Domains – UtilitesDB

What’s in a Name?

Buying domain names of real live people can be manna to the unscrupulous.

Anne Fognano is not a newbie in the online marketing world. She has run a successful affiliate business since 1997. She’s the force behind CleverMoms.com and has registered a raft of variations on the "clever moms" domain name to safeguard her valuable brand. But she never bought the domain for her own name – AnneFognano.com. When someone else did, all hell broke loose.

While domain squatting is as old as the Internet itself, the practice of buying a dot-com name and waiting for someone with a bag of cash to offer to buy it from you has lost some of its cachet – especially since pretty much all the good common names and brand names are taken these days.

However, this hasn’t stopped some folks from getting creative. Many call it "domain extortion," where someone buys your name, sets up a rudimentary Web page of you with dummy copy and then contacts you to sell you services such as Web design, hosting and other services for bloggers. This is what exactly what happened to Fognano.

"Not much I can do about it," she says, "because I don’t have my name trademarked." Since she is not a "public figure" like George Clooney or Paris Hilton, it makes it harder to make a case that her image has been co-opted for monetary gain. The FBI and her local District Attorney’s office in Virginia told her that unless she could prove that someone was looking to profit from her name, they could do little. Besides, they told her, the payout would be so little that it wasn’t worth the authorities’ time.

Domain parking in general is fairly big business, thanks in part to the popularity of PPC programs. Anyone can buy a domain that is either a name someone may type into the address bar or is a misspelling of a brand name (called typosquatting) and put nothing but Yahoo or Google PPC ads on the sites. The ads on these types of sites actually generated $400 million in sales in 2006, according to Susquehanna Financial Group, and looks to hit the $1 billion mark by the end of 2007.

Updated Version of Cybersquatting

In the domain extortion variation, someone grabs a name of a living person who has a blog or is an affiliate marketer for as low as $6 or $8 per name through an inexpensive domain registry such as GoDaddy.com. If the person that bought the domain offers to sell services to the namesake on top of giving them back their name, there’s nothing illegal that’s been done, according to authorities. In addition, the person who registered your name generally gets more than his $8 if you decide to at least take your name back.

In Fognano’s case, she decided to fight back. Going to the popular online forum for affiliates, ABestWeb.com, she posted her dilemma and let the members know that a "blog consultant, John Kitovitsu" of PurchaseMyBlog.com emailed her to show her what using his services would look like and that she could buy the domain from him. ABestWeb members, a large, vocal and tight knit community of savvy online marketers, suggested sending him a "cease and desist" letter to remove the content, which include her image and an article taken from Revenue magazine. They also suggested bringing him up before the Internet Corporation for Assigned Names and Numbers (ICANN) and even paying him a personal visit. ABestWebbers also helped her document all the text and images on the fake site and tracked down the IP address for the hosting company serving up the site. They also determined there was no business active on the Web using the PurchaseMyBlog name.

Not a Crime?

Fognano called the local police, the FBI, her local District Attorney and even the dubious website’s hosting company (in Germany). Since "Kitovitsu" had also set up a WordPress blog page for her without her permission, she got WordPress to pull down the page for violation of their terms of service. Fognano said the FBI pulled the site for her and said it would put an "FBI investigation tag" on the website. "I actually didn’t care that much," she said. "How many people are going to type my name [directly into the address bar]? But only when they use my name and image is it a big deal."

Thus far, the authorities she contacted are not calling this a crime. New York State recently signed a law providing a $1,000 fine per day for violation of people registering domain names of known people purely to sell them their own names for profit. The law goes into effect in early 2008. While it is not known if other states will follow suit, the terms may be just vague enough not to quash the practice entirely.

"It’s almost like they are taking your identity," Fognano says. "It seemed strange that it isn’t a crime."

Domain name registrars say they can only do so much. In 1999, the Ninth Circuit Court of Appeals ruled that registrars, such as Network Solutions, could not be held liable for registering a domain of a "known trademark." Network Solutions – which used to be the exclusive registrars of domain names in the U.S., says it used to purge "domain speculators" from its registry, especially those who registered thousands of domain names at a time. But it adds that most domain names can only be reclaimed if those who registered the names do not pay on time.

After inquiries were made, Fognano heard again from "Kitovitsu." "It’s not our intention to pose as you or use your blog for material gain," the email said. "If you decide to join our network we can have a professionally designed template made to enhance the look and feel of your blog."

"Oh, I see. It was a sales pitch," said a poster on her thread at ABestWeb. Another poster wrote that it sounded like "a scam with a bit of extortion thrown in."

Registrars and Revenue

Now that lower-cost domain name registering companies such as GoDaddy.com have entered the field, the competition for registration fees is much greater. There are hundreds of accredited registrar companies internationally that deal in the more popular .com, .net, .biz, .org, .edu and .mobi top-level domains. A new domain is registered at GoDaddy.com every 1.3 seconds, the company says. That figure comes to 12.8 million domain names every five months, according to Netcraft, up from 7.5 million in a five-month time frame last year.

Selling parked domains is also still big business. Business.com famously sold in 1999 for $7.5 million. Sex.com changed hands last year for a reported $14 million, although some reports said it was more like $11 million. Domain name sales generated $29 million in 2005, according to Zetetic. Some are just in it for the names. NameMedia, for example, apparently has more than 750,000 domain names in its marketplace. Sedo.com also acts as a kind of eBay for the domain space, selling $3 million worth of domain names per month.

