On the Money! With Steve Pomeranz Interview with Monte Cahn
10/18/2006 - Monte Cahn
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Steven: Monte Cahn is the founder and CEO of Domain Systems, Inc., which is the parent company of www.TrafficClub.com and www.Moniker.com. He also hosts an Internet radio show called Domain Masters. And the business we’re going to talk about tonight is the domain name business. This is Monte’s specialty. He started in domain names in 1996 and helped start the first online domain name brokerage business as well introduced the first live domain name auction process. So if you’ve got no idea of what I’m talking about, let’s meet Monte Cahn and find out how all this stuff works. Welcome to our show, Monte.
Monte: Thanks, Steve; happy to be here.
Steven: Monte, let’s start from scratch here. What is the domain name business and how did it start?
Monte: Well, a domain name is what most people refer to as a URL, which is an address on the Internet where people find content and websites. It is a mapped address through IP mapping, similar to a physical address where you have a physical address location, only it’s on the World Wide Web.
Steven: Yeah, I think we’re most kind of familiar with putting in a name if we’re looking for a specific site and then that specific site coming up; that’s the domain name.
Monte: That’s the domain name. And the domain name business came around when the military started using email addresses through the Internet and started putting in certain addresses to get to their ultimate destination. This is back in the late eighties. Domain names became commercially available in the early 90’s; some people will probably recognize a company called Network Solutions which used to have a monopoly. It used to be like the AT&T of the domain world before that monopoly was broken up and the domain name business now consists of domain name registrars, such as Moniker.com, the company I work for. Some people might have heard of GoDaddy and Network Solutions. Other types of businesses are the domain sales and brokerage businesses, where we sell domain names just like real estate is sold in the physical world. Those domain names are virtual property where physical real estate is, you know, a house or a piece of property at a physical location.
Steven: But it seems important to look at this, to conceptualize this, as some type of real estate that’s virtual versus something that’s tangible, but I think the word real estate matters here. Just take a second to describe its considered real estate.
Monte: Well, its considered real estate because its an actual address and location on the World Wide Web, similar to what a physical address is. It’s a place that you can type in and go to and get information, buy products and services, or communicate with someone else; similar to where you would go physically to do that when you drive your car.
Steven: Sure
Monte: Its very synonymous to real estate, where highly trafficked websites such as Google, Amazon, eBay and so forth, get millions of unique visitors coming by their address every single day to look up things and get information.
Steven: Yeah.
Monte: And so we’ve always looked at it as virtual real estate and that we certainly treat domain names as assets. And we’re one of the few organizations in our industry that do that, but now it’s becoming a nice investment vehicle for people as a domain asset.
Steven: Well, you know, I think this is something that many of us intuitively know about. I mean, we put key words into Google, right? And other search engines and websites rise to the top of the page. If you go to Google, you see that they have advertised sites on the search page and then when you click on the desired link, you know, that link or that page that you go to may have advertising as well. Is this where the revenues are generated or is there something more?
Monte: Well, there’s a lot of different things. Interestingly enough, the latest statistics show (this is a follow up to a study that was done about 3 or 4 years ago by a company called Webside Story – they do analytic analyzation on how people use their web browsers and kind of type in things into the URL line) – in 2001 a study was done that said that 47% of people ended up at their ultimate destination by typing in the direct domain name into the URL line.
Steven: Mm-hmm. So, give me an example of that, would you?
Monte: Well, just like going to Amazon.com and not having to go through the search engine because you know where you want to go.
Steven: Okay.
Monte: Okay? So most people back then, or just under 50% of people, typed in that URL address directly into the URL line. Now with the resurgence and the popularity of search engines such as Google and Yahoo!, you would think that a lot more people were going to search engines more so than typing in their domain name [inaudible] ultimate destination to get to where they want to go. But the latest study that just came out in the spring of this year, shows that now 60% of people are typing in the domain name directly in the URL, and not going to the search engines because its their ultimate destination.
Steven: Now, are people also typing in search words in the domain line, hoping that they’re going to hit some kind of a site?
Monte: Yes! A lot of people confuse search engine and the search terms with the domain name and now a lot of the browsers are smart and they get you to that ultimate domain destination as a result of that. What that’s doing is its creating what’s called “direct navigation,” or making the direct navigation part of the domain business very, very valuable. And there was that example that you gave where you can type in a domain name that may not be a company but they might serve ads underneath because it’s linguistically driven by the keywords in the domain name above and then you’ll see ads below. For instance, if you typed in “New Jersey Auto Sales” – it may not be an actual site, but down below it would be linguistically driven advertisements from Google or Yahoo! or other search engines or other advertisers that help you get to an ultimate destination anyway.
