Monte explores the sale of Business.com

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Monte: Hello everyone. This is Monte Cahn. Welcome to Domain Masters. I hope everybody had a great week. I want to dedicate this show to my grandfather, he passed away today, and he lived a long, beautiful life. Ninety-five years old and was a great man. Tutored high school kids up until he was 94 and wanted to send out a special how ya doing to him. In any case, I have Mark Ostrovsky as my guest tonight, and I'm pretty excited. I saw Mark speak at the T.R.A.F.F.I.C. West convention gathering in Las Vegas a week and a half ago. He was the keynote speaker. Those of you that might not know his name, he was the former owner of business.com; and that's the domain name that sold for $7.5 million in stock and cash. We're going to learn a lot about that sale and about some of Mark's other ventures in the internet world. More exciting is his current venture that he's in, which is the Internet REIT (IREIT). He's in with a few folks. Bob Martin, for one. And they're investing a lot of domain portfolios and really helping build out the internet brands and identities on the web, and they're making a big play in the industry. It was very apparent from the T.R.A.F.F.I.C. West show and the Domain Name Roundtable last week that the Venture Capital groups, a lot of the funding managers who are in the internet space, and the investment community are all looking at this segment very strong and very hard based off of what Marchex actually started several months ago with purchasing a large portfolio of domain names. And Mark's had a lot of experience with a lot of famous domain names, and he's going to tell us a lot about his successes in the internet and how you all can be successful with your domain names, and he might be interested in buying some of your properties. You never know. So hang on with me for a couple minutes. We're going to do a couple commercials and be back with Mark Ostrovsky.

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Monte: Hello, this is Monte Cahn. Welcome back to the show, Domain Masters. As I mentioned before the break, I have a very special guest on tonight, Mark Ostrovsky, who is the CEO MultiMedia Venture Partners and Internet REIT. Mark's had a lot of accomplishments, too many to mention when you look at his bio and look at all the accomplishments that he's had. It's too many to read out loud. From a domainer's perspective he sold some of the most famous domain names to other companies, one of which was business.com which he sold to E-companies in 1999, that was right before we sold autos.com for $2.2 million. It probably helped get the price up a little bit. And he sold ebusiness.com to Bill Gross' company, IdealLab. I don't think we can know the sale price on that, because it's under NDA (Non-Disclosure Agreement). He's got an interesting story about eflowers.com and several other domain names that he's been involved with. Now he's a big buyer of domain names, and we're going to have him on the show and talk about it. Mark, are you on board?

Mark: I'm on board.

Monte: Okay, great. So the fire alarms are all done?

Mark: Fire alarms are done, but I got bumped off the chat room because it said you've got too many people.

Monte: Your off now?

Mark: I'm off now, I can't log in.

Monte: Oh, okay.

Mark: It's alright, I'm still here verbally.

Monte: Okay. Well, I'll get guru to work on that. Hopefully we'll get back on. People can post questions and I'll read them to you and then we can get them answered.

Mark: That's fine.

Monte: Anyway, I wanted to welcome you to the show and just tell you it was a real pleasure meeting you a week and a half ago. You and I happened to be golf partners the next day and got to know each other pretty well. So, it was very nice to get to know you a little bit better and understand your background. Your keynote address was great, and I thought we would cover some of that stuff tonight.

Mark: Do I get to tell people you cheat at golf?

Monte: Yeah. How did I cheat? [Laughing] Hey, I hit the hell out of the ball a couple times though, didn't I?

Mark: You did just fine.

Monte: Well that's good. Well, as a domain listening community that we have on this show, along with webmasters and SCOs, I'm sure everybody's very interested in a little about your history, how you got involved in the internet, particularly the more famous domain names that you've owned and sold, and then we could talk about where we are currently and where this industry's going cause you have a great insight about what's going on and your newest venture is really in tune with what's going on in actually investing back into the market. So, can you give us a little bit of background of how you got started, what year it was, what was going on, and kind of bring us forward?

Mark: Sure. Back in the early 90's, my sister, a researcher at the University of Texas, told me I should come into her office and look at this thing she was working on, researching, called the internet. While I was there, I asked her how do you get one of those names and we looked it up, and we looked up Hertz and Avis. One was gone, one was available. I said never mind. She said what are you thinking? I said well why wouldn't you own some of those names. At the time, names were free. And you figure if they're giving them away and the big companies don't all have them, they must not be that valuable. So I left her office thinking about it but not doing anything about it. Um, shortly thereafter, I did register a bunch of names. I really wanted the name business.com because I felt it was a good medium for business. I spent a year talking to the guy who owned it, got him to sell it to me for $75,000, and the night before the sale, he bumped it to $150,000. Swallowing hard, I bought it and then subsequently sold it a few years later and made a few dollars on that deal. But I had originally seen the medium, at that time it was a medium being used for porn, and thought it was a good medium for business and bought the name to use it because I was a magazine publisher and thought I could use it as a magazine name.

Monte: Right, right. Now everybody wants to know the details of this sale. Can you break it down for us, cause there's rumors that it's part stock, part cash, what part was stock and cash. Everybody wants to know whether it was a good sales amount. Can you ….

Mark: Basically, I sold that name and another name to ecompany's competitor that night. Both in the same night, both parties purchased. I had just sold my company for $35 million and was very flush with cash and I negotiated a sale that, whatever I got, I could reinvest back into the deal. So, without getting into the details, I've got cash today off the deal and I still bought in to own part of the company. So, I'm watching ebusiness grow at light speed. It's a pay per click search engine and it's a wonderful sight. It's an all-business search engine.

Monte: This is ebusiness.com or business.com.

Mark: business.com is the site that is up and running. Business.com with no “e”.

Monte: Right, okay. Good. So it's a part stock/part cash deal and obviously it's paid you back pretty good and you now have a vested interest in it's ongoing concern. So it's success helps you out on the bottom line.