"A domain name isn’t something you own, it’s just something you have a right to use," says Elizabeth Beal, director of the Communications Law Centre at Victoria University in Canada. "So it’s not like [a cybersquatter] has been using somebody else’s property."

In this age of security, some companies are enhancing their products and discovering revenue streams in the process. Retail domain name registrar Dotser offers "domain name security" with its NameSafe and TransferLock products. NameSafe restricts actions such as account updates, name server updates, contact name changes, domain account changes and registrar transfers without prior authorization through email. They charge a small annual fee for the service. Its TransferLock prevents domain name transfers without being logged in to your account. This service is free. Dotser itself, however, was named in a typosquatting lawsuit by retailers Neiman Marcus and Bergdorf Goodman a few years ago, saying that Dotster put up ad-filled pages in misspelled domains of the retailer’s name and then only paid to keep the misspelled URLs that were generating any revenue. This is called domain kiting.

Some critics also charge that the extra fee-based services don’t prevent someone from snapping up your domain if the registrar goes bankrupt or registers a taken name by accident or if the registrar deletes your domain through a process error. That’s what happened to Gary Kremen when Network Solutions was conned into giving up his Sex.com domain – a destination that was reportedly earning him $8 million per year. It took him three years to get the name back, but he was pretty much bankrupt by then.

Because of the competition between retail registrars, it isn’t surprising that companies are trying to entice you to add services or register more versions of a domain than you may need. One variation on the hard sell is getting a fax from a "domain name monitoring" organization stating that someone was registering the dot-net version of a dot-com domain name you owned. Saying they were checking on possible trademark conflicts on domains they have registered, the company offers to register the dot-net domain for you instead. Sometimes the materials are marked "final notice" with that day’s date as the deadline.

Lapses and Losses

Members of ABestWeb also suggested Fognano file a complaint with ICANN. You can make a case and request the domain be transferred to you. In most cases, when you register a domain, you are also agreeing to mandatory arbitration. Arbitrations through ICANN can also be far less expensive than litigation, and the judgments through arbitration can be quicker – about 60 days. While ICANN recognizes the need to keep the processes for transferring domain names tight, it is well aware of the chorus of complaints from those hijacked or extorted. "The registrant may lose an established identity and be exposed to extortion by name speculators," ICANN has stated. "Domain hijacking can disrupt or severely impact the business and operations of a registrant."

Generally there is a process by which a domain name can fall back into the unregistered pool to be snatched up by any attentive domain buyer. You register YourName.com on a given date: 1/11/06. The domain expires on 1/11/07. There happens to be a 30-day grace period to allow for renewal of the domain for the standard renewal price (until about 2/11/07). If that date passes, the domain is tagged as in a "redemption grace period," during which time the domain is put in "registrar hold" and then "pending delete" – about 30 to 45 days, depending on the registrar.

ICANN allows the registrar to charge its own fee for renewal from then on, which could go as high as $160. GoDaddy charges $80 and Network Solutions charges $160. If those fees aren’t paid, the domain name is released into the pool to be bought by anyone.
Rich Miller, blogger at DomainWorks.com, says to treat your domain as a brand. Network Solutions agrees – that domains left to expire run the risk of being co-opted by anyone, it says. Miller says that you should register your domain for more than one year. This way it’s actually cheaper to register and you won’t have to remember to do it every year. There are some who say that domains that have been registered and active for a while get better Google page rankings.

Miller also suggests that you should look for the best registrar, not just the cheapest. Look up the reputation of the registrar. You may not see a difference in the features of a registrar who charges $30 versus $9, but you will see a big difference between the $9 and the $5 registrar. He always recommends registering "alternates" of your name in other top-level domains. If you own the .net but not the .com, the .com owner can trademark their name and potentially force you to give yours up. Also, he says, don’t forget to brand your name within the social networks – set up pages in MySpace and other destinations before someone else does.

And whatever brand name you are operating under, always remember to try to buy your own name as a domain. Recently, Fognano decided she would offer "Kitovitsu" $10 to buy her domain from him. She has yet to hear back from him.

Poaching Prohibited

What’s in a name? According to Shakespeare’s Juliet, not much, but if the name is trademarked it has value worth protecting. Successful companies spend millions developing a brand name and promoting their Web domains online. Some publishers, however, treat others’ trademarks like their personal ATMs by generating commissions through misleading ads.

This practice has become alarmingly present during the past few years and is often referred to by a variety of names: trademark poaching, trademark bidding, domain name poaching and PPC domain name bidding. Kellie Stevens, president of Affiliate-FairPlay.com, says it’s a difficult issue to discuss because the terminology is still not clearly defined or even completely understood.

Some in the industry say it’s actually misleading to call it trademark poaching or trademark bidding. Instead they refer to it as PPC domain name poaching because it’s really a subset of a merchant’s trademark-type words, namely their domain name. Some industry watchers say that using the phrase “trademark poaching” or “trademark bidding” has connotations of it being a legal issue under existing trademark law, but it is really a violation of the terms of services contract between the merchant and the affiliate.

