Gross recently described as: “likely a significant factor in the leveraging of the developed world’s financial systems and the ballooning of total government and private debt as a percentage of GDP from 150% to over 300%”. The borrowing and levering up, allowed us all to consume more per person, and fill the “demand” vacuum left by slowing population growth in our developed part of the world.

That leverage or debt had to be serviced though, and its shackles have led to a greater need for short-term PROFIT in order for all those borrowed dollars to be financed. It’s been a chain with unholy consequences. Consider how the quest for ever-greater profit has changed the nature of our food supply. The food you and I eat has been cheapened to garbage at the expense of our long term health, because the food producers needed ever greater profits so they could pay the interest payments on the money they borrowed to expand. Consequently it’s harder for you to stay fit and healthy, and more difficult to avoid a future life hooked on the expensive medications, concocted to fight the ills which the cheaper food causes. Good for the drug companies I suppose.

The ecosystem which short-term thinking and the hunt for ever greater profits has spawned is leaving terrible and often invisible consequences for us all. It’s really manifested to a head in the last 10 years though, the most visible example being the global banking and financial crisis which continues today.

Those of you feeling a bit bummed out after reading the preceding paragraphs, please don’t throw yourself in front of that Prius on PCH just yet.

Tomorrow will bring a brighter day and not everything which happened in the last 10 or 20 years has been bad.

The Internet for example, allows us to share information like this and to think about how we can solve for better outcomes. This is my 10 year anniversary working on the Internet. Ten years ago I was just another guy trying to find his way in the domain business.

I still remember mining for available two and three word generic phrases (unregistered), only to light them up, and immediately start harvesting (and selling) the organic traffic those names got. It was a terrific moment in time. I remember calling my rep at Goto.com (now Yahoo), to discuss my first direct deal there, feeling quite proud of the little tranche of traffic I’d cobbled together over the preceding weeks. He politely set expectations: “3500 unique visitors a day isn’t going to blow anybody’s hair back Frank”. It was a humbling beginning, and gave me pause. Fortunately it also gave me the resolve to grow. Today we marshal 24 to 26 million unique visitors per month. That’s a lot of reach. But while we’ve grown, if you talked to my first goto.com rep’s modern day counterpart, he’d tell you that 24 million households is nice, but not blowing his (now grayer) hair back. “Taking Shortcuts” to grow traffic have made 24 million the new million. You see there’s a new belle in town and her name is “error search”. Many of the deals being done these days are with ISP’s for their error traffic. The audience numbers are terrifically large and so are the dollar volumes of the deals. The average user will make 8 errors typing on their keyboard each month, or so goes the oft quoted industry metric. Frequent users like me probably make that many each day.

Error search volumes have grown and domain traffic declined as a desperate but quiet war has waged to dam the river upstream. I recently typed the domain names of some of my colleagues in at a hotel and found those visits redirected by the hotel or ISP to an “OpenDNS parking page”. The website at the domain was substituted for a page with advertisements provided by OpenDNS. The visitor (me in this case) was thwarted from reaching his final intended destination because the ISP and OpenDNS made a deal to change the user’s experience, substituting one website with ads for an “error search result”.

OpenDNS isn’t the only unwanted intermediary injecting themselves between users and the sites they request. You have literally thousands of toolbars and error traffic diverting applications which bundle along with the smiley screensavers and free backgrounds, unwittingly downloaded onto people’s computers. You have browser makers who partner with computer manufacturers to divert traffic above them. You even have those running the Internet DNS advocating taking BACK the DNS (from whom they would take it back is unclear) .. Literally everyone and his mother is trying to get in on shaping the user’s experience, often for their own economic benefit. Errors are always constant of course but the fight to steal more legitimate site visits and label them errors has marginalized the domain name paid-search business’ and domain name’s importance to the keyword marketplaces. We’ve gotten to the point where some keyword marketplaces will not do domain deals, opting instead for more error search “short cuts” which bring larger quantities of traffic more quickly and easily.

Not all shortcuts are good ones however. As you’ve gathered by my backstory, there are consequences to taking the easy road and short term profits in favor of long term investments in more stable and sustainable forms of traffic.

The Achilles-heel of error traffic is that it’s all drive-by .. The experience is not uniform to the user. A user can’t visit a site and then tell their friend to go there for a shared(viral) experience. I can’t guarantee that I’ll make the same error twice, or that if I do make the same error twice, that I’ll ever have the same experience again. Errors are unduplicable mistakes built on less sincere lay-up, which offers no road back and has little intrinsic value beyond what it can generate on PPC.