Mark: All things considered, I've done quite well. Certainly relative to the cost that I've paid. And, then, I've sold other names since then. I haven't been a big seller over the time because it's, to me it's an investment holding as opposed to putting all my eggs in one basket. But, as you heard in the speech last week, I'm a very big believer that, unless people have $10-$20 million in the bank, holding all of their assets in any investment is not wise.

Monte: Right, right. That was one of your good takeaways from a room of domainers that like to hold onto everything they own is that you are in the position that one should peel out of some of their domain names, take some money off the table, because of course like with any investment, it's always wise to spread the risk and to diversify a little bit and still have a significant portion of what you own in the business that you believe in. But it's good to take some money off the table, especially when you have a good offer.

Mark: Absolutely. I mean every name has its price. The very best user is an end user. He'll pay more than anybody else. The lowest sale would be a pay per click user or someone that doesn't even do pay per click. There's lots of options in the middle; so if a name is generating $500 a month or a year for that money on pay per click, it still might be worth, uh, someone may come in and buy it at 10 times or 8 times or 5 times value, but an end user is usually willing to pay a different price based on his need for the name.

Monte: Right, right. Now one of your other unique stories was the sale of a domain name called eflowers.com.

Mark: Right.

Monte: I found that story pretty interesting too. Why don't you tell everybody about that one.

Mark: Yeah, it's not so interesting; because I got screwed on the deal.

Monte: Well, I found it interesting because of the deal that you made and then what subsequently happened to it.

Mark: On Valentine's Day back in, I guess it was 1999 or 98, I sold the name eflowers for $25,000 in cash, which back then was a lot, plus $.50 for every order ever taken on the web site, plus a dozen roses once a month for life. Now everyone thought that was, all the guys that called me said what a great deal, $.50 an order. All the women who called me said oh, how romantic, flowers for life. A) I ended up in a divorce, so the flowers sure didn't help that situation, but that's okay. Such is life. And $.50 an order, the site was sold to FTD. FTD points the name to their own web site and I have no way to track what sales are going over that site and get virtually nothing from them. And it's cheaper at this point to let it go versus suing FTD Florist. But I really, really got pinched on that one.

Monte: Now, do you still get your dozen roses every month?

Mark I do get the dozen roses. That I get, so you know relatively $1,000 a year worth of roses where we expected $50,000 to $100,000 a year forever. It's a big difference. But you live and learn. I tell people, if you sell a deal, make sure you have the right to take that name back if they don't fulfill their role, and I didn't put that in because I didn't want the name back based on what they were going to pay me. Meaning, if they were going to not pay me, I could have taken the name back, but with those kind of numbers, I didn't think that was possible. Because it was worth a whole lot more at $.50 an order. Low and behold, they stopped paying and I still don't get the benefits.

Monte: Well, put it this way, Mark. If you life 50 more years, your total sales price of the domain name was worth about $75,000.

Mark: Something like that.

Monte: Yeah. [Laughing] Well, that's great. That's great. So, on top of those two sales, what were some of the other, any other interesting domain sales that were sold that maybe a lot of people don't know about?

Mark: Uh, I really haven't sold a lot of other names. I've sold a few here and there. Nothing major. I've had a lot of offers in the past for bullshit (excuse me).

Monte: No, that's okay. You can cuss a little bit on this…

Mark: Oh, I'm allowed to cuss?

Monte: We're not regulated by the FTC.

Mark: [Laughing] Sorry about that.

Monte: [Laughing] Or the FCC.

Mark: That's funny. I have had a lot of low ball offers, you know, I'll pay you $1,000 for this or $2,000 for that; but the market is getting real smart. There are golden nuggets out there. There really are, or golden tickets, as the case may be this month. But for general purposes, the market's at a pretty aggressive pace right now, and names are high. Names are selling for a lot of money.

Monte: Right. Now on that subject. So let's talk a little bit about what's going on in the industry these days compared to where it was in 1999. Obviously a lot of companies base their success on a great brand without having a lot of business thought behind it, or maybe they did have the business thought behind it, but just kept on raising money and never applied the business acumen that was needed to bring the business to a successful state. Today, obviously it's reversed. The majority of the money that's going into top premium names are going to have to be to bring in that identity and the life of that domain name to life and make it marketable to the public, much less in the domain name itself, so that it could be a long-standing [inaudible] somebody successful. So tell us about your take and your perspective about buying individual top level domains versus some of the portfolios that are being transferred around these days and maybe even revert back to what Marchex did with the ultimate search purchase.

Mark: Well, individual names I still buy. As you know, you and I have talked about a few. There are some names that are half a million and plus out that which I buy. There are names out there that are, you know, $100. Last couple days I've bought a few in the $3,000 to $5,000 range that I think could be winners down the road, and I feel like there is little to lose if, it's a typical purchase, can it pay for itself. Portfolios are a whole different animal. The problem with portfolio is the owner's thinking that every name is worth more than everyone else's and they've got the best portfolio, and they've got the best names, and they've got the most income. Unfortunately, it's not the case. As a third party investor and a venture capital player and someone is coming in to cut a deal where they make more money and we make more money, the goal from our standpoint as a company is, we want to buy a portfolio that doesn't have any trademark issues. We don't like those. Misspellings aren't that excitable, but good generic names that people want to sell. You know, whether it has telephone.com or HoustonWeather.com, one's a great name, one's an okay name, we don't want HoustonWeather, FarEastHouston, JoaniesHotelRoom.com. Names that are real names just don't work.

Monte: Right, right.

Mark: When all of that is said and done, if you get a good portfolio that's got decent names, it has a real revenue stream from pay per click, and has names that can be built out, like telephones.com, or realestate.com, or some other word that means something, that excites us.

Monte: Right, right. So those are types of names that excite you and obviously we're working together on a much larger transaction for you that's going to be something that I think is going to be very successful for you too, which was an ongoing concern of a domain name that was bought some time ago from one of our own customers.