Regardless of the various terminology (which is often used interchangeably), in its most conservative definition, this practice involves a keyword search on a trademarked term or the merchant’s domain name that triggers a pay-per-click ad. The ads use a merchant’s trademark in the copy, and through clever coding, the display URL appears to consumers to be from the merchant.

The way it works is that consumers type an address in places other than the URL bar – such as the desktop Google bar or into their favorite search engine – and are taken to the merchant’s site or an affiliate site via an affiliate link, thus giving an affiliate a commission when none is deserved.

The basis that this commission is unwarranted is the idea that if a consumer types in a merchant’s URL or domain address, it is clear they were seeking that merchant and the affiliate provided no added value in getting the potential buyer to that destination. Therefore, the affiliate should not be compensated.

The origin of today’s trademark poaching problem dates back to 2004, when Google changed its AdWords policy to allow keyword bidding on trademarks and associated Web domains. Cunning individuals began joining affiliate programs and designing PPC ads to appear to come from a well-known merchant. When clicked on, the ad directs the consumer to the trademark owner’s site through a link that inserted the affiliate ID, therefore generating a commission for any resulting purchase. VoilÃ ! No website is required – the ad creates a straight path to easy commissions.

WHY IT’S ATTRACTIVE

Trademark poaching is attractive because of the low barrier to entry. For just the price of a PPC ad, publishers can quickly generate handsome commissions without the usual affiliate administration overhead, and reducing the steps from click to purchase increases the likelihood of a purchase.

One PPC affiliate, who asked not to be named, says there is a “pack of about 30” PPC affiliates that closely monitor the list of new merchants at every network and “crank up campaigns on them all” in order to profit from this behavior.

The anonymous PPC affiliate says “it takes less than four minutes to create a new campaign for a new merchant,” and that this pack of rogue PPC affiliates “don’t read the terms of service” from the merchants and they “don’t care about size – they cover them all.” He says it’s like a competition among this “pack” and that they do this for hundreds of merchants.

“There’s a trickle of others trying it from time to time as well, but the way Google and most search engines work, historical performance and clickthrough rates determine who gets the spots. They’re all competing for the one spot that lands on the merchant’s domain,” the PPC affiliate explains.

He went on to note, “That’s a ton of commissions paid out for almost nothing. If a merchant can easily do this PPC themselves, why pay an affiliate a large percent commission for doing it? It’s the branded traffic the merchant has earned; giving it away to a lazy poaching affiliate is just ignorant.”

Scott Hazard, who runs the website Cooperative- Affiliates.com, says ads that mask their origin in this manner confuse the marketplace and take money away from the merchant and the affiliate channel.

“It’s more of a problem for big brands” with recognizable names, Hazard says, as the popularity of the name as a search term will generate the high volume of traffic needed to create sizable commissions.

However, another school of thought says that although big brand merchants are often targeted more – thus losing more money overall – it’s a problem for merchants of all sizes. In fact, many smaller merchants are less aware of the issue and how to police it, making them easy marks.

While determining exactly how widespread this practice has become is difficult since it’s hard to track throughout the entire industry, a PPC consultant, who asked to remain anonymous, says, that “in some smaller programs I have worked with, as a merchant consultant and/or as a PPC consultant, as much as 40 percent of their registered affiliate sales are coming from this poaching.”

The only penalties for being caught poaching is getting kicked out of an affiliate program and having your commission withheld. That’s a small price to pay compared with the upside of undetected revenue. (See the “Trademark Ads in Legal Limbo” sidebar on page 048″ for details on other potential penalties.) Trademark poaching challenges merchants because as quickly as affiliates are kicked off, others are ready to take their places, according to Hazard.

Hazard launched the website TrademarkPoachers.com in August of 2007 to provide advice and education about the practice. While his site has increased awareness of the problem, “It doesn’t seem to be happening any less,” he says. Some say that they have anecdotal evidence that nearly 50 percent of pay per click is based on trademark poaching.

Chuck Hamrick, an affiliate manager for AffiliateCrew.com, started noticing trademark poaching in mid-2006. He could see that it was impacting overall revenue for some merchants because after he removed the poachers, the affiliate channel earnings went down, while organic and paid search revenue increased by larger amounts. This showed that trademark poaching “was cannibalizing our other efforts,” he says.

In the last two years, Hamrick caught a number of well-known affiliates poaching. He gave them “two strikes and they were out” of the program. If they didn’t take down the offending ads, he would reverse their commissions. “If it happened again, it was not by accident,” he says.

TRACKING THE POACHERS

Still, merchants that do not protect their trademarks from poachers are like retailers that allow customers to walk out with the price tags still on the clothes – if you’re looking the other way, someone will inevitably take advantage of you. Although networks can help with detection, it is the affiliate manager’s responsibility to function as the security guard and prevent these losses.

Fortunately for merchants, tracking this nefarious activity is relatively simple. Reviewing commission reports is one effective method for identifying trademark poachers. High conversion rates or affiliates who rise too quickly in volume of referrals are signs of potential trademark poaching, according to Dave Osman, senior vice president of operations at Commission Junction. “[Trademark policing] is one of the biggest challenges that the affiliate channel has had,” Osman says.

