PPC or development? Kevin Leto has an interesting viewpoint.

Morning folks!!


I never had a 'Guest' blog post until now. But today I woke up and read something posted by Kevin Leto and asked his permission to reprint this. This should put some things in perspective to what lays ahead for domain owners and PPC companies. Change the numbers. Experiment. But there is a lot of truth in the way Kevin looks at things and it rings true with what I know as well. Kevin is the man that led the team behind acquisition of my Men.com domain in 2003/2004.


Parking vs. Development


'When looking at the debate of Parking vs. Development, much depends on
the objectives a domainer has for his portfolio and the types and
quality of his domains.


A high quality type-in domain will obviously have a higher CTR on a PPC
page, usually 30% to 40%, sometimes even higher. Whereas on a web site
you'll see CTR's of 5% to 10%. So you will see a drop in revenues
initially.


The down side to PPC is it doesn't create traffic growth, nor build a
user base, nor offer any other revenue or site feature options. Bottom
line you are limited completely. The upside is simplicity, especially
if you need a monetization solution for tens of thousands of domains.


The down side to web sites are initial drop in revenues (for type-in
domains), initial development costs, and then management of them. The
upside is you now have the ability to grow traffic, grow a user base,
and have total flexibility for implementation of all sorts of features
and revenue generators.


It kills me when domainers say PPC is better. It is ultimately not, and
if you sit down and deeply think about how much money you have been
leaving on the table you'd fall off your chair when the realization
sinks in.


If PPC was indeed better than we wouldn't have any problems selling our
fabulous sounding one word domain names to major corporations all day
long. They'd be falling all over themselves to pay any price we ask.
It's not happening and it's not going to happen, with rare exceptions
of course.


Major corporations don't want to acquire just type-in traffic for 20
years multiples, on an undeveloped domain. They do want to acquire
USERS and a branded domain with a site that provides those users with a
positive experience that they gain information, products, services,
interaction or entertainment from.


Business.com is a fantastic domain as an example. It went from a
$150,000 domain acquisition to a $7.5 Million acquisition for
development as a search engine with companies paying annual fees of
$199 to be included and paying for ad clicks to their directory
listing, and just recently to a $345 Million acquisition by the R.H.
Donnelly company. Most domainers would have that on a PPC landing page
and would be making a ton of money surely. But would they be making
$345 Million with that strategy? The answer is no. What surely turned
Donnelly on was not just the traffic, but that established advertiser
goldmine in Business.com's databases. Those advertisers could then be
further developed as advertisers across their entire ad network.


Web surfers come and either click and go on or just move on instantly
when they hit a ppc landing page. There is no customer aquisition for
the domain owner. Zippo. The most cherished and valued prize on the Net
walks into your store and in seconds is out the back door to someone
else's site. It that smart business? I don't think anyone could argue
it is.


Let's look at a big domain that has 30,000+ type-ins per day. Let's say
it's been owned for 10 years. That's 12 Million visitors a year. 120
Million since registration. Think about that number. 120 MILLION people
have come to your store in the past decade. How many are 'YOUR
CUSTOMERS'? Not a single one. How many of their e-mail addresses do you
have in a database? Not a single one. What kinds of stuff are they
looking to buy? You don't know a single drop of info about them.
They've come and they've gone.


Now lets analyze the valuations. Under the PPC model, let's assume a
high 60% CTR paying 15 cents a click ove the life of the domain so far.
The math works out to $10.8 Million you've earned over the past 10
years. That is great wealth and no one could deny a totally successful
business.


Now lets say the site had been developed. After 10 years not only would
you have those same 120 Million visitors, you would have captured a
percentage of them in some way as repeat visitors, maybe a
subscription, maybe just registered, maybe sold them something
directly, any number of ways. But the main point is you would have tons
of repeat visitors, and they would have provided free word of mouth,
which would have brought in even more traffic and users. The revenues
could be anything here since there are so many ways to generate cash
flow when you have a web site. Surely in that time at a bare minimum
you could have earned equal to the PPC and probably many multiples
more. But the key point is you have not only an incredibly valuable
domain asset at this point, but an even more valuable customer base
asset. My guess is after 10 years you'd have at least 10 to 20 million
users, probably way more. Now you own an asset worth a fortune, and in
the hundreds of millions, and probably even close to a Billion or more.


So both ways make money, but the developed domain model is the true
ultimate long term goldmine. And yes, not every developed site works,
we've seen the dotcom bubble prove that, but the good thing about the
Net now is the economies of scale are so efficient you can take down
one concept and do another without much investment compared to the
early days, and you always have your base type-in traffic. That is not
going anywhere. If one building doesn't work, knock it down and put up
another until you get it right. It's that simple.


