From Canada.com

Club Penguin, a Kelowna-based children’s virtual world website with more than 12 million activated users, has been bought by Walt Disney Co. in a deal worth $700 million US.

According to terms of the deal, $350 million US will be paid in cash, but the website’s founders – Kelowna tech entrepreneurs Lane Merrifield, Lance Priebe and Dave Krysko – can make up to $350 million US more depending on the site’s earnings in 2008 and 2009.

The website, which retains its URL, clubpenguin.com, will now be called Disney’s Club Penguin and remain in Kelowna, where its 130 workers are based.

From NYtimes:

Disney said it would pay $350 million for Club Penguin, a virtual community… More than 700,000 users now pay $5.95 a month to customize penguin characters and then chat and play games with other “penguins.”

“Kids are starting to go to the Internet first, so it is important for us to operate in that space,” Robert A. Iger, Disney’s chief executive, said in an interview.

The parent company has revenues of $442 million and has a market capitalization of $9.67 Billion. R.H. Donnelley’s stock currently trades at nearly 22X their current revenue. This purchase is right in line with the value of their stock so it is a good purchase from my perspective.

Main Source: Domain Tools 

NEW YORK — Inside a midtown hotel, Larry Fischer is on his cell phone with a financial backer as his partner Ari Goldberger does quick research on a laptop computer.

They are bidding furiously at this auction of Internet domain names, with hopes of snagging megayachts.com. The duo won’t be deterred. They want this name.

“$110,000, yes or no? Quick,” Fischer barks at Eli, the investor at the end of the phone.

Someone else makes a bid for $120,000. Fischer and Goldberger up the ante, and then again.

Going once, going twice … sold to Fischer and Goldberger for $150,000.

“You got it,” a smiling Fischer tells Eli. Mazel tovs are exchanged.

These are boom times in an estimated $2 billion industry that involves the buying and selling of domain names. When people type the generic names into their Web browser’s address field, sites that generate pay-per-click advertising revenue appear. Such “direct navigation” bypasses search engines.

“This industry is like the wild, wild West right now and people have no idea how fast it’s growing,” said Jerry Nolte, managing partner of Domainer’s Magazine, a new trade publication devoted to this little-known world.

Some believe the industry’s market value could reach $4 billion by 2010 as people continue to purchase approximately 90,000 names a day and the number of domain registrars swells.

At the end of first quarter 2007, at least 128 million domain names had been registered worldwide, a 31 percent increase over the previous year, according to VeriSign Inc., which runs some of the core domain name directories for the Internet.

“It’s not about words,” said Monte Cahn, founder and CEO of Moniker.com, a company that specializes in domain asset management and held the Manhattan auction. “It’s like real estate. This industry is only about a decade old. People looked at domain names as a commodity. It’s a piece of real estate on the Web that can’t be replaced. It’s your stake in the ground, your stake in the Internet.”

At the Manhattan auction, Fischer and Goldberger snatched up four names for more than $1.2 million and a fifth for a client, representing only a handful of the names sold for a total of $12.4 million during both the live and silent auction.

The auctions were held during a domain conference in June that attracts some of the biggest players in this niche business.

One name — creditcheck.com — went for $3 million but paled in comparison to the sale of sex.com, which sold for $12 million last year, according to Cahn, who knew the site’s buyer and seller.

Fischer, 44, of Brooklyn, N.Y., and Goldberger, 46, of Cherry Hill, N.J., figured there was money to be made early.

Goldberger’s entry into the business was unorthodox to say the least. In 1996, the Hearst Corp. sued him, alleging trademark infringement after Goldberger registered esqwire.com, which resembles one of the company’s magazines.

The two sides eventually settled and Goldberger, a lawyer, was allowed to keep the name. Word got out that Goldberger knew something about the thorny legal issues involving Internet domain names and people began approaching him for advice.

Goldberger’s fascination with the burgeoning industry was sealed.