Managers can bid on their trademarks through Google AdWords to see the affiliates that are also bidding as another method of identifying potential poachers. Checking data for the location and time of day where commissions are generated can also help to identify poachers. To head off potential poachers, merchants can specify with AdWords that bidding not be allowed on their trademark or the trademark as part of their domain name.

Google will take down ads from affiliates or competitors that include domain names or URLs if the trademark holder complains, according to the policy stated on the AdWords website. However, Google will not block keyword bidding on trademarks and will not otherwise mediate disagreements over trademark poaching.

THE CASE FOR AND AGAINST

However, there are some merchants that will ask their PPC affiliates to do trademark bidding. AffiliateFairPlay’s Stevens says that there are pros and cons to this tack and merchants that allow it employ the rationale that they would prefer to see their affiliates ranking higher in the search engines than their rivals.

However, these merchants often fall into two categories – those that understand the issue and allow it to happen; and those merchants that are not aware of the implications.

When a merchant understands it and still allows domain name bidding, it’s usually because the affiliate manager can make themselves look good to superiors by showing lots of sales; or the merchant wants to inflate their EPC and sales volume to make their program’s metrics look attractive; or the merchant has made a deal with someone – such as a legitimate consultant – who in exchange for the sweet, low-hanging domain name fruit, obligates themselves to do something else, like pump those margins into deeper product and general keyword PPC on the merchant’s behalf, according to a PPC expert.

For those who don’t completely understand the issue, the reasons to allow it are slightly different: The merchant believes these posted sales are the result of “power” affiliates’ magic and doesn’t understand they’re allowing their brand, via their site name, to be leveraged by someone who does only that; or they have no idea what’s happening and believe these are actually their best affiliates; or someone such as a PPC agency or an outsourced program manager has them hoodwinked into believing this is a good practice.

However, there are instances when this type of bidding can be helpful, according to some PPC experts.

If a merchant has chosen to have coupons, then a search for “merchantname coupons” will be filled with SEO coupon affiliates ready to meet that need in the engine’s natural organic listings. The same principle works for reviews of merchants’ product or services. Most often, consumers seeking reviews don’t want to visit a merchant’s site. Instead, they want a supposedly unbiased view. Therefore, allowing an affiliate to bid on MerchantNameReview.com might be desirable to the merchant.

The Big Decision

One search expert, who asked not to be named, says there are two questions a merchant must ask before making the decision on domain name bidding.

No. 1: Do I allow my affiliates to bid on “MerchantName.com” where they send people directly to MY MERCHANT website and where they earn a commission?

No. 2: Do I allow my affiliates to bid on “MerchantName.com” where they send people directly to THEIR AFFILIATE website and where they earn a commission if someone clicks through to my merchant site from their affiliate site?

Most observers say the answer to the first question, should be – “No way, this is the merchant’s traffic and they earned it. It’s fat with ROI (often a 19x return) and it’s theirs.”

On the second question, the answer is not as clear. Allowing affiliates to do this might keep competitors from squatting on the name with their PPC ads. Search engines could see the merchant’s ads as more relevant because the domain name is the same word as the keyword, meaning that the merchant should be able to still occupy the top search spots with ease.

The Role of the Networks

Networks including Commission Junction offer trademark policing as a value-added service, and specialist companies such as Trademark Tracker and Name Protect can search out poaching ads as part of their broader trademark protection services.

While the industry is in agreement that trademark poaching is unacceptable, there is little consensus on related trademark use by affiliates in their advertising efforts. From keyword bidding on trademarks to the use of trademarks in ad copy, merchants, ad networks and affiliate networks each have their own rules and perspectives on what is permissible, and often those vary depending on individual contractual relationships.

“Ultimately, trademark poaching is in the eye of the beholder,” says CJ’s Osman. “The burden is on [affiliates] to learn each of their [merchants’] rules and to receive permission before incorporating trademarks into their ads.”

Buying a trademark as a keyword in conjunction with other words, such as “iPod and covers” is often allowed or encouraged because search engines do not want to exclude “broad match” terms. With the permission of the trademark owner, trademarks are also permitted as part of the affiliate’s display URL (e.g., www.affiliatesite.com/coupons or /reviews).

Through statistical data and the ability to observe dozens or hundreds of merchants at the same time, the networks have the power to stop this practice, but some think they don’t go far enough in their efforts.

“Good networks will show the referral URLs to the merchant, making it easy to find these poachers if they look, and reverse their orders [don’t pay them] and remove them from their affiliate program for violating the rules,” one PPC expert says.

According to one PPC consultant, who asked not to be named, the networks don’t ban this bogus practice for a variety of reasons – all related to money:

Merchants who want to shine their metrics (and show their bosses how well their programs are running) would go to another network.
Unscrupulous OPMs (outsourced program managers) would suggest alternative networks for new clients.
Unscrupulous OPMs would migrate programs to other networks, and when the reported sales went up, they’d be proven “right” about suggesting the migration.
Some merchants would not be able to make deals with their PPC consultants or agencies, and a new network that allowed this practice would be the only alternative.
Many less-than-savvy merchants would accuse the network of firing their “best” affiliates.

Because merchants have a right to run their own program, networks don’t and shouldn’t take an all-encompassing stance against it, the PPC consultant says.