Perhaps that’s enough for some, but Google has largely sworn off error traffic as an undesirable source and left that marketplace to those less able to innovate in search. Ask.com, Yahoo! and a few other also-rans have embraced error-search and tried to figure out a way to gentrify it into something useful, or through a back-door into Google’s healthier keyword marketplace again. Judging by the stock prices of the companys in question, the embrace of error search is showing itself to be an error.

Far better to leverage a large network of distinct households coming to the specific websites they type in. I imagine an upstart search engine which discovers that they can take 10 or 20 or 50 million visits coming to a portfolio of names and direct each name to a results pages within their index, building both branding, search revenues and the opportunity for visitors to find a return path for them and their friends. That is a much more value adding implementation in the long run.

My view (while clearly biased as a site owner) seems to be corroborated by the secondary market for domain names which has completely decoupled from paid-search revenues. The marginalization of domain name traffic has perversely (and inexplicably) dovetailed with strengthening names sales. In fact, we are now at the point in the domain business where traffic sales are a sideshow to the deals which happen for the names themselves. The world’s small website makers, individuals and companies are learning what lumbering public companies and also-ran search properties have been slow to awaken to. Or perhaps these entrepreneurs are sufficiently spooked by unpredictable platforms like Facebook that they are building on their own platform (domain name) more often. The surprise if any is that folks are not satisfied with a single name – many of them opting for dozens of names to give them a greater measure of diversification and reach. While it’s heartbreaking to see PPC domain deals so uselessly implemented and mismanaged to the point of irrelevance, I see this as a huge disruptive opportunity.

Consider our present reality and imagine a world where error search intermediaries tried selling inactive domain names for thousand dollar commission checks rather than trying to subvert incorrect domain type-ins for nickels in traffic. Imagine entering an exact match domain name with the intention of navigating at the Google or Yahoo search-box (as we have all done) and then being served a small one-box result helping to facilitate the purchase of the name and it’s escrow.

While not every name will sell, there are sufficiently many which do in this multibillion dollar industry that double-digit percentage commissions could equate to 600 million a year in potential brokerage revenues. I think we will live to see some version of that. Or perhaps a second tier search engine which finally will get the religion that they can use domain name traffic as first-stage rocket-fuel to lift their property into homes around the world.

As complicated as the Internet seems to have become in the last 10 years, it is really very simple in that there are only 4 ways to get significant traffic (3 are legal), buy a meaningful generic domain name, create a property with a utility people will come for, bleed link traffic from another website with traffic or send spam email.

Perhaps it’s my older naïve thinking at work, but if the name sales and prices we see are indicative of anything it’s that there are still some high-minded people left in this world who haven’t been blinded by short-term greed and cashflows. There are still corporations and individuals out there who plan and invest for the long term, for permanence and lasting value. If the last 10 -20 years have taught us anything it’s that we can all do with more of those sorts of folks. That, and more beaches are always good.

Today I was in the pool at the Hotel du Cap.  What a place.   I haven’t been this relaxed since I left Cayman. Some guy pulled his yacht up at the Hotel (a daily occurrence) and took a $2000 a night room at mid-day just so that he could enjoy lunch at the restaurant while swimming in the hotel pool. He then strolled back to the dock, climbed on his yacht and sailed away.  Serious ballers here.  The smell of helicopter fuel hangs thick in the air as choppers dart like insects between boats.  Crazy wealth. It’s hard to see the recession we’re all living through from this vantage point.

Later in the afternoon my family and I drove through the area surrounding the hotel and we noticed how the real estate system in France is not as sophisticated or developed as it is in the US or Canada.  Many properties are listed exclusively with one agent (no MLS) and information about the complete range of listings available is only known to those with boots on the ground and a knowledge of the local language. I could not locate many of the properties on the local sales sites I was browsing with my iPhone. It reminded me of an old episode of Melrose Place, pre Internet, pre real estate bubble; where Kyle buys some dream lot on the bluff in Malibu from some older wealthy guy (who’s owned it forever), who cuts Kyle a deal because he has a soft spot in his heart for Kyle’s tale of wishing to build a dream home for he and Amanda.  Very whimsical, romantic and nostalgic, but there is no way that old guy would be turning over the deed on a heartstring if he could have gone to Zillow on his iPhone and found said lot to have a zestimate of 10 million dollars.

More than low interest rates, you could say much of the real estate bubble we had was fueled by the technology advances which ran parallel to Greenspan’s lowering of interest rates. Technology.  People becoming appraisers, and having access to information about every listing, then participating with cheap and easy credit.

Later I recalled a comment Owen Frager made after the re-launch of my blog last month:  “The problem with your domain (name) assumption is what can anyone sell when people have no means to buy. More than the domain you need strategy like Apple that fills the store in the midst of a recession and with every phone is a case, car charger etc.”