He eventually left the respected Philadelphia law firm where he worked in 1997 and joined a small startup in Manhattan called mail.com, which was buying up domain names.

Goldberger began collaborating with Fischer in 2001, building their portfolio of domain names. Together, they became a formidable yet quirky team (imagine George Costanza and Jerry Seinfeld with the pioneering spirit of Lewis and Clark).

Two years later, they created a company called smartname.com, which they sold earlier this year. The company took names and provided content and links for owners, getting a cut of the advertising revenue. At one point, smartname.com represented 150 owners with about 150,000 domain names, generating 50 million unique visitors a month.

Most of the sites are lucrative for their advertising dollars. For example, megayachts.com isn’t an actual yachting site, but it contains numerous ads and links for real yacht companies, boats and cruises. The owners of the site get paid each time a viewer clicks on one of those links.

Goldberger and Fischer declined to say how much money they make from pay-per-click advertising.

Bob Parsons, CEO and founder of domain registration company GoDaddy.com, says this type of business is fairly straightforward.

“They make their money in two ways,” Parsons said. “One way is through the traffic they get and the other is the appreciation of the name.”

Parsons didn’t think there was anything wrong with the practice as long as those involved weren’t using names trademarked by others.

“Domain names are becoming 21st century real estate,” Parsons said. “Just owning a domain name as an investment, I don’t see a problem with that.”

Resource

The early days of the domain industry have often been compared to the “Wild West” – a vast, virgin landscape populated by early domainers, typo-squatters, and forward-thinking advertisers. Many in the industry can remember looking with awe (and perhaps a little skepticism) at multi-million dollar domain sales, experiencing the excitement of implementing early monetization strategies and feeling pride at being on the vanguard of an accelerating market.

Today, there’s still plenty to be excited about in our industry: new TLDs and ccTLDs, geo-targeting of IP addresses, local search, the possibility of new IP-enabled devices. The industry is changing quickly, and opportunities are emerging with every shift in the market.

And yet even as the market changes and grows, it is maturing. There are now over 1,000 active domainers, as many as 100 million registered domains and a robust secondary market for domain names. Advertisers are becoming more savvy and demanding better results and more information. Companies are getting smarter and more strategic about how they work together to maximize their share of the advertising dollar. New players are entering the market, bringing new business models and fresh perspectives. Most importantly, legal and regulatory issues are now a big part of the conversation.

As the CEO of Internet REIT, I am tasked with helping our team of domainers and other industry professionals navigate these often rocky waters so we can continue to build on our successes from the past decade. As part of that effort, we spend a lot of time talking about how shifts in the market landscape will affect the domain community. This article examines key areas of significant industry change that domainers should be watching closely in order to inform their future strategies and thrive in this dynamic market.

Consolidation

Perhaps the most dramatic shift we’re seeing today is industry consolidation, which is having a ripple effect on both the advertising value chain and domain valuations.

As the market has matured and experience with direct navigation has increased, advertisers are becoming increasingly focused on traffic quality and ROI rather than just “eyeballs” or clicks. Changes in Google and Yahoo! advertising models, such as “Smart Pricing”, are facilitating these changes. In addition, we are seeing more direct deals with advertisers and more technology-based advertising solutions that improve monetization rates.

n order to effectively serve more demanding advertisers, domainers will need to invest in content development, better keyword optimization and other Web analytics. This shift naturally favors large domainers who are consolidating properties and investing in staff with the relevant expertise. With the resources to invest in infrastructure and apply sophisticated techniques to increase PPC, large domainers can often improve the monetization of particular sites more effectively than a smaller player. Larger domainers may also be in a position to “disintermediate” the middlemen in the value chain and deal directly with advertisers once they have the volume to support this model, further improving the monetization of any given site.

The good news for the industry is that, this improvement in efficiency may have the effect of driving up valuations for everyone. Why? If a larger player can make 5% more on a domain than the current owner because they can more effectively monetize the property, the owner will be in a position to sell an underperforming domain for a premium: it is worth more to someone else than it is to him. It’s a win-win all around.

