Domain Parking is Dead – Domain Profit Sharing Killed It

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The humorist Mark Twain wrote in 1897 that the reports of his death had been greatly exaggerated. And indeed they had. Twain was only 62, and he still had many years of humor tucked away in that prolific cranium. Domain parking is not nearly that old, and many commentators are already writing about its death. Is it really dead? And if so, what killed it?

What is Domain Parking?

Domain parking is the practice of registering a domain name and then allowing a third party to place ads on a site located at the registered URL, so that any key-in traffic is captured and converted into revenue as people click on the ads. Some domain name registrars, like GoDaddy, park newly-registered domain names as a matter of course until those names are built out. I like to refer to this type of parking as passive domain parking. The registrant (owner) of the URL does nothing and receives nothing.

The next level of domain parking is what I call “affirmative” domain parking. It occurs when a third party actually takes active steps to create content on the “parked” name. Companies like Sedo, Trafficz, Fabulous, and Skenzo have been doing this, with varying degrees of success, for many years. Included in this level of service are companies that attempt to add content through social marketing and through automated means. They theorize that by generating unique content, they can increase their traffic and get better conversion on ads. The URL owner gets a portion of the proceeds.

In all domain parking, the exclusive ultimate source of revenue is ads.

Why Would Domain Parking Be in Danger?

Ad-sites have traditionally relied on two sources for traffic: search engine referrals and key-in traffic. Both sources of traffic are under attack.

Google and the other search engines have always been suspicious of ad-sites, but in recent history, Google has increasingly devalued (for search engine purposes) any sites that do not give Google patrons exactly what they are looking for on the first click. (If you’ve ever clicked on a search result and experienced the frustration of landing on an ad-site, you know why Google has moved in this direction.) In other words, Google wants its patrons to go from the Google results page directly to a one-stop site that either sells customers the product or gives them the information they want.

For product-specific sites, Google is looking for several things that indicate an actual one-stop site. First, the site must have a lot of content, so that Google can be confident the shopper will find what he or she is seeking. Second, the site has to continually be updated with new content. (In the real world of retail, inventories circulate and change.) Third, the site needs to contain elements that show an actual ability to sell products. In effect, Google is looking to see if there is an active shopping cart and check-out system, terms of service, shipping policy, security certificate, Better Business Bureau seal, and a list of credit cards accepted, along with hundreds of other indicators that the site is actually selling products to customers.

All these factors make it almost impossible for domain parking services to get Google’s respect. Sites parked with parking companies will never accept credit cards; they will never have a Better Business Bureau seal of approval; they will never list an 800 number or offer instant messaging with customer service representatives; in short, they will never do a thousand things that every actual product site does. Consequently, a parked site alone can never achieve great ranking in Google.

To make matters worse, Google has also dealt a severe blow to those parked sites that rely on key-in traffic, like URL’s that are either “keyterm.com” sites or slight variations or misspellings of commonly-searched keyterm URL’s. These sites do not depend on Google’s search engine for traffic (users type the address directly into the address bar), but they do depend on Google and other ad-propagating companies for the ads that are served up to their sites. In mid-2008, Google announced that it would allow advertisers to opt out of ad-sites. Presumably, these sites were directing poor-quality traffic to the advertisers, and they wanted to be able to avoid paying for those clicks, and the result has been devastating to domainers.

How Bad Is It?

Just visit any online forum for domainers, and you will feel a boiling sense of frustration as domainers seek a better return on their names. One almost detects a hint of desperation as some domainers try to find a service that will provide a return anywhere similar to what domainers received in the past. Switching from service to service, they often experience a temporary jump in revenue before dropping off again, leading to even greater frustration. Many are wondering if it’s just their portfolio, or if it’s bad for everybody. And if so, how bad is it?