Commission Junction’s policy is not to allow the use of trademarks in third-party ads without the express permission of a merchant, according to Osman. The rules that each merchant sets depend on their individual objectives, with some opting to be more flexible in allowing trademark use, he says. “All [merchants] do not view their [affiliates’] use of their trademarks in the same light: They have different marketing needs and therefore make allowances when necessary. For this reason Osman says, “I don’t think consistency [across the industry] is possible.”

Affiliates bidding on a domain name and sending the traffic to their own sites is seen by some but not all in the industry as trademark abuse. “One type of trademark poaching – typo squatting – is the intentional use of a misspelling of the trademarked URL, and is considered trademark infringement by most marketers,” says Osman. In recent years, companies Dell and Lands’ End successfully sued affiliates for generating commissions through typo squatting and direct linking.

Merchants can best protect their trademarks by spelling out what is allowable in their contracts with affiliates and by educating their network partners. Network ShareASale provides a dedicated area for posting banned keywords and text explaining the merchants’ choices, easily available referral URLs marked on every sale so the merchant can see the details, a feedback system for merchants to tag terms-of-service-violating affiliates to others, and other mechanisms making implementation of a merchant’s choices easier and more effective.

“Each merchant has different ideas when it comes to this issue, so our goal is to try to make as much information as possible available to both the affiliates and merchants on our network so that they can run their programs as they wish to run them,” says ShareASale President and CEO Brian Littleton. He encourages merchants to upload their individual agreements as well as a list of prohibited keywords so that all parties are clear on what is allowed.

One observer says that merchants need to ask the networks different questions instead of just asking for advice on whether or not they should allow domain name bidding in their programs. Rather, the merchants should be posing questions to the networks such as: What will the networks do for me? What tools will they give me to support and facilitate my choices on these issues? How will they help me police a decision to disallow it and what repercussions/tools will they give me to stop people who do it and won’t stop?

Domain name poaching is not going away anytime soon, but search experts promoting best practices say that savvy merchants and affiliate managers that educate themselves on the complex issues will realize the practice is a shortsighted path to profits, and ultimately bad for the entire industry.

Domain Reign

Domains are the undeveloped land on which e-commerce properties are built and like real estate, it’s about location, location, location.

Gary Kremen is driving along I-5 in San Diego. He’s talking on his cell phone and sounds like he’s just had a pot of coffee he talks fast and furiously. Kremen is not from Southern California, but he seems to relish his newfound role as alien resident, an East Coast boy playing the part of the laid-back, easygoing renegade entrepreneur.

“I’m even more of a disgrace here than the Heaven’s Gate cult was,” proclaims Kremen, who is living in a mansion in the tony enclave of Rancho Santa Fe, a neighborhood known for its wealthy residents, in a six-bedroom, Spanish-style spread that he received as a result of a court ruling.

He may be a disgrace, but divine grace smiled on him when the court gave Kremen the beautiful property, a luxurious villa once occupied by Stephen Michael Cohen, a con man who forged documents in order to take away Kremen’s money-making cyber-property – that of the domain Sex.com. Cohen now owes Kremen $65 million and is out of the country and on the lam. But Kremen is still hopeful he’ll recover some of what he’s owed. Even if he doesn’t, he’ll be OK – in addition to the real estate, he had another windfall earlier this year, when the Sex.com domain sold for a cool $13 million.

Kremen’s experience was a harrowing ordeal; he paid investigators to track Cohen’s whereabouts and he endured long-fought battles in court. But Kremen’s experience is also an object lesson in how trading in the domain-name space can prove lucrative. The stakes are high, and counting on fortunes to be made isn’t a sure bet. It takes a tough constitution to weather the ups and downs of playing the domain-name game.

Luck

Kremen says that when he originally registered names (in the mid-90s), he snapped up Jobs.com, Housing.com and Autos.com. He also bought a site you may have heard of – Match.com. He paid $2,500 for Match.com; when he left Match.com, his payday was in the tens of thousands. (He was asked to leave because he refused to sell Match.com to Cendant for $7 million; after he left, the sale went through and Cendant later sold the name for $50 million.)

Fresh out of business school, Kremen thought the domain game was fun. On a lark, he bought Sex.com. Then he largely forgot about the site and focused on other pursuits.

But Cohen noticed the domain, and forged documents to take advantage of the cyber real estate. Kremen got lucky and found out that Cohen had fleeced his way into Sex.com. Kremen wrested back control of the site in 2001; Cohen had bilked so many others that Kremen had other litigants to back him up.

Even before selling Sex.com for millions, Kremen made a mint; it’s been reported that ad revenue for Sex.com was bringing in $8 million a year, a nexus of adult-entertainment websites offering products and services. His story shows that marketing geniuses can clean up if they know what they’re doing in the domain space, even if they don’t own domains with as flashy a name as Sex.com.

Easy Street

Plenty of other domainers are laughing all the way to the bank. Mike Bahlitzanakis sold Cellphones.com for $4.2 million in cash, a domain he paid $90 for in 1996. And others are profiting from the fact that today’s technology makes it easy to set up a revenue stream. According to Ron Jackson, publisher of DNJournal.com, “It’s such an easy process. In two minutes, I can set up a thousand domain names. I know quite a few guys making over a million dollars a year from advertising on their domains. It’s like a 24-hour money-printing machine.”