Mark: Yeah. There's all types of opportunities. Again, the issue is developing the names. If I were giving advice to people in the market, it's become an expert at developing a name into a real business opportunity. I bought the name blinds.com some years ago. I bought it with a friend of mine who was running a small blinds retailer here in town. We ended up turning blinds.com into a $40 million concern that is an ongoing business with 30 employees and is a virtual business, where we sell several million dollars a month in blinds, mini blinds. And we spend $1 million a month with Google and Yahoo, which is hard to believe for people, but it's a real number.

Monte: Wow. And what kind of business do you do now annually on that?

Mark: Forty million.

Monte: Forty million on blinds.

Mark: Miniblinds.

Monte: And just an idea of ebid on that or margin?

Mark: It's not as big as a retail establishment, but we don't have any of the threats of a retail establishment. So we're selling at the lowest price in the country and we make smaller margins and higher numbers. That's the route we chose to take. You know, get a $50 million or $100 million firm that's making 4% or 5% versus go for a $1 million firm that makes 10%. And we chose that other route because we're experts at buying pay per click advertising from Google and Yahoo and knowing that the differential will pay for itself.

Monte: Geez. So you turn in a lot of volume, it sounds like, around. You're doing a lot of volume and spending a lot of money on advertising, but the difference is paying off.

Mark: Yeah, but you walk before you run. We started out spending nothing. Then we started out spending $5,000, and then $10,000, and then $20,000, and then $50,000, and then $100,000; and we're up to $1 million. I mean, we did walk before we ran. We had to figure out how much can we afford to pay for these leads. And with pay per click, you get 100 leads, you make 2 or 3 sales, and the belief is over time people are getting better at knowing how to manage their own web site and how to turn those leads into sales and how to give them enough benefits of doing business with you online as well as the comfort level of doing online. The benefit of that is the smarter we get, the more we're willing to pay for our pay per click lead, and the more the domain owner will make if they run a blinds listing on their site.

Monte: So talking about that whole process of someone coming online and buying blinds, which you wouldn't think would be, you know, when I first heard that at the show, one's first reaction would be, oh, you know, you go the internet to buy blinds? But I guess you can.

Mark: Isn't that funny. Isn't that funny, Monte. Because I wouldn't do it.

Monte: Yeah, I know, and obviously if you're going $40 million a year in blinds, tell us about the design or what really went into the site layout and the conversion process of getting someone to go to a purchase on that site to buy blinds.

Mark: Well, forgive me, I'm like the web masters that are listening. I don't know anything about the layout of a web site other than what looks appealing from a marketing standpoint. I would tell you that we have created a very, very strong web site that attracts a lot of people, and a lot of the business is either type-in traffic or search engine traffic that I've mentioned. We pay for a lot of it.

Monte: Right. What [inaudible]

Mark: But, it's like the direct mail business. You've got to test it.

Monte: Right, right. You've got to keep testing and then do tests even against those tests, and like A-B testing all the time, correct?

Mark: That's it.

Monte: And what kind of traffic comes to that site now? Do you know any stats on it?

Mark: No, I know that we convert between 3 and 4 people per 100.

Monte: Oh, that's pretty good.

Mark: And we started out with 1 or 2, and then 3, and then 3-1/2. And we're getting better at converting; and as we get better at converting, if we go from 2 to 4 and I'm paying $3 a click, I can afford to pay $6 a click. And it would behoove the industry, which it's not thinking about, but the pay per click industry would be real smart at helping to sponsor people to teach them how to do better at conversion. Because the more we can teach the world how to convert sales on their web site, the more money we, as an industry, can make on the pay per click side.

Monte: Yeah. Definitely. That's a great point. No one is really spending time from the big powerhouse PPC companies on helping the domainers, the publishers, the people that are putting their links up, the ad sense on helping them place it right to convert their customers onto purchasers which, in turn, help their advertisers spend more, and then obviously generate more sales for the people that are generating the money in the advertising.

Mark: That's right. It's absolutely right. Now, the industry is nascent in its learning and it will figure that out; but no one in pay per click, per se. It would be best for Yahoo and Google to teach the world, because they're making the bulk of the money, how to convert better. There's software out there that'll teach people how to convert better and how to do things more efficiently on your web site, but that's a very big picture play. For the domainer, it's almost more than he or she can deal with.

Monte: Right, right. It's like most of the domain community, a lot of the big guys even that have the PPC pages running, really they just want to sit back and have it be worry free and just collect a check every month. But there is a whole other part of this business that is the conversion part, that can really increase everyone's clicks on these pages, even the general PPC laning page for a domain parking page, that can really benefit everyone that's involved in the industry.

Mark: You're right. It's an ultimate goal for this whole market. But I think the bottom line is very simple. The PPC is an interesting market, you don't want to pull all your eggs in the PCC market, you want to spread it with owning some names, selling some names, cause I buy and sell as everyone should, reinvesting that money and learning how to develop a real web site around some of the great names. So, the Marchex deal is pretty interesting in and of itself, they're going to have to split out the adult names into the generic names and into the rest of the PPC world, and then decide what they're going to do with each of those names. Do they sell any? Do they sell all? Do they sell parts? And then develop others.

Monte: Right, right. And regarding the Marchex deal, obviously we've heard a little bit more detail about their purchase and their philosophy. What do you think; first of all I want to get your perspective on their purchase and whether you think it was a good purchase in your mind, cause you've been in the space and are doing some of the same things. What kind of return are you looking for in terms of number of years and did Marchex make a smart play given where they were in the market and where they're taking that portfolio?

Mark: Well, the Marchex deal was a very interesting deal. If you break it down, it had a lot of generic names, a lot of good names, and not a lot of trademarks, if any, and not a lot of misspells. The guy had a real portfolio. Now you have to break up the value of your names into two sections. You've got your…I guess three ways. You've got your let's call them, I won't curse again, your BS names that aren't primarily what you want, but they're getting a little traffic for one reason or another. Maybe they have a lot of links, but the words don't mean anything. You've got your real words that are typed in here and there and they make some pay per click revenue. And then you've got your words like chocolates, television, laptops, whatever, that you know you can turn into something big.