Valuations

As the market matures, valuations are becoming less about speculation and more about proven performance. At Internet REIT, we look at quality of assets, quality of earnings, the extent to which monetization and development activities have already been proven, and about twenty other metrics – both soft and hard – in determining the value of a domain. This methodology is in stark contrast to the “Wild West” approach of guessing at potential value.

With market maturity also comes a greater need for predictability, which is putting the value of certain types of domain name portfolios at risk. For instance, we see lower valuations on the horizon for anything trademark-related; portfolios with a majority of “at risk” categories (gambling, XXX, etc.) and portfolios with a high percentage of unprofitable domain names or high suspected click fraud activities are also less desirable in today’s market.

Legal and Regulatory Issues

Like other fast-growing technology industries, the domain industry has evolved beyond the scope of existing regulations. The most critical legal issue which has not been resolved is whether domain names are “property” or “trademarks.” Why is this important? If domain names are trademarks, any domain remotely resembling a company’s trademark could be taken away from you.

There are currently different rulings on the trademark issue in different states; for example, Virginia says domains have property rights, California says domains are just trademarks and can be assigned. It’s difficult to know which way the wind will blow with this issue, because there are no federal or international rulings. Even the criteria for deciding what constitutes a trademark are highly subjective. While “Starbucs” may closely resemble the name of a major coffee company, what of “Starbooks”? (currently the site of an Israeli architect, incidentally… and for sale).

Any rulings or legislation on this issue will clearly have a major impact on the industry, and new rulings are no doubt on the horizon. Unfortunately, while trademark holders have been given huge latitude to prosecute, the domain industry does not have a common voice with which to offer an opinion or lobby for our rights.

Industry Cooperation

This community has a real opportunity – and, some would argue, an obligation – to come together with a common voice to promote and protect our industry. Initial efforts are already underway to form an industry association to serve this purpose. An association would continue to teach advertisers the value of direct navigation, lobby against harmful legislation and for a federal law on trademarks. It would look for ways to self-regulate so that others do not intervene on our behalf.

On a grassroots level, we should all be advocates for the industry, whether we’re talking to the press, discussing the industry in a keynote presentation, or working with partners outside the industry. As a community, we need to change the conversation in a way that promotes positive market perceptions about the domain business and counters some of the negative perceptions that are a legacy of the Wild West years.

When we at Internet REIT talk to people about our industry, we like to stress precisely the points I’ve covered this article: the market is growing, solidifying and becoming more professional. We tell them that there is an increased sense of community and collaboration, with attendance at conferences such as T.R.A.F.F.I.C, ad:tech and the Domain Roundtable growing every year. We also point out that our industry has reached a critical point in its development, where veteran domainers and other professionals have a real understanding of the issues facing our business, the key drivers behind value, and what it will take to influence our own destiny.

Most importantly, we tell them that it’s an exciting time to be in our industry, as businesspeople and entrepreneurs converge to create the next Internet frontier.
At Internet REIT, we believe that talent is the most precious resource. Not only are we looking to purchase portfolios of Internet domains names (both large and small), but we’re also looking to hire people of high moral standing, a strong work ethic, with a passion for the business and who love a challenge. Please contact us if you have a portfolio that you’d be interested in selling or are looking for the next opportunity in your career (or ideally, both!)

Currently, one in ten Internet users are Spanish-speaking, however this figure is increasing by leaps and bounds. The number of Spanish-speaking Internet users has grown 231.1% in the last six years (2000-2006). This growth rate surpasses that of English-speaking Internet users at 135.2% over the same time period. Naturally, this astounding increase also means massive growth of Spanish domain traffic. For example, trabajo.com (work.com) received 18,000 visits in October 2004, while the same domain received 27,000 visitors just last month.