What Apple has really done is to sell a cheap but capable computer with a phone app, while its competitors try and fail to create phones which act like computers. Their strategy is winning. Google recently gave up on its droid nexus-one. A just end to a lousy product (I owned two of them).

Owen is right.  What Apple has done is to create the store and “show” around their product which is innovative, but which has been here all along.  They made the phone sexy and created a delivery system with their marketing and stores to make acquisition of the product easy.  Their history designing GUI’s gave them that extra push to win and sealed their fate as master of the space.

Those of you hoping to see the domain nexus in this back-story will have to wait a few moments longer as I provide the another prolog – and a stock tip. One company ripping a page right out of Apple’s playbook is Nestle.  They have opened a bunch of polished shops in the big cities of Europe to sell their Nespresso Coffee makers and capsules.  You buy the coffee maker for a few hundred bucks and then pay through the nose for the capsules for an eternity.  They are big here in France, London, Switzerland and I expect them to go to the States with this marketing method in a bigger way (lots of shops) soon.  My wife and I love Nespresso. I thought they were to eurotrashy at first, then I had one. Nespresso is coffee “crack”.  It’s so good, I’m saying load up on Nestle stock. Nestle has created the “Strategy which fills the store in a recession”, which Owen wisely spoke of.

Compare Apple’s phone marketing or Nestle’s coffee marketing to the domain name business and you will see a glaring dichotomy. I recently sold a valuable name and had to hold the seller’s hand as they created an escrow transaction, worked through a contract, requested an invoice, and worked through a cumbersome registrar transfer - all before they ever even turned on a website. Still the buyer saw the potential of their purchase as prolific, and worked hard to muddle through the steps to an end.  There was no system. Much like the real estate system in France, this insider still received a great tactical advantage because of a lack of organized information in regard to the value of the name.

Domain names are critical to the Internet economy and to all web marketing efforts. They are bought, sold, leased and fought for each day – yet there is just a small patchwork of IP management companies which hold the hands of IP interests looking to acquire names. There are less than 10 domain name specialized attorneys in the world (with 5 of those being great). There are just 10 major registrars such as Godaddy, NetSol, Tucows and eNom who have risen to dominate the mass registration market, yet there are countless registrants like you and I who own many of the best names which people repeatedly wish to acquire. Unfortunately I think prices will stay low for registrants until an organized system for marketing our product materializes. Everyone may need domain names (as surely as we all need water and oxygen), but there is no Nespresso or Apple store to market to the masses and fill the store during a recession.

Some of the present situation results from the respective competitive stance we all find ourselves in.  eNom would rather sell the .me of your coveted .com name because it serves them and they get no benefit from promoting your .com. Facebook would rather get you off domains and into their walled garden.  And Google doesn’t care where the information is, they just want to organize it. The domain industry – The entire Internet for that matter is less than 20 years old. There have been no Steve Jobs or Howard Schultz (Starbucks) or Nespresso Mastermind to blaze the trail yet.  Bob Parsons may be the closest with his brilliant move of selling business incorporations and domain names together. Still I have a hunch Bob is more interested in enjoying the fruits from the great machine he’s already built, than he is in becoming the next Nespresso.  Still you never know.  Maybe he’ll get his second wind.  Or maybe you will get your second – or maybe I’ll get mine.

I picture that Godaddy store, like a Starbucks inside an OfficeDepot, one which looks much like an apple store, which allows a consumer to buy a premium name for their business, a rep who explains the value proposition of a better quality name on a series of large screen walls, and then prints a certificate for the purchaser’s records after checkout.

You could say domain names today are like the cheap real estate in that Melrose Place episode.  A technology product which has not benefited from advances in technology. Those consumer friendly advances have happened in email such as (Hotmail, Gmail and Yahoomail).  They have happened in the platforms such as Facebook and Twitter.  They have even happened in phones and coffee, yet domain names; which everyone needs and continues to buy, have been left behind to market and sell themselves.  All things considered, even the most recalcitrant pessimist would have to concede that our disorganized patchwork of an industry hasn’t done too badly for itself.

These are still the early days of the Internet folks, like the real estate industry before the iPhone, before the MLS. There is no uniform or organized or credible marketing platform to serve the masses.  Godaddy would be the closest but they can only do so much.  While I predict many great returns for those who buy Nestle (Nespresso) stock, I predict untold riches for the mastermind who helps the consumer understand the lifetime value of domains – and to ease delivery of same.

Until then, there will still be a haphazard system of transfers and sales and closings and the artificially muted values we have today, as an unfortunate result.

Au Revoir from the Cote d’ Azur