Monte: Right. That you can build brand and identity around and turn into real business if you needed to develop them out.

Mark: Right. That's what I had planned to do. And I made all kinds of mistakes. I've let several hundred great names go over the years because I didn't want to pay the renewal fee. Big mistake. I've made plenty of mistakes. I sold one name for $20,000 that I understand is worth over $100,000 or $150,000 a year. And that was under NDA, I don't tell you; but it really hurts to hear that. Another name I bought was MutualFunds and I think I got it for a steal. And I own MutualFunds.com with plans to develop it. But, such is life. You win some and you lose some. What you don't do is hold them all forever and say I'm never selling them, because that just doesn't make sense. You sell them along the way as you get an offer that's worth more to them than it is to you. A lot of people hold names that they want to develop but they're just not getting around to it. And a lot of times if you think I can get $20,000 or $10,000 invest that at 5% or 10%, I can make $500 or $1,000 a year in interest, it's smarter to sell than it is to keep.

Monte: Right.

Mark: Now back to Marchex, I think they had a pretty interesting buy. I think they bought at top, top, top dollar for what they bought; and people cannot and should not expect a portfolio without being as good at generics to sell at 8 multiple. Monte, you know these numbers. If it's a great name, it's going to be a different multiple than a multiple, meaning you're buying it on what it's worth, not what the money is. For instance, MutualFunds is worth a couple million dollars, but it's generating $1,000 a month.

Monte: Are you able to share what you bought that for?

Mark: I bought it for $250,000.

Monte: Alright, so you bought MutualFunds for $250,000 and you are positioning it, you are basically saying that it's worth a couple million dollars.

Mark Without a doubt. And I get that from the following. It's an industry name, it's a financial industry name, the pay per click cost is $2 to $3 per click, and there are hundreds of companies advertising Mutual Funds. They're not saying anything else. It is the name of the industry, and there's a lot of advertising in the industry from a lot of very wealthy industry players. So I actually had it appraised by one of the companies out there and they came back with the same thing. We think between $2.5 and $3 million.

Monte: Actually, I think we actually appraised that for you.

Mark: You might have. The one I'm referring to I don't know was from you; but it was appraised by more than one player. And it has all the makings of as far as a grand slam name, it's one of them.

Monte: Yeah. Definitely.

Mark: Yeah. Business is very similar. We own now, interesting, we own etickets and e-tickets.

Monte: Yeah. Those are great names too.

Mark: That's a good name but I can't monetize it well. And the reason is people are looking for tickets, and the difference is….

Monte: They're looking for airline tickets or tickets for venues?

Mark: It depends. Etickets right now is not what people type in. If you go to the Overture search tool, you will not find etickets as a very heavily typed in number. Tickets is a grand slam, etickets is a great name, but it's a secondary great name; because I won't get people, the buyer I want. I went to Continental Airlines and said I'll give you the name for free tickets. And they said what do we want that for? Well, from their standpoint, that's a very bad move, because people do type in the word etickets from all the airlines and all the airlines would then be promoting something you own. For them it makes more sense. For me, it's sitting in pay per click and I will probably develop it; but on the development side, you then have to figure what am I going to do? You're going to break it up into 3 component parts: venues, like concerts; tickets for travel and tourism; and other tickets that are electronically based, like getting into the local soccer game.

Monte: Right, right.

Mark: It all boils down to real estate. It's the highest and best use. I have trademarked DOMAIN NAMES ARE THE REAL ESTATE OF THE INTERNET™. That is a trademark that we have filed. And we believe that domain names are the real estate of the internet.

Monte: Yeah. Definitely. Hey, Mark, hang on for me for a couple of minutes. We're going to break away for a commercial. I'd really like to talk about where you see this industry going, and some of the investments you're making into the marketplace, and help some of the listening community do better with their domain names so they become more valuable and turn into businesses.

Mark: Okay.

Monte: Okay, hang on for me.

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Monte: Hey folks, Welcome back to the show. I have Mark Ostrovsky on line from Internet REIT. By the way, it looks like some people are having some difficulty with the chat room. Just bear with us. They're looking into why the limits been reached, and we'll get some access to get back on there. But hopefully everybody's listening. So Mark, we were talking a lot about some of the evaluating factors that are going into some of the portfolio purchases that are going on, particularly what Marchex did, and then kind of what you're doing. Let's talk a little bit about where we are today in this domain internet virtual real estate market, and where you see the market going in the short term and in the long term. How much, what kind of legs do we have here in this business?

Mark: Well, I don't think it's a bubble like it was in the past. I think the Marchex deal, again, the business.com deal made the world pay attention to what I had thought; and again I wasn't sure if it was a long-term play or not. So, I didn't even hold a lot of names. But it brought the world a lot of attention that these names have value; and if you sold auto, was it autos? Auto.week?

Monte: Well we sold WallStreet.com, which was the first million dollar name that sold in 1999 right before you sold business.com.

Mark: But then the one after that was auto something?

Monte: Yeah. We sold autos.com to CarsDirect, which was an IdealLab company, to Bill Gross. And that was for $2.2 million.

Mark: Well, I think if you think that the business.com brought you some value, I think you owe me dinner.

Monte: Oh, I'll be happy to buy you dinner. [Laughing] I'm not sure if it did, because our deal was already in negotiations; but you know what it did, when WallStreet.com sold, people thought it was a fluke. We were positioned to sell the name for about $250,000 and had about 6 people in on the auction. Two Wall Street firms, one adult player, I can't remember who else; but the buyer of the domain if you'll remember was a casino. And that domain name back then received between 4,000 and 17,000 unique visitors a day. So what they did is that they had a unique approach. They wanted to spin the traffic into what they thought was, you know, Wall Street-related traffic into a gambling site that people could bet on Wall Street without having to own stock. And so, if you go to WallStreet.com today, that's exactly what it is. And it took them a few years to make the money back, but they got it, and they got it right. You can literally go in and bet on futures, you can bet on stocks, you can bet on what the market's going to do, and it gives you the tools as if you own stocks. Kind of like an etrade where you can track stocks, track trading, track all kinds of stuff as if it was a portfolio site that you owned stock and investment in.