Now to the points about mini sites. I personally have found mini sites
work especially great for no-traffic domains bought at reg fee. They
grow traffic, no if's ands or buts. You do the math and even doing 1,
2, or 3 figs of revs a month, the numbers get amazing very very fast.


For most domainers I've polled, the majority of domains in their
portfolio get litle or no traffic. Why did we buy them and why do we
continue to then? It's the expectation we all say that one day they'll
be good for development. What happens is domainers end up having
thousands of these no traffic domains and basically get overwhelmed in
their minds when they reach the point of saying 'ok now how do I get
these all developed?'. 99% of domainers aren't developers. Nor do they
want to be. It takes a lot of multitasking type skills and loads of
energy to be a developer and even more to then manage it all
effectively.


You also don't want to put simple sites on exceptional domains. Great
domains deserve and need great sites. And that doesn't mean you need to
spend an arm and a leg to get that. It certainly costs more to build a
more robust site, but Internet technoloy has dramatically reduced the
costs to an insignificant number compared to the early days. Over the
past couple months I've evolved my mini site concept and system
structure about 5 times over into something more robust, scaleable, and
integrated with lots more features and capabilities than the original
mini sites. I've now got a system designed to accomodate simple sites
for no traffic domains reg fee domains, enhanced sites for moderate
traffic domains and full scale sites for the premium type-in domains
and have figured a way to still keep the costs in check even on the
larger enterprise style sites. So its not just a strategy of instantly
doing a zillion mini sites. You have to evaluate each domain and how
much potential it has and then deploy a precision developed and custom
tailored site on it. Once you do a few, then keep on going and build
out more and more and more of them and you'll soon have an enterprise
sized ad network in your portfolio. Since a small number of domainers
have the really huge traffic type-in domains, this is a way for the
less fortunate domainers to get to that level too by having hundreds
and thousands of small sites doing hundreds of visitors each a day and
adding up to a big number of visitors network wide. It's not easy to
get small sites into thousands of visitors per day, but it is easy to
get double and triple digits of traffic per day on them. You build with
the end user in mind and they will come back and they will do word of
mouth for you and traffic grows.


I've researched all the stuff you hear about SEO inside out, and there
are some valid and genuine ways to optimize sites using SEO techniques.
There are also many 'black hat' ways that SEO wizards do to get high
page rankings for clients. Many of these don't last very long in the
SERPS. My position is look at Google's basic algorithm mantra. It's as
simple as their home page is. Sites that provide users with the best
experience go to the top of the SERPS for the long term. You don't need
all sorts of fancy SEO stuff to accomplish that, nor be an SEO rocket
scientist. You just need to do basic SEO optimizing and provide the
highest quality site experience you can. Not only will you get good
rankings, but users will tell other users, users will bookmark and come
back again and again.


As I've indicated above when you place a high traffic domain on a site
you'll see an initial rev drop, but you will begin the process of solid
traffic and user growth that will take you to the real treasure of
dollars.


And here is where you have to really open your eyes wide and see
exactly where the trove of money is. It is not doing thousands of bulk
basic sites with Google AdSense on them. There is nothing wrong with
AdSense. It works. It makes money. But it is NOT the treasure trove
when you begin developing. It's just the first step of the advertising
monetization process. The gold rush comes when you enter Phase 2 of
development and have traffic built across many sites with well targeted
niches and users and can then sell impression based long term
advertising deals directly to major corporate advertisers. This is
where major major money can be made from advertising on developed
sites. Plus at this point you now have the ability to implement premium
subscription based type services and products to users to create
additional revenue flows, do lead generators, and all sorts of exciting
moneymakers.


Let's go back to the 10 year domain example above. Let's say after 10
years and your several hundred million visitors you had developed a
site and out of all those surfers you grabbed 1/2 of 1% for a
subscription of some kind. Not even taking into consideration the
millions of extra visitors that would have been grown by a site on the
domain, and just using the native type-in volume during that decade for
the base factoring, you'd have roughly 500,000 subscribers paying you a
fee every month. Or maybe just 500,000 subscribers with no fee but who
you could then sell premium rate advertising on, such as in a
newsletter. What's 500,000 subscribers paying you $9.95 /month? That's
$5 Million per month, over 10 years thats $600 Million. So what's
better? $10 Million or 10 to 20x that number by having a web site asset
to sell one day along with a great domain.


And think how much you could sell that asset for with 500,000 and up
subscribers, with major corporate advertisers, and a huge income
stream. Now you own a domain really worth the hundreds of millions of
dollars we all say our domains are worth.


Cha-ching $$$. Once you look at domains with this understanding and
vision, I think most domainers will quickly see the light, sit down
with a calculator and know the future much more clearly and without
hesitation, determine the wealth building strategy to aim for in the
years ahead.'