And it seems like easy money. With operations like GoDaddy offering a domain name – and a potential chance at untold riches – for less than seven bucks, the allure is rather appealing. It’s like playing the lottery; in this case, pick the right name, wait the right amount of time, play your cards right, utilize the name wisely or sell to the highest bidder and boom, you’re a winner.

Ad Dollars

Domainers, as they call themselves, are living as if it’s the dot-com heyday all over again. In the ’90s it was all about buying a name and then selling it to some sucker for a mint. Some domainers still approach it that way. But now, many prospectors are buying names in order to cash in on the riches that are freely flowing into online advertising.

Various winners view the idea of using their domain names wisely in different ways. Take Dan Warner, the COO of Fabulous.com and Dark Blue Sea Limited in Australia. His companies own thousands of websites and manage another 500,000 for other people. According to Warner, 4 million websites are owned by only a few hundred professional domain owners: “These domains attract $750 million in search advertising spend each year, and are actively traded as real estate.”

People are snagging scads of domains, like DigitalCameras.com, for example, and loading them with pay-per-click advertisements using services from Google and Yahoo. If you happen to visit one of these sites, you might see a review or two but you’re certain to be overloaded with text ads for products or services related to the domain name.

News of a New Boom

Pay-per-click advertising is prompting increases in the number of domain-name sales and the dollar value of deals. The space is red hot, and recent news underlines this fact. GoDaddy, with a $250 million market cap, has been reported to be going public. eNom merged with eHow and was bought by Demand, run by a former MySpace exec.

Cambridge, Mass.-based Sedo managed the sale of $17 million worth of domains in the first 10 months of 2005, up from $8 million in the same period in 2004 and $3.1 million three years ago. Domain sellers pay Sedo a 10 percent commission. Afternic Inc., of Orlando, Fla., brokered the sale of $5 million of domains last year. In 2004, the firm managed the sale of $2.2 million of domains, and in 2003 it did less than $1 million. Its standard commission is also 10 percent.

The domain-name market is also attracting new investors. It used to be for Internet entrepreneurs only, but now public companies and venture capitalists want a piece of the action. Domain aggregator Internet REIT is raising $250 million to buy domains, because Web addresses can be long-term investments that provide a steady stream of revenue.

Sedo managed the sale of Website.com for $750,000 this year, and according to Matt Bentley, CEO of Sedo, the business is shifting: “The fact that it is moving from individuals to larger corporations ” represents a legitimization of the domain-name industry.” For years, many in the industry had a bad rep for “cyber squatting,” registering names associated with famous brands in hopes of selling them to a big company at a hefty price, which fueled trademark legal feuds. But now that there are legitimate domainers and not just squatters, that is changing.

Personalities

Rick Schwartz is another prominent name in the business. He owns thousands of names (some are in the “adult” category and some are not). It has been reported that he wears a $65,000 Rolex on his left wrist and lives in a waterfront house in Boca Raton. Other people have invested in smart names – Candy.com, CellPhones.com, AthletesFoot.com – and can bring in hundreds of dollars a day, while the owner does little work to bring home the bacon.

Schwartz, for instance, directs his traffic to one of the many small companies that serve as go-betweens with Google and Yahoo, the two behemoths that have revolutionized online advertising and marketing. The middlemen aggregators do the major work, creating the sites, buying keywords and tapping into one or the other of the search engines’ advertising networks to add the best-paying links. Some other big domainers cut out the middlemen completely and work directly with the search giants themselves.

A Domain by Any Other Name

So what’s in a name? “Domains are the undeveloped land on which e-commerce properties are built, and like real estate, it’s about location, location, location,” says Dark Blue Sea’s Warner. “They can be bought, sold or leased and there is a limited amount of valuable property.”

While many Web-address purchases are motivated by investors looking to earn money from ads, some aren’t. Last summer, the owner of Dog.com bought Fish.com for $1 million. The buyer plans to grow an online pet supply store.

Pets United CEO Alex Tabibi wanted to expand his firm’s list of pet-related domains, which include Horse.com and Bird.com. He says the new site will sell fish food, fish tanks and accessories.

Pets United LLC, parent of Dog.com, acquired Fish.com from Dan Farmer, a tech exec. Afternic Inc. brokered the deal. Farmer, CTO and founder of computer security firm Elemental Security Inc., bought Fish.com in the early ’90s and used it for a personal website. He had multiple offers for the domain over the years. “I glibly decided that if anyone offered me a million dollars that I’d sell,” he told the Wall Street Journal. He said he used the after-tax proceeds to pay off the mortgage on his condo and “gave a bunch to charity.”

Large Portfolios

Several firms have quickly amassed huge portfolios of thousands of domains. A single site may get relatively little traffic, but aggregators aim to earn enough ad income across their network of sites to cover the expense of buying existing domains and registering new ones.

Houston-based Internet REIT, launched last year, has quickly acquired tens of thousands of domains, including MutualFunds.com. The company’s lead investor is Jacobson Family Investments Inc., an investment vehicle for a wealthy New York family.

Internet REIT’s president and cofounder Marc Ostrofsky purchased Business.com in 1995 for $150,000, and sold it four years later for $7.5 million. He also had the smarts to snap up Bachelor.com and Consulting.com. Internet REIT takes its name from real estate investment trust, a legal term for a company that buys, sells and operates properties. CEO Bob Martin compares it to owning and developing real estate: “Rather than having a speculative approach to what a domain name could be worth, you can now generate cash flow from these assets and value them like securities.”