This surge in traffic has been accompanied by a large improvement in the Latin American economy, and most notably from Spain, a country that only 30 years ago freed itself from the clamps of fascist dictatorship. In fact, Spain may be the most under-rated economic success story in recent years. Since the fascist dictatorship, this country of only 45 million people – roughly the size of California – has become the eighth largest economy in the developed world, expanding over 40% in the last decade alone.

The economic upswing in Spain and in Latin America, combined with the rising penetration rate of Spanish-speakers on the web, has also encouraged many companies to start advertising in Spanish on the Internet. More competition over Spanish keywords, inevitably leads to higher PPC rates for domain owners. Essentially, the Spanish domain market is still developing and has yet to reach its threshold.

Despite cultural and economic differences between the various Spanish-speaking countries, the .es ccTLD of Spain, España in Spanish, has received a warm welcome. For example, last year the .es ccTLD driven by liberalized registration requirements and marketing, grew by 400% over one year. The traffic data surrounding this new liberalized TLD are quite impressive; Spaniards are increasingly likely to use their country TLD, but what is more surprising is that the .es is also the reference TLD for people on the other side of the Atlantic. Basically, Hispanics in the US have associated this TLD not only with Spain but also with the Spanish language, identifying the .es as a sign of Spanish content. Consequently, Sedo data shows that between 15-25% of .es portfolio traffic comes from the US and Latin America.

In some Latin American countries, the local TLD is also well developed. For example, Argentina has exceeded one millon .com.ar registrations, surpassing the ccTLDs of the US and Spain among other nations. Although this TLD is already well established, it is still possible to find good deals. For example, porn.com.ar, sold for 1,000 EUR, mobil.com.ar sold for 2,000 EUR, and ringtones.com.ar sold for 1,800 EUR.

Mexico´s own .com.mx TLD is also well established. However unlike Argentina´s impressive registration rate, there are currently only 170,000 registered com.mx domains. Considering that Mexico is one of the most populated countries in the world with more than 105 million inhabitants, and a mere 17% penetration rate, it is certain that this TLD still has major opportunities. Some of Sedo´s latest com.mx sales include:

* Game.com.mx: $4,000
* Gol.com.mx: $800
* Contactos.com.mx: $1,000

Another key Spanish market is the Hispanic population in the US. Today, there are more than 44 million Hispanics living in the US —almost the same population as Spain. This number represents approximately 15% of the entire US population. What’s more, this group is growing four times more than the average national population. By 2050, the US Census Bureau estimates that 25% of the US population will be considered Hispanic. In the L.A. area alone, a whopping 80% of the population between 12 and 19 years old is Hispanic!

As the third most populous country in terms of the number of Spanish-speaking Internet users (exceed only by Spain and Mexico), with an estimated purchase power at around $735 billon, the US market has become crucial and companies are acting fast. Hispanic advertising in the US saw a growth of 20.5% last year which means better results for the PPC industry.

The TLD of choice for this particular social group is the .com, followed by their own country’s ccTLD and as previously mentioned, the .es, as it is a symbol of the Spanish language on the Internet. This leads us to speculate that perhaps we will see an increase in .us domains with Spanish terms in the future.

Although these ccTLDs have gained influence, and in some countries may even be as popular as the .com, the .com remains king of domains. The biggest Spanish domain sale in Sedo history was viajes.com for $300,000 in 2004. That same year, the biggest sale among all TLDs was juegos.com (games.com) for $1 million. This domain was re-sold last week to a gambling company; however the price has not yet been reported but is estimated to be between 10 or 15 times the 2004 purchase price. In other words, juegos.com will be one of the top five biggest sales ever. ¡Ole!

In response to the ever-increasing Spanish-speaking market in the US and in Latin America, I have moved from our Cologne, Germany office to our office in Boston to create a Sedo team to better serve these markets. If you would like more information, and/or would like Spanish language assistance, my team and I are at your disposal. Please feel free to contact us at correo@sedo.com.