Steven: Yes. So that’s kind of the new layer (at least new to me, anyway) that you’re talking about. It’s not just putting in names in a search engine but its actually putting “New York Auto Sales” say into the address line and while there may be no particular website attached to that name, someone owns that name, has built a small website that will get you either to some destination or a group of places that relate to that – is that correct?
Monte: That’s correct. It’s called “domain parking” for direct navigation. And that’s what’s actually helped the domain business really establish a huge value today.
Steven: Mm-hmm.
Monte: As a matter of fact, 10% to 15% of all revenue generated in the Yahoo! and Google search business, and this is billions of dollars, is generated through that direct navigation business now. So that domain name is extremely valuable. It is truly an asset today.
Steven: Now, I know that you participated in the industry’s first domain sale for over a million dollars with the sale of WallStreet.com and also the industry’s first two million dollars plus sale domain of Autos.com. Tell us about those two events.
Monte: Well, the WallStreet.com event was a domain brokerage contract that I established and helped with another business to help two brothers that owned this domain (one guy used to work on Wall Street and he bought this domain name as kind of an investment back then for his buddy that lived in Arizona) and they syndicated us and sanctioned us to help them sell the domain name. We created a private auction scenario with six rounds of bidding and about 20 qualified bidders stepped up to the plate; everybody from people in the adult industry to people in the Wall Street and financial industry to actually online gaming casino business. And ironically, a casino ended up buying that domain name as the highest bidder . . .
Steven: A casino . . .!
Monte: for 1.03 million dollars.
Steven: That’s ironic.
Monte: And what was even more ironic was that they initially established a website that helped people bet on whether Wall Street went up or down . . .
Steven: Okay.
Monte: . . . instead of having to own stocks in that company.
Steven: [laughs] That makes sense. Now, have people been buying up websites for a long time? You know, are there any good ones left?
Monte: There are some good ones left, especially in the aftermarket and that is the other side of the business. There’s, you know, a lot of the good .Com names have been taken – there’s 90 million domain names registered world-wide today; actually it’s just over 100 million now. That includes all the country codes, all the .Com, .Net, .Org, .Info, .Biz; but there are lots of opportunities that are using domain names and terms and longer length, so . . . you have over 24 characters to create your domain name. And with search engines, you’re now getting more geo-targeted and more specific in your search. That’s what’s happening with domain names. So you could say “New Jersey Auto Sales” might be actually more valuable to somebody than Autos.com today, because they have a dealership in New Jersey.
Steven: I see. Oh, listen, we’re talking about the domain name business. My guest is Monte Cahn. He’s founder of a number of companies which work in this business, including appraisal companies, is that right? Do you have a company that appraises websites?
Monte: Well, Moniker.com actually appraises domain name websites and domain names. . .
Steven: Domain names, right . . .
Monte: . . . to help establish values, similar to a property appraiser who would come to you house and appraise your property. And we’re using a previously established and current established database of current and previous domain sales for the comparables, along with about 18 other metrics that we measure, including web search popularity, presence, how many times that domain name appears in search terms across the whole entire Internet, if it’s a .Com, .Net, .Org., if it has traffic, does it generate revenue, and so on.
Steven: I read about a company which started a real estate investment trust, that’s why I wanted you to kind of hone in on this real estate point. But this real estate investment trust is created just to buy domain names. Can you tell us anything about that?
Monte: Yes! There’s all kinds of Internet type [inaudible] being created all around our business today, because folks are creating these investments and buying portfolios of domain names now and helping those domain names, helping that portfolio increase the value by aggregating that traffic that I talked about earlier, where people were typing those domain names into the URL line . . .
Steven: Yeah.
Monte: And then having a great position for larger companies, such as a Google or Yahoo!, to potentially buy those groups of domain names at one time. We were involved in a very large transaction of $164 million, a company called MarchX
Steven: Yes.
Monte: They purchased a large portfolio of 80,000 domain names that were very similar to that example and now they have a very controlling stake in the ground in terms of their Web presence and the type of traffic they generate for their advertisers.
Steven: Well, I mean, there’s got to be a reason for any entity to pay $164 million and that . . . the main reason’s got to be some return on their investment. So I guess these 80,000 sites have already been generating some significant revenue before they would put a price of $164 million on it, right?
