"Investing" in domain names

[Mark Jr.]

Those here who know me know that I come from the internet space, kind of the antithesis of "value investing". But, this is my circle of competence, so I look at things within it from a value perspective as much as possible.

 

I'm trying to decide whether to launch a standalong blog: http://www.webvalueinvestor.com or just a new channel within my existing one, but anyway, here is my inaugural piece about domain "investing"

 

http://www.privateworld.com/archives/240-The-Domain-Aftermarket-Redux,-Are-Domainers-Investors-Yet.html

 

[ Brief synopsis if you want to save a click is that very few "domainers" are approaching things from an actual "investment" approach. The industry is driven by speculation. The concept of the "category killer" domain name is debunked. The real reason a few select companies made untold fortunes in the space. And a couple of gems in the rubble, undervalued domain companies, one of which is even publicly traded ]

[collegeinvestor]

have you looked at bnx. its banks.com stock. the own irs.com and banks among others.

[Mark Jr.]

have you looked at bnx. its banks.com stock. the own irs.com and banks among others.

 

I haven't looked too closely at it. They spent somewhere around 11 million dollars to acquire their domains and they were losing money like crazy (looks like they swung to a profit last quarter, but still never really got me interested)

[Mark Jr.]

Ok, I took a bit more of a look at bnx, a.k.a banks.com tonight.

 

In 2005 they paid nearly 12 million for the irs.com domain, and a couple years later they ran into trouble with the government because I think the real IRS didn't like it. People were typing "irs.com" into their web browsers, ending up on their site (not the government irs.gov site) and then signing up for commercial products. So I think the government position was that users were being misled - there was some legislation pending, never passed. In the end, they shutdown the irs.com website and now redirect it to banks.com/taxes

 

Their searchexplorer.com property does nothing more than regurgitate paid search listings from a PPC feed, there are no organic search listings at all. There is nothing compelling to keep users coming back there, I can't imagine how it sustains any traffic at all and my guess is that they would have to employ keyword arbitrage to keep it going. Oh, here we go:

 

"We generate revenue on these sites primarily via traffic generation and search engine marketing efforts"

 

Keyword arbitrage is the practice of buying up cheap keywords on one search feed (i.e. google) and the redirecting the traffic to your own web pages, or PPC feeds where you hope to convert enough clicks at higher payouts to make it profitable. I'm not a fan of the business model as you are constantly subject to the whims of entities external to you, namely the search engines you're arb-ing. I've seen entire companies go up in a puff of smoke *overnight* after getting banned by google, for example, from doing this (anybody ever heard of Geosign?)

 

I note their current search partner on the PPC feed is InfoSpace, a distant also-ran in the search space, as both Google and Yahoo have taken steps to drive out the keyword arbs.

 

They also use keyword arb to drive traffic to their look.com property.

 

As for banks.com, it just looks like a combo scraper site / MFA (made-for-adsense) site for me. You see these things all over the web. Most of them are auto-generated, but it looks like they have a couple of in-house writers to generate some original content.

 

The problem with the banks.com website is that it's written for search engines, not people. Everything in the page, from the layout of the content, to the placement of keywords, labels, headlines, it is geared primarily to rank high in search engines for financial terms (which yield higher PPC and CPA payouts), so that users click on the links when they are searching for something, and when they land on a banks.com page, the emphasis is purely to convert that user into a click, or a CPA action (opt-in), etc.

 

Problem with this approach is you basically only get one shot at a user, because the website is never compelling enough to bring them back. If you manage to collect their email, there will be follow-on marketing efforts, bordering on spam in some people's mind, and it's just all a treadmill and a numbers game with a lot of factors that can suddenly shift against your favour at any time.

 

I think they originally hoped for a natural lift in the traffic to these properties via the natural "type-in" for banks.com and irs.com, but as I've said in previous writings on my blog, I believe type-in traffic to have entered a period of secular decline, for reasons too numerous to mention here.

 

In other words, I see no moat around *any* of these properties. Sure, banks.com is a premium domain, as is look.com but it takes more than that to run a successful business.

 

I note they're eeking out a profit but I did also notice that they sold off some non-core domain names (camps.com, summercamps.com, etc) so I'm wondering if the profitability comes from one-time, non-recurring events like selling off domain names (that they may have bought for god-knows how much, sometime earlier)