Mark: Brilliant.

Monte: Yeah.

Mark: You know what's fun about this business is you can do anything you want with these things. [inaudible] you can buy them, you can sell them, you can lease them. There was a guy at the show, and I'm going to tell you it was a brilliant play. There was a guy at the show who bought the right, not the product, he bought the right to purchase the name within a year for a 3X multiple. Now this site was making millions of dollars per year. Millions, because he came to us with the deal. And he said, it's making X number of millions. I want the 3X plus a 2x, meaning I want a 5X.

Monte: Right.

Mark: Which basically means he takes that piece of paper, hands it to us, and gets the millions that he would get in the difference between a 3X and a 5X.

Monte: So everybody wins.

Mark: And everybody wins, and the problem with that, and we love the name. It's a great name. The problem is that it's not diversified, and if that one name, something happens to that industry or the player who's buying the leads off of that, it could explode and suddenly your $20 million investment may be worth $2 million. If he had a thousand names and he was going to do the same thing, I could pay him 5 or 6 or 7 or possibly 8 times revenue. I can't do that on one name.

Monte: Right. And you know something, that was a, you talked about kind of the negative part of the portfolio purchases. That was one of the points that came out was that that's one of the positive parts of portfolio purchases is that your spreading your risk across multiple names when you pay that kind of money. So Marchex made the good point was that, hey we would rather put more money into a portfolio of hundreds or thousands of names versus one or two big names, because that becomes risky when you pay that kind of money, even though it could be a top-level domain.

Mark: Agreed.

Monte Yeah. So, [inaudible] stand on in case one bails and blows up on you.

Mark: Diversification is real important.

Monte: Yeah. It's very important.

Mark: And I don't think, you can't come in and say this one name is worth X. Now if you said I own RentACar.com and I want to sell it for $2 million. That's a different game. That's not being valued on the number of hits it gets.

Monte: Right. You're playing an industry identity [inaudible].

Mark: Now I call that a speculative name. Now there risk in speculative meaning speculation is how much it's worth. We all know it's a good name. Speculation is is it worth $1 million, $5 million, or $200,000? And that's what a buyer's willing to pay and what a seller is willing to sell.

Monte: Right, right. Those are the cases where somebody's got the idea they got them, either the money or they're going to raise the money to back the idea, and build it out; and to them it's worth more than what the traffic's getting.

Mark: That's correct. You and I've talked about a few of those.

Monte: Yup, yup. Definitely.

Mark: And you've got a few that I like. I've made some offers today. I make offers every day of names that I like. Some are, most of them are speculative. Not a lot of them are. I'm making $1,000 a month and I want to sell it. Now if you're making, if you've got a name that's making $1,000 a month, $12,000 a year, and you want to sell it for $50,000, I'm a buyer. I'll hand you $50,000 tomorrow.

Monte: Great.

Mark: Go to IREIT.com and tell us. That's our site, is InternetREIT.

Monte: Actually you can forward that stuff to us and we'll help escrow the deal. [Laughing]

Mark: Yeah, well that'll work. The problem is Monte buys too; so Monte and I will compete on the name.

Monte: No, no, no. I'm not going to buy names that are intended for you, that's for sure.

Mark: Nah. And it's fun [inaudible], it's fun because you become friends, and I had more fun at this thing becoming friends with all these people I've known about for years but never met.

Monte: Right, right. Yeah, we had a good time together. The other, you know you asked me about another, what people do with the names when we sold autos.com, which was the $2.2 million sale to CarsDirect. You know, their intent at the time was to completely change their brand from CarsDirect to autos.com. So they spent $2.2 million for this domain name, and were going to change their entire name, like rebrand themselves on this platform; because the name itself got more, was more about what they did at the time. What they ended up doing with the domain name is that they created a duplicate CarsDirect site; and if you go to autos.com right now, you'll see a competitive site to CarsDirect, but it's owned by CarsDirect. And you know why they do that? So that they compete against each other's site to find out what marketing techniques are working the best and what conversion techniques are working the best for the site, and then they continuously try to improve. They do that A‑B testing, but they're doing it on 2 different brands.

Mark: Well, but you know, but there's a bigger reason why.

Monte: Okay, why?

Mark: Because Google will not allow you to have the same site up. Google will allow you to have one company, one name, on pay per click. So Google and Yahoo do not allow you to have, now I may be misstating this, but as I understand it, we can't have 5 companies selling the same product and buying pay per click, because they don't want you to own the first 5 spots. And you can't do that. So if you have a separate brand with a separate income stream and a separate P&L, they'll allow you to do that. But you can't…

Monte: [inaudible] They have this all under the CarsDirect brand and income stream. They way I understood in this particular, but you're right in terms of taking up the slots and having the same brand. There's also content plays you know for SCOs, which a ton of SCOs are on the chat room now. They'll tell you when you duplicate exact content on different name sites and their linked to each other, you get totally dinged for that. It's not something that will benefit you, it actually will hurt you and get you blackballed in Google and Yahoo and stuff.

Mark: Correct.

Monte: But in this particular case, what they did was, they're testing the online initiatives of buyers, basically. They're basically testing their marketing and their conversion techniques, and doing comparison models. So they have a marketing and development team on one site, and a marketing and development team on the other site, and they're just testing offers and different ways they're displaying autos for sale. And they are the same inventory that they're selling on both sites but its presented a lot differently in both places. And it's really advancing their company. They're actually growing in that space and really, I think they have surpassed Vehix and some of the other players now in terms of the top auto buying place on the web.

Mark: I agree. It's a big part of what's happening, and you have multiple inbound domains to compete for the same business.

Monte: Right. For the same business. So, where are we going? Where is the industry going in your mind? What are you looking to accomplish now and where do you see us in 5 years from now in terms of the domain business itself?