Monte: That’s correct. In this particular case, that 80,000 domain names was generating about $17 million a year in profit.
Steven: Right.
Monte: In pure generating traffic and advertising revenue. And what they did is they were able to actually leverage their purchasing power and their negotiation power in terms of contracts and were able to get a higher revenue share on that advertising dollar when they bought that property. And now that return on investment for them went from about 8 years down to about 5 years and plus, they’ve now spun out several local type portals out of that group that have now been pretty popular in the industry.
Steven: Yeah, there’s ways to kind of squeeze excess value. The one thing that I read, for example, are the aggregate categories, like the travel category or the health category. They have all these domain names that may fit and they can bring traffic, they can cross sell from one site to another, or something.
Monte: That’s correct.
Steven: Okay. Let’s get back to earth here. How does one go about buying a domain name?
Monte: Once can buy a domain name by going to a registrar like Moniker.com. Or go to another registrar and you can check the availability of a domain name to see if its available on the site.
Steven: Yeah, so they come to Moniker.com and then there’s a box for them to put in a domain name and they can see whether it’s registered already and available?
Monte: Yeah, to see if its registered already and they can check which extensions they might be interested in and in our system, we actually provide not only names that might be available but also names that are available on the aftermarket and that’s the resale market. So lets say you type in that NewJerseyAutoSales type domain name and it was already taken but that gentleman or that lady had that name up for sale – you would have the opportunity to place a bid on it through us.
Steven: Yes, so I was going to ask you how do sellers and buyers get together then?
Monte: They come together through our website. We’ve created marketplace where they’re able to buy and sell domain names and negotiate with each other.
Steven: Are there other resellers? Or, I guess you’re acting as a broker – are there other companies like yours out there?
Monte: Yes; there’s about three or four major companies where you can go and get the domain names in the after market and then another great way is in a live domain auction format, which we’re actually holding at the end of this month on the 27th of October right here at the Diplomat Hotel in Hollywood..
Steven: Yeah, I want to ask you about that. I know that your annual conference takes place in a few weeks. Tell us a little bit about that conference. What happens there? Who’s going to be there? And so on.
Monte: Well, the conference was created by two local gentlemen, Howard Neu and Rick Schwartz. Rick Schwartz was one of the original domainers back in the early nineties that actually started buying domain names, because he felt like we did, that it was real estate as well. He created a board and a forum where people were talking about their domain properties and trading and buying and selling. And about a year and a half ago, he created a conference where all these folks could get together and meet for the first time. Well, that conference has exploded. There’s now about a thousand people, all in the domain business: people that are buying, people that are selling, people that are the foundation companies, the registrars; all the big businesses in our business, in our industry, get together on two or three different times during the year; learn in seminars how to be better businessmen, how to provide better monetization opportunities for the domain properties . . .
Steven: Hm-mm.
Monte: . . . and the big feature of these conferences now is this live domain auction, which we helped create, where there’s actually a market for the first time established in a room for domain name values and buyers and sellers actively participating and big names go for millions of dollars sometimes.
Steven: Yeah, I think that’s going to be fascinating. So, when is it? And is there an entry fee?
Monte: The conference is from the 24th of October through the 28th of October, at the Diplomat Hotel in Hollywood; the Westin Diplomat. There is an entrance fee, but folks can go to www.TargetedTraffic.com and fill out an application. It is an invitation only conference but like I said, there’s about a thousand or fifteen hundred people now, all part of this organization and its growing every single year, so there’s a good chance that if you’re qualified, you can be invited and be able to participate.
Steven: That’s terrific. I know that I’m going to be going down there and meeting some of the other principals and kind of following up. And actually, the week after we’re going to do a segment to see exactly how some of these auctions and see how this business is going.
Monte: We’re predicting about $5 million in domain sales at that conference and that’s an incredible feat.
Steven: Yeah; how is that compared to the last couple of years?
Monte: The last auction that we held was in Las Vegas at the TRAFFIC West Conference and we sold $2.1 million worth of domain names; and the first live auction we did was a year ago – the annual anniversary to this conference that’s coming up – when I first created the concept, and we sold about $450,000 worth of domain names.
Steven: This is a new, kind of burgeoning, area. It seems like a growth business to me. I thought we would bring it to the public in our entrepreneurial spotlight segment. Monte Cahn, thanks for joining us and I’m sure we’ll talk to you later.
Monte: Oh, thank you very much, Steven, and it was a pleasure speaking to everybody on the phone.
Steven: Take care; bye-bye.
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