Kevin Leto
Decemebr 11th 2007


I think we can agree that was one hell of a post. Thank you Kevin!


Have a GREAT day!

Rick Schwartz




13 thoughts on “PPC or development? Kevin Leto has an interesting viewpoint.

  1. Anonymous

    Wow. Right on Kevin. Nice job.
    I think there might be one complimentary component to your development strategy… point related domains to the most relevant developed domains in order to capture more pre-qualified leads.
    Thanks for that contribution to the industry.

    Reply
  2. Greg Greenamyer

    Hi Rick,
    Great post! As a newcomer to the domain business, development is the direction I have chosen to go in also.
    It’s a great confidence booster when I know I’m thinking along the same lines as the big guys in the industry.
    Thanks for all the great information you provide.

    Reply
  3. trader

    Great stuff. Much appreciated. It sure would be nice to see an example of one of Kevin’s low traffic minisites so we can understand how he is doing this?
    Thanks, Dave

    Reply
  4. Ed Keay-Smith

    Hi Rick & Kevin,
    What a fantastic post!
    This is the sort of stuff that needs to be spoken about much more often.
    As my background is online marketing for years before I became involved in”domaining” capturing the visitors details has just been a no brainer.
    Whe I have spoken to other domainers and have found out their traffic numbers and that they have NOT been capturing visitor details it just blows my mind.
    I have been working on a JV project over the last 12 months and by using a simple opt-in form for a newsletter and free report, we have built the sites database from Zero to just over 80,000 people.
    Guys I know simple PPC sites are easy, set and forget but look at what is being left on the table!
    Yes, If you have hundreds or thousands of domains then the job could be very daunting. Just pick a few of the better ones and start there. IMHO :-)
    Regards
    Ed Keay-Smith
    http://www.ozdomainer.com
    http://www.adwordsmarketing.com

    Reply
  5. Mark Elliston

    Thank you for the SEO information. Google is the king but with a kink (they index (temporary) ads which show up as valid until you click on them. Another problem is google is allowing AdSense on parked pages (lots at godaddy) … whereas before they punished publishers for such. Money is king, even at google.

    Reply
  6. Andrew Johnson

    As best I can tell, having the exact domain name for the keywords a user is searching for is a big factor in Google’s ranking algorithm.
    This means just by developing your domain name you can multiply your traffic from organic search engine listings.
    That being said, web site development can be a lot of work, and doing it right has a steep learning curve.. best time to start learning is right now.

    Reply
  7. Pete

    I had nice traffic and income with development of my portfolio.
    I changed to cash parking to get the big and easy money! So I thought. I tried out two different popular parking companies. Very easy to set up and use.
    My traffic plunged with cash parking and income sunk.
    It has been a costly and painful learning experience.
    100% of my porfolio is now back to development.

    Reply
  8. ROMM

    Awesome post!
    I’m doing just this, and soon more, at Magicians.com! For 10 years the domain has sat collecting virtual dust (and a little PPC revenue)… In one week my new social-networking site for Magicians, by Magicians has neared 50 new members! It’s an exciting project and time to be alive to own a category domain like this, and contribute what I can back to the world of magic fans!
    Thanks for the great post, I look forward to reading it over again! The skies the limit!
    ROMM, Founder
    Magicians.com
    Magician.com
    Illusionist.com

    Reply
  9. SM

    That was a great post! Thanks for sharing.
    btw- have you considered getting a new blog template? :)
    Cheers and Happy Holidays!!!

    Reply
  10. Successclick

    Beautiful. It woke me up to 20 years of mail order experience I forgot I had.”Always secure customer base”.
    Nice job Kevin, of pointing out PPC as not seeing the forest because of the trees. Kudos! I’m set on investing more money in building out my niche domains and you inspired it!

    Reply
  11. Mary Helen

    Rick,
    Was Business.com a brokerage or direct sale by the owner with the company ?
    Regards.

    Reply
  12. Bill Hazelton

    It really boils down to what kind of value are you bringing for a user. A parked domain with a bunch of ads on it? Or a site that provides something, anything, of value for a user. Domain parking which I certainly have experimented with is simply not a long-term value play. As soon as advertisers get a clearer picture of the real ROI from parked domains (which I have serious questions about) I anticipate that the parked domain business will evolve into a largely different model than it is today. It needs to evolve or it will die.
    So if your a domain portfolio owner, development had BETTER be a part of your strategy to some extent or another.
    Domain owners: develop or die!

    Reply
  13. jeff paul

    really a nice post regarding PPC , but still if you can the secret of getting the quality users to your websites then it would be great .

    Reply

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