Mark: Well, I think we're headed in a very interesting time. I think a lot of people are gonna, I think the industry's going to consolidate. I think you've got 20 major players out there, and our goal is to put all those players, or as many of them that can understand what we're doing together, and go and sell a big package to an end user. It's called a roll-up and it's done in most media industries. And we think this could happen, and we're the guys that are doing it. So anyone who's got a large portfolio might join what we're doing and I think there are others that are trying to pull this off as well. But it'll consolidate and instead of 20 major players, you might end up with 5 because you can get more benefit by being a big player in this industry than being 10 small players. What I would tell those that have big portfolios is, if they go sell on their own and they at a 5, or 6, an 8, whatever their multiple might be, they're actually going to hurt their competitors in joining together. And so it's one of those chicken and eggs scenarios where, if we can get them all, and this is our goal, to get all the big players to understand putting this together and having a $50 million or $100 million annual revenue stream can sell for a lot more money than one or two guys going together with a $10 million revenue stream, because the kind of players we're talking about don't want to buy 10 little companies, they want to buy one big one.

Monte: Right. Now you made some pretty interesting statements during your keynote speech about how much money your organization is throwing into this industry. You made a claim that you're looking to invest some $250 some odd million into this space. Is that still the case?

Mark: Yes.

Monte: Okay. So, and you're backing is from, where's the money coming from, family investment trusts, tell us a little bit about where the money's coming from and why your backers are so interested in this space, or is it….

Mark: Well, I'll explain. The difference in what we're doing, you've got half a dozen venture capital firms all milling around kind of like sharks looking at this industry and buying whoever they can and saying we're going to buy this together and flip it or take it public or do something with it. It is our belief in the way the public markets are that it would be a whole lot easier, better, faster, cheaper, and smarter to put them all together and sell it to a Google, or a Yahoo, or a Microsoft, or an AOL, or a Barry Diller. And the reason is, again, they're going to come into this market and roll all this up at some point. We think we can do it better, faster, quicker, cheaper, and smarter than everybody else.

Monte: Right. One reason is because you know the players, you know the space, your know the market, and you probably know how to position it based off of your experience.

Mark: Well, it's a couple of things. One is I have a somewhat credibility in the market. I've done $100 million in deals of my own. My partner in Houston is Bob Martin, who is an investment banker and has done a lot of extra capital work on the buy side for major Fortune 100 companies. And our partner in New York is an investment banker-type, I would call him, an investment guru who handles money for several billionaire families in New York. Those families are interested in investing and bringing in other families so we don't have to through the same headaches that a VC would put a buyer through. We're much faster, we're much cleaner, and we can do a deal as quick as anybody. So speed is important to a domainer who's got a deal and needs to do a deal. We're not playing with a single name worth $100, we're playing with a name worth $1 million or a portfolio that's worth $10, $20, or $30 million. I guess a portfolio worth $1 million or two would get our interest as well, but certainly not the kind of time that the big ones do.

Monte: Right, right.

Mark: The money comes from those kind of players and hedge funds in New York who understand the space and see there is a real potential here over a 2 or 3 year period to do a very nice company out of what we've got.

Monte: Now are you looking to buy the domain names outright and just tell the owner to walk away, or are you interested in having them stay vested into the ongoing concern so that they're not looking back and saying God, I shouldn't have sold out like that, I should have kept a little piece? Are you okay and is your philosophy to keep the owner engaged somewhat so they get to feel the benefit and the reward of the purchase in the long run?

Mark: It would be, it's a great question. I would love it if you'd sell me your whole company and walk away; but from an investment standpoint, I don't believe that's smart. The same way I would say don't hold it all and sell none of it, the smartest way is to sell us 60% or 70% of your portfolio, and take the other 30% and roll it into the bigger picture; so that, when this thing goes out, the remaining 3X multiple could be worth 6X in a very short period of time. So in essence you've sold out, let's say you've sold out for 7X and you took the last 2X or 3X of 7 and flipped it in. You could double that money or get some larger percentage if not double, depending on the portfolio, it's a negotiated amount in the bigger deal.

Monte: So, when you say flip it in, are you saying put the money back into the pot?

Mark: Yeah. I'm saying if you had $100 million coming your way, take 70 , leave 30 and hope the 30 can turn into 60 in two years.

Monte: Oh, I see. So that's how you stay vested in the venture then.

Mark: Absolutely. It's a brilliant strategy for taking a lot of money off the table and rolling in what you have to play with into the deal.

Monte: Right. And you're still walking away with stuff in your pocket. Well that's basically what UltimateSearch did with the Marchex deal. They sold out for the total price was $164 million, they took $155 million in cash, and kept the $9 million in the ongoing concern so they could always look to double or triple that money over time.

Mark: Something like that, but I think they should have taken more on the [inaudible], although the difference was this is a public company already and the stock can go up or down and they're getting it at today's value, whereas in our deal, we're rolling it together and we already have a company. By the time we're finished, I could take that company public and double it. So if I had $100 million, I could take it public and probably, and I'm not saying it will, could probably take it public at $2 million; but if you roll it together and put it up the way we're planning to do it, it may get 3 or 4 times that. And so you get a much bigger multiple if you sell it to an end user. Once again, are you better off selling a domain name itself to an end user or to a middle man. If you go to a venture capitalist, you're going to a middle man. If you do what we're saying, I approached this whole process, it took 2 years to set it up like I was a domainer wanting to get the best deal. So, I don't know if today's value is right, I don't know if tomorrow's is right, but if I can get a lot of money off the table and put the rest into a package that could double, triple, or more, then I think I'm getting the best of both worlds and I will have to wait and see.

Monte: Right. So you're kind of actually, your position is kind of um, your proposal is actually a middle play between a VC and the end user, which actually takes some risk off the table and has some end user payouts, but with some VC-type money.

Mark: That's exactly right.

Monte: So you have a good combination of both, which is a wise move.

