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."
Decemebr 11th 2007
I think we can agree that was one hell of a post. Thank you Kevin!
Have a GREAT day!