Internet REIT wants to buy domains from hobbyists and retain them, rather than resell them. It uses “Google AdSense for domains,” a variation on Google’s popular search-ad network. Owners of large numbers of domains, those that generate more than 750,000 page views a month, get ads for their sites. The companies and Google share the revenue.

Other big domain buyers are looking to make money with pay-per-click ads without ruling out the possibility of selling their domains to other businesses. BuyDomains Holdings has 500,000 domains, like JobFinder.com and TravelChoices.com. Highland Capital Partners Inc., a venture capital firm in Lexington, Mass., bought a stake in the closely held company, which has advertising- oriented domains in 90 “verticals,” including travel, music and finance.

Marchex wants its portfolio of 200,000 domains to become destination sites filled with relevant content, but the sites mostly sport ads right now. The company paid $164 million to get domains such as Debts.com and Camcorders.com. Ad revenue from Marchex’s direct navigation sites totaled $7.7 million in the third quarter, up from $6.4 million in the second quarter.

The Future

The enormous growth means new businesses. A handful of companies now sell “domain parking” services. You can pay a parking service to create a page filled with pay-per-click ads so you draw revenue, which is distributed among the domain owner, the parking company and the advertising broker, like Google or Kanoodle.

The surge in online ads is also contributing to a big increase in the number of registered Web addresses. VeriSign estimates that about 10 percent of all .com and .net domains being registered are created to host pay-per-click advertising. The risks? Consumers could hate being deluged by ads and advertisers could shy away if the backlash gets too great.

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for Brandweek, the Industry Standard, HotWired and Wired News. She lives in San Francisco.

Jeremy Palmer: The Million Dollar Man

Jeremy Palmer knew he had the entrepreneurial spirit. He just hadn’t found the right thing to let it soar.

He knew there was more to life than his mid-level job at a small financial services company. As a Web developer, in 2002 he launched website MeetYourMatch.com in hopes that it could generate a little extra cash for his wife and two kids in Utah and give him an outlet to pursue his independent business ideas.

He sold things on eBay. He sold some of his possessions just to get his affiliate sites off the ground. He wasn’t exactly sure of what he was doing. That was 2001. Fast forward to his current life as an affiliate marketer and he would say his wings are no longer clipped – in fact, in 2005 he made $1 million in commissions.

He will be the first to say that he had never envisioned this life for he and his family. In the beginning, he worked part time at night and on weekends on a dating site but it wasn’t making much money. He loved building websites but didn’t see a lot of cash in assembling other people’s sites. His original dating site went up in 2002, a time when dating on the Internet was just about to explode and Palmer felt like he had a killer domain name – with MeetYourMatch.com. “I was naive to think I could compete with Yahoo personals,” he says. “It was a great failure for me.”

Meanwhile, his wife had a good career in the financial services industry – had her own office and at one point was the breadwinner for the family. The company he was doing Web design for had an affiliate program through Commission Junction – but he wasn’t involved in that part of the business. The guy who ran it, though, started to tell him the numbers. Some of these people were making up to six figures a month. “So I threw up some links on my site,” he says, and in six months he was matching his salary in commissions.

He had finally touched that entrepreneurial magic and he dove into it head first. Today Palmer has a network of more than 100 websites (he doesn’t even know the exact number), an e-book on how he made it and is Commission Junction’s 2005 Horizon Award Winner and a Yahoo Search Marketing Ambassador. His domains include FreeBudgetingSoftware.com, DatingSiteCritic.com, CreditRepairGuy.org and, of course, the site for his e-book: QuitYourDayJob.com (see page 44).

How does he do it with so many sites? The key, he says, is to work with templates that need very little manual tweaking. He has 50 dating sites that are virtually the same – they are just targeted by geography. But, Palmer says, it’s not about how many websites you have or following a more-is-more philosophy. “Each page should do just one thing,” he says. “You don’t want to overwhelm the customer with choices. You know, like when you go to call Dell and the first thing you hear is 30 options to direct your call. It takes you forever or you hang up before you get an answer.”

The other main reason Palmer claims he’s successful is because he goes the extra yard to reach out to the merchants. It satisfies his social nature, he says. He typically spends a few hours a day just talking to the merchant reps.

“I have their cell phone numbers and they have mine.” He says that just talking to people is crucial to getting help and getting what you want from a merchant. Sometimes Palmer will fly out to see the merchant or the company will send someone to meet with him. Of course, Palmer admits merchants don’t do this for everyone, but, then again, he makes six figure commissions – that puts him in the upper stratosphere of earners. It’s no wonder merchants will roll out the red carpet for him, especially when 80 percent of most merchant’s affiliates are not earning enough to register a blip.

He says being a big earner just takes hard work. His day really isn’t much different from most affiliates. Typically, Palmer starts his day by viewing his stats on CJ, LinkShare, etc. Then, he logs into Google AdWords to check on his costs. “I do have some spreadsheet systems that I made up to make it easier on myself and this way I can make bidding decisions based on that and see where my ROI from the previous day was.” All of this, he says, is a way of tailoring your existing sites to make them better. “It is far easier to improve on existing websites than to launch a brand new site.”