Mark: I think that's what we set up, what the domainers want, not what the VCs typically do. I've sold out to a VC. I don't think that's the smartest way, because it was [inaudible] for a lot more. I've sold out to an end user; and the minute he put it on his books, it was worth more to him than it was to me. I think the real play is sell 60%, or 65%, or 70%, keep the rest in the deal; and hope that the people you're selling to know what the hell they're doing, which we certainly do.

Monte: Right. Now are you, we're about to the end of our show and I'd like everybody to, I think a lot of people got a lot of stuff out of this short interview as it was; and so I definitely want to have you back on sometime in the future; but one thing I would like to have everybody walk away with at each of these shows that I do is, you know, some good tips, some good things that they want to get out of the interview that they didn't know before and that can help them be better business people in the domain business and, you know, help them out so that their domain names become more valuable, even to you as a buyer and to them as a seller. Can you give us some tips about what domainers should do, what some of the folks that are listening should do to help build up the value of their portfolio so that it becomes attractive?

Mark: Well, I think without a doubt, cash, if you're trying to sell on a basis of cash flow, you want to bring in as much as you can. If you do nothing with it, you're not going to have as much, your next step, step 1, is to put it on a pay per click basis and see what you can get in by parking the name. I like what you've set up at Moniker and Moniker.com, where you can give them the name and they'll test it on 5 different systems and let you know which one's monetizing your name the best. I think that's brilliant.

Monte: Right. That's through TrafficClub that we've just launched.

Mark: It was through your TrafficClub. I think that's brilliant. The next level is to develop a real site with real content and see if you can get more business coming in, but that's a I'm going to invest some and I hope to get back a good return on that money, which will sell your name for more than that. If you have a grand slam name, like MutualFunds, or Cars, or Trucks, or Sunglasses, it's a different game. Your point of holding is not worth, it will very seldom reach the value that it's worth irrespective of pay per click, and I had that fun argument with the guy running the show last week. Because he said why would you ever sell? Well if someone has a name that's worth $2 million and he's making $50,000 a year, it's smarter to sell for $2 million because the $50,000 isn't going to reach $2 million value any time soon. Take the $2 million, invest it at 7%, and get back $140,000 a year on the $2 million as opposed to holding it for $50,000 a year in pay per click. So, there's absolutely a value of every name, and to say I won't sell any is dumb, and to say I'm going to sell them all might not be the right answer either.

Monte: Right, right. So are you, now when you're looking at portfolios, are you looking at built-out domains or are you looking at domain names that are just in their infancy stages, or a combination of both?

Mark: Combination of both. I've got names that are stagnant, and I of course put them immediately on pay per click. I bought some names recently that the transactions about to close, and they have all kinds of content, 800,000 page views a month, uh 800,000 uniques a month. No advertising. He has no advertising on the site. So, that one I like, not to mention the names are decent. I've then got names that I bought that have real web sites on them, and I'm hoping not to deal with that and I can outsource the day-to-day operations, and make the portfolio a combination of those three. We also got an offer that came in. All affiliates. Got some decent names, all affiliates making $1 million a year.

Monte: Right.

Mark: So, is an affiliate link that makes $1 million a year worth the same as a name that has no affiliates and it's making $1 million on pay per click? That's a tough question. It depends on the name. And a lot of this is still gut reaction. So quality names are always worth usually what you pay for them if you're not going crazy. You don't pay $20 million for TV.com but then again, it's certainly worth more than $1 million, so it depends on the name.

Monte: Right. Well, that's interesting. So how would you like people to, uh, of course there's a lot of people that are listening and a lot of people on the chat that want to see how they can get in contact with you to get them, have you look at their portfolios or their domain names if they're interested in selling.

Mark: What we don't do is someone comes to us and says here's a portfolio, what will you pay me for it. What we do like is go to IREIT or InternetREIT.com or Ireit.com and follow the instructions. It's very simple. Give us your name, tell us what your portfolio consists of, you know, what kind of revenue it does, and what you're looking for; and we'll get back to you fairly quickly. We've done some deals in 2 days and some take 2 months. But, if you want to sell out completely, we'd love that; but I think if you've got a portfolio that's doing $1 million or more, you want to ride the wave with us, because you'll probably make a lot more money and we don't have to put as much cash into the deal.

Monte: Right.

Mark: It's a smart way to do it.

Monte: It is smart. Hey, I wanted to get your take on one thing I didn't get to ask you; and we always try to ask a lot of the big domainers that I have as guests on the show about what the feeling is about the other extensions besides .coms.

Mark: I love .info.

Monte: You love .info?

Mark: I think .info's the next big play. I have a large investment in .info.

Monte: And why do you feel that way? That's interesting.

Mark: Because I think people go to the internet for information. They either go to conduct business or to get information. And for business, they know .com. So, I would say my names are .com first, .info second, .biz third, and the rest are below that. I think the upcoming announcement of .xxx, it's interesting but it's not going to do at all what they expect it to do.

Monte: Right. Well, it might make it easier if you're going to be one of the lead registrars on the .xxx; and there are some people that are asking about it. I'll have a lot more information about it next week.

Mark: Oh, you mean Moniker's going to be a registrar for that?

Monte: Yes. Yeah. We're going to be one of the lead registrars for it. I'm supposed to get a Q&A from Jason [inaudible]. I was supposed to get it before tonight's show, but he's in Italy; and I'm on my way to a show where we're going to be actually answering all the questions on .xxx on behalf of the Registry itself. And it's been a long-fought battle in terms of getting that extension approved; but for the adult community, it's going to be a very, very good play.

Mark: It's an interesting play. I think there will be more coming out, but it's going to take a while. I think once people do the .xxx, or the .info, or the .biz, I think they're all going to be worth a lot more. If you don't have a lot of money and you want to play this game, let's call it 2.0. Domain names 2.0 will end up being the next extensions. The .com's will always be great, but I think the next extensions will be good, and down the road in twenty years, whatever you have .com will only tell people how long you've had it. It's not going to say jobs.com is any worse than jobs.jobs.

