LOTS of it. So much money that the main stream media, such as the WSJ, has finally figured it out. See the following article for more, including the mention of a stock I introduced (Marchex Inc. / NASDAQ: MCHX) on Cubetrader.com in December 2004. Cheers!
For These Sites, Their Best Asset Is a Good Name
By JULIA ANGWIN
May 1, 2006; Page B1
The web site http://www.flashgames.com has no staff, spends no money on marketing and despite its name, offers no games. All it offers is a list of links to other game sites. Yet it earns revenue of more than $150,000 a year selling online ads.
Flashgames.com is just one of thousands of Web sites that are cashing in on the online advertising boom in an unusual way — by piggybacking on the ad-sales efforts of giant search engines Google Inc. and Yahoo Inc.
These sites’ ability to make lots of money for little investment is now attracting attention from big players. A group of investors led by former MySpace.com chairman Richard Rosenblatt is expected to announce today that it has raised $120 million from investors to build a new company, Demand Media Inc., centered on generic domain names like these. The venture has already acquired 150,000 domain names — including flashgames.com — and plans to aggressively acquire more. But, conscious of the limitations of these bare-bones sites, it plans to add some low-cost content in hopes of making the business even stronger.
“We will be taking billboards and turning them into content Web sites,” says Mr. Rosenblatt, who ran MySpace.com’s parent company Intermix Media Inc. and negotiated its sale to News Corp. for more than $650 million last year. Mr. Rosenblatt, a serial Internet entrepreneur, is co-founding Demand Media with Shawn Colo, a principal at Spectrum Equity Investors. His backers include Spectrum, Oak Investment Partners and Generation Partners.
Sites like flashgames.com used to be considered “cybersquatting,” a longstanding Internet tactic where entrepreneurs register domain names either associated with a particular subject or a company and then try to sell the name for a quick profit. These new-generation sites go a little further, reaping ad revenue. Demand Media says it will not buy trademarked domain names.
Owned until recently by two Australian entrepreneurs, flashgames.com draws people — about 240,000 a month — looking for a Web-based game that uses flash-animation technology. The links that the would-be gamers find on flashgames.com are actually paid ads placed by Google or Yahoo, both of which sprinkle ad links all over the Web, paying the host sites a cut of the revenue they receive when anyone clicks on one of their links. So when someone finds flashgames.com, and then clicks on a link to another games site, flashgames.com gets paid.
Analysts estimate these types of site, known as “domain parking,” generate about 5% to 10% of search-engine revenue, putting the industry’s annual revenue at about $600 million. “The profit margins are extraordinary,” says RBC Capital Markets analyst Jordan Rohan. He predicts industry revenue could double to $1.2 billion within three years.
Still, given the sites’ meager offerings, some in the industry worry that these domains may not have staying power. Even finding one of these sites is a matter of luck. Web surfers have to type its full name into the address line of a Web browser, although some browsers automatically add a dot-com to the end of something they type. But most parked domains don’t generate enough traffic to show up at the top of search-engine rankings.
“This is grandma type of navigation,” says Matt Bentley, chief strategy officer of Sedo.com LLC, a domain-name parking business. “It’s probably not currently being done by a lot of sophisticated people.”
In line with Mr. Rosenblatt’s plans to add some cheap content to his sites to give visitors a reason to come back, Demand Media has already purchased San Francisco-based eHow Inc., which provides niche content, and will buy more content companies. But he isn’t planning to invest heavily in content — Mr. Rosenblatt says his goal is to have “immaterial” content costs. Instead he plans to rely heavily on content contributed by members of the public, which could range from reviews and blogs to photos. Such “user-generated content” powered the growth of Web sites such as MySpace.com, now one of the most popular destinations on the Internet.
To provide the technology for offering upgraded content, Demand has also purchased eNom Inc., a large domain name registrar based in Bellevue, Wash. With better content, Mr. Rosenblatt says, the Web sites will appear higher in search-engine listings and thus attract more visitors. That in turn, will hopefully translate into more clicks on the links — and more revenue.
“These domain names are really the raw land of the Internet,” says Fred Harman, managing director of Oak Investment Partners, one of Mr. Rosenblatt’s backers. “Richard is a real-estate developer, taking the raw land and developing it … We’re trying to liberate these domains from the cybersquatters and actually put them to good use.”
Demand Media isn’t the only company trying to turn domains into a meaningful media business. Publicly traded Marchex Inc., which owns 200,000 site names including Debts.com and CollegeGuide.com, is in the process of upgrading its portfolio of Web sites to include more content.
Last year, Marchex added weather forecasts, maps and demographic information to 52 Web sites that it owns with ZIP code names, such as 29445.com — the ZIP code for Goose Creek, S.C. Marchex said traffic to the enhanced Web sites more than doubled during the five-month period ending Jan. 31, driven in part by the fact that better content increased the site’s rankings among search engine results.
Other big players are also realizing the need to bolster their domain holdings. YesDirect Inc., Waltham, Mass., is pursuing a strategy of adding content to some of its premium sites, such as sportsunlimited.com. And Houston-based Internet REIT Inc., which owns more than 400,000 domain names, has added content and social networking features to some of its premium sites such as africanamericans.com, americanrevolution.com and mutualfunds.com.
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