He’s always looking for ways to improve things. “I probably differ from most in that I will build a website around a merchant’s product and services instead of just throwing a link on my site – then throw a couple of hundred keywords at it.”

Once traffic looks promising, he will expand. It could take few days to a few weeks to see if it is worth it. He claims that he’s got more patience than most affiliates and he believes that’s what helps him to see if ROI kicks in and to wait for the results.

Palmer then spends the rest of his work time building relationships – over chat, email or by phone talking to the merchants. It’s his favorite part of the job.

“You want to know the dirty little secret of affiliate marketing?” he says conspiratorially. “I gained 30 pounds because you don’t get a lot of exercise just sitting, building websites.” He says it took a lot of hard work and sacrifice. He says he sold a favorite – and very expensive – racing bike and some of his personal gadgets – a road bike, Palm Pilot and cell phone – to get the business started.

“People buy into the hype and hope. I want to retire by the time I’m 30. So, in the beginning I was doing 20-hour days and still do some of those sometimes.” The reason so many affiliates don’t turn over the big numbers, according to Palmer, is because they are unwilling to do the tough work. He says you have to put in the labor on optimizing your site and making it eye-catching. He’s constantly experimenting – putting up a site and throwing a few hundred keywords at it to see if it can bring numbers. It’s fun for him.

Palmer proudly states he still has no employees on his payroll. His wife doesn’t receive a paycheck, although he can count on her to give him advice on design and the content. “She’s kind of my quality assurance person and will say she doesn’t like a graphic or will brainstorm on keywords.” Sometimes she even reads his emails before he sends them to make sure he’s being coherent.

He keeps an office about 10 minutes from home but goes in when he needs to concentrate on something or make important calls – otherwise he’s pretty content working from the home office. Plus, they live near a great park and ball field where he loves to take his two kids, who are 5 and 3 years old.

“I can spend all day there.” Currently, he does a kind of week on, week off. Works on the sites for a week and then spends a week riding his bike, going to the park, reading business books and magazines – Forbes or Fortune. “I can read those like some would read Harry Potter.”

It sounds idyllic and it is, but the journey wasn’t without emotional bumps. The hardest decisions he and his wife made about quitting their day jobs was what to do about his wife’s career. She had been a full-time worker since she was 16 years old, Palmer says, and changing to a stay-at home mom was jarring. It was a big step for her to quit her job but the decision was made easier by the fact that the income from the affiliate sites mandated they convert to full-time affiliates.

“The sites were growing so much,” Palmer says, “that the only thing holding them back was our time investment. So, we had to spend more time.”

Quitting their jobs was the no-brainer – it was clear on paper that the commissions were paying way more than their day jobs.

Equally unsettling was what to do with their success.

“Some guys get a little cash and they go out and buy a Mercedes or a new house,” he says. But in the end, quality of life won out. As a born and raised Utahan, Palmer is definitely very family-oriented just as they teach in the Mormon church, even though Palmer says they don’t go to temple as much as he did when he was young. But the luxury of having more free time now allows him to get more involved in the kids’ extracurricular activities like sports and gymnastics.

While Palmer did upgrade his home and put the kids in private school, he and his wife thought pretty rationally about what to do about their new-found wealth. They kind of played a spinning globe game – if we could live anywhere, where would it be? They thought Austin, Texas, looked attractive and the San Francisco Bay Area certainly was a consideration. But in the end they decided to stay right where they were in a suburb of Salt Lake City. They knew it to be family-friendly and the pace of life was perfect for them.

Things have been so idyllic, in fact, that Palmer decided to share his secrets. His recently available e-book, High Performance Affiliate Marketing, pretty much recounts how he did it and with the right elbow grease, anyone can do it.

He says the book is practical and not one of those “get-rich” books. “I basically wrote it because I think there was a need for it,” he says. Most of the books on the market, he adds, seem so dated even when they are only a year or two old. “I wanted to know if my knowledge was transferable. I led this internship with five other affiliates and they are doing Ok. I just sat down with them for five hours and two of them have quit their day jobs.” He says one even worked for NASA, surely a dream job for many, and yet this guy gave it all up to become an affiliate.

One of the unique things about the book – available at QuitYourDayJob.com – is that when you buy it you get all the updates for free in perpetuity. As Palmer adds revisions to the book as the markets dictate, all buyers get those revisions too.

Why essentially give away his secrets? “I think the Internet is a big place,” he says, “and lots of people wonder why I give the secrets away but I believe in karma. Since if I give something to the community I will benefit from it.” He even offers a free support forum for the book so that if readers have questions, they just email him directly to his personal email account.

“As an affiliate I just build websites and go over numbers,” he says. “But I really enjoy the face-to-face, so that’s why I reach out to the merchants. And as I operate on an island over here, the book feeds my social needs.”

While he said he wants to retire at 30, his version of retirement would be to only work a few hours a day. “I’ve always had the entrepreneurial spirit,” he says proudly. “You know, I had worked at a huge call center here and was answering tech support calls for Microsoft. By the end of my stay there I was overseeing 80 employees but was really turned off by the red tape of big companies. I said I would only work for small companies from then on, where I could make an impact. You see, there is always a ceiling and I figured if I worked for myself, there would be no ceiling.”