Monte: You feel that way?

Mark: Yeah. I do. I think [inaudible].

Monte: In twenty years you know you could, you know what you could use as an assimilation of that is the toll-free numbers. Back 10 years ago, one would say 888, you know when you had that toll-free extension was a secondary extension or prefix to 800. Now they're equal.

Mark: It's still, you still dial 800 even when it's 877 or 866, whatever it is; but they're coming on stronger and, if you need one, you go to the new extension. I think over time, if you look out twenty years and look back, .com will say they must have been in the business in the first 10 years of the internet, because the guy that has sunglasses.info doesn't say he wasn't in, but it's just going to be generic. I think what will really make it take off is when someone takes a .info and either pays a lot of money for it or starts advertising it aggressively. So people do type .info and then the .info's will take off.

Monte: Right.

Mark: So whatever extension, when a major company comes into the game and uses that as their moniker, which I thought you'd like that plug. [laughing]

Monte: Of course.

Mark: And I own a ton of .info's, so I'm waiting for that to happen aggressively.

Monte: Right. Well, just to put another fact out there, with the millions of people that are getting on line every day, there's not enough extensions for .com, so you're actually right. In 10, 20 years, with the millions and millions of people getting on, and getting on at a younger age, there has to be various extensions out there. And so those, my professional opinion and personal opinion on extensions, are that those that are shunning them today, you look back in 10 years and you'll see the biggest .biz sites, and .info sites, and .job sites, and all these, and the .travel sites, kicking ass. You will, because all the .com's are gone and the competitors are now going into the other extensions cause the .com's are gone.

Mark: Absolutely.

Monte: So the market will go into those extensions.

Mark: You know darn well when a major company takes a name and puts in .info and advertises that on the Superbowl, from then .info's are accepted. And until the world sees someone else doing it, they're all waiting. So as an investor, I would go after the .info's first and foremost and then go down the list with what you think is valuable.

Monte: What about, so your take on .xxx is, of course, it's for a limited market. Are you going to be investing in any of that .xxx?

Mark: You know, I might. I really don't play the adult game, but I haven't decided if I'm going to play or not. They're going to be, according to what I'm told, $60 a pop. So, I'm not going to own a thousand of them; but if I ended up a dozen or two dozen, I might. But I'm not going to be in the business. I would sell them.

Monte: Right. Now what about the .jobs and the other extensions. What about this .moby extension that came out. I mean it's going to be for limited use, but still some of these extensions have very limited use. I had the .travel guys on a few weeks ago, and they're going through a very scrupulous application process to verify that you are, in fact, in the travel industry. There will be no outside domain investors per se owning .travel names. Only industry folks will be owning it, according to them. So, it's on a limited release for that community only. That's a much different approach than like what .org, .info, and .bix decided to do when they broke out into their own registries, which [inaudible] open to the public.

Mark: You know what? They're all going to be out there. My first company that I sold to Network Solutions was I.D. names and that company registered your company's name in 116 or whatever 200+

Monte: …countries at the time. Right.

Mark: Right. So they're out there and you and I don't use .nu or .ru in Russia, or .ja in Japan, but people over there do use them.

Monte: Well not only people over there. Actually a lot of corporations here in the United States have brand coverage globally. You know if you go to Google and you go to a Yahoo and EBay, they're covering themselves across all 200 countries obviously cause people are entering their portals in those countries in those languages. So from a corporate domain perspective, they're covering their bases by registering those country code extensions. Now, when you're in those countries, the loyalist, the folks that are citizens of those countries are probably typing in their country codes almost as many times as they're typing in .com names.

Mark: More so.

Monte: Yeah.

Mark: Yeah. More so.

Monte: Yeah.

Mark: So you've got those, those names are out there and there are going to be a lot of others. Okay? There's just going to be a lot of other names, and it becomes a question of how long are you willing to put money in at a non-liquid basis for a long period of time and will you get your money back?

Monte: Right.

Mark: It all depends. If you've got money to play with, then play and diversify. Don't hold everything, don't put everything in .com, or .net, or .org, or .info. Diversify. And I think they're going to be big. I think .info is going to be the biggest of the new ones, I really do.

Monte: Well, that's great advice; because we do have a couple good .info believers here and a couple of the big domainers just don't believe in them yet. Some of the guys just don't see the future in them, but that's because lots of times you're looking at today and the next couple years. But you are right, when you look back 10, 20 years from now, there's millions, many more millions of people on line and there are no more .com names. So what are you going to do? Of course you're going to use another brand, and yes the entrepreneurs of the future are going to build their brands on other extensions.

Mark: I don't think there's any question about it.

Monte: Yeah, definitely.

Mark: I really don't. I think that's a good plan. I think that's what they're going to do, what I'm going to do, and if you want to invest, you know, a great name for $500 in the .info versus a mediocre name in a .com, I like the .info space and think that's a better way to get into round 2 of this marketplace.

Monte: Yeah, I agree.

Mark: I like the .info's by a long shot.

Monte: I agree. Well, Mark, I really appreciate your time. This is a great interview. We ran over about 15 minutes, but I thought it was worthwhile; and I think a lot of people that were listening and in the chat got a lot out of it. I would love to have you back on sometime in the near future if you have the time for me.

Mark: Any time.

Monte: Great. And, of course, you and I will be in touch on several things that are going on in the industry. And I just want to thank you again for your time. Those of you listening, stay tuned next week. I hope to have a lot more detail on the .xxx extension. Like I said, I was supposed to have the full FAQ list from the Registry that's handling that this week; but I should have it next week. I'll be doing the show from the road next week. As a matter of fact, the next two weeks. Coming up in two weeks, we'll be at WebMaster World and speaking on a panel there and we'll be doing a live broadcast from New Orleans as well. So, those of you on board and listening, thank you for listening to the show; and we'll see you next Wednesday, same time, same place. Be the master of your domain on Domain Masters. Take care.

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