2008 was especially bad for domainers for two reasons. First, Google’s “opt-out” decision gave advertisers a way to focus their advertising dollars, and many chose to avoid parked pages. Second, the overall economy was just dismal, and everybody is suffering. Summing it up, Michael Mann of WashingtonVC.com noted, “The most significant event for the domain industry in ’08 is Google changing its relationships with bulk domain parkers so they earn less due to blacklisting, advertiser opt out checkboxes, and lower rev shares all around; secondly the crash of the economy overall has been limiting domainer portfolio valuations and corresponding liquidity options.” Commenting on the difficult year behind us, Ron Jackson of Domain Name Journal added, “The PPC (pay per click) business was the first to run aground, falling by close to 50%, according to most accounts.”

This is a stunning reversal, worse than the stock market crash, although few want to admit it. But the proof is in the proverbial “pudding.” Oversee.net, one of the leading players in the domain parking business, recently announced an 18% workforce reduction to go along with last summer’s 10% reduction. Other players have been acquired or have simply disappeared. Truly, the domaining industry is bad all over.

For many domain owners, revenues have not even justified continued registrations. Monte Cahn of Moniker.com speaking to DNJournal.com about domain portfolio owners in 2008 noted, “For the first time, many began to ‘cherry pick’ through their inventories and allow domains to expire that they normally would have renewed.” In other words, revenues had fallen so far that the costs of registering many of these domains actually exceeded those revenues.

Sedo CEO Tim Schumacher was particularly pointed in his comments to DNJournal.com about declining revenue numbers in 2008 and prospects for 2009: “With the negative trends accelerating towards the end of the year, registries like VeriSign posted lower registration numbers . . . and domain investors as well as domain companies saw their advertising revenues and their domain sales decrease. . . . While we at Sedo truly believe in the value of domain names, advertising numbers will continue to be weaker than expected unless the advertising providers will give the domain channel the dedication, transparency and freedom it deserves. . . . The theory that ‘domain names will always grow in value’ is a myth. Instead, smart buying and smart selling always was and always will be the choice of the successful ones. It’s pretty simple: if someone offers you a 100x (yearly!) multiple on a domain name, because he likes or needs the name, and doesn’t care about the traffic, go for it. A few smart companies have already made this a revenue stream, and more will follow.”

Is there a Cure?

The pervasive opinion in the industry seems to be that domain owners will never realize the full potential of their domain names until they start to develop their properties. Ari Goldberg of ESQwire.com told Domain Name Journal, “A significant trend I see is that domainers seem to universally recognize that in order to reap the super-value of domains they must ‘develop’ them. With domain parking revenues down across the board, the move toward development has become relatively less risky and costly (i.e. less parking revenue to lose). On the other hand, the type of development and a domainer’s capability to develop a domain is an entirely different story.”

He commented further, “There are great opportunities for a domain-less individual with industry-specific experience, technical know-how and connections to link-up with domainers lacking these qualities.”

In other words, for domainers, one great option is to find an individual or company that has the technical expertise, industry experience, and desire to build out domains for the URL owners. The company also needs to be willing to maintain and support the site, since most domainers are not interested in taking on a 24/7 job. To the extent there are any vendor relations or customer service, the company should commit to carry that burden, as well.

Of course, such companies are going to want a large part of the action, and the domainer choosing this path has moved completely away from domain parking to the relatively new field of domain profit sharing (DPS).

Domainers considering DPS should ask themselves, “what is my end goal?” If the end goal is to make money, they should compare the parking revenue to the supported projections advanced by the DPS company. If their agreement with an experienced DPS company ensures they can continue to control their URL’s, guarantees a minimum income stream (at least equal to current ad revenues and with performance benchmarks along the way), and offers a large upside, then domainers should seriously consider making the leap.

The best DPS companies take on the entire cost of building and provisioning a site and pay domainers a percentage of “total sales.” Domainers should avoid companies that offer only a cut of the “profit,” since profit numbers can be manipulated. Domainers should also be able to log in to their account to determine rolling sales numbers.

A DPS company should also have experience in the entire process. It should be experienced building websites, and it should be skilled at marketing those sites through every online channel, including search engine optimization. The company should have a history of working with manufacturers and providing top-level customer service and product support. It is even better if the DPS company has all these functions in one place, preferably state-side and in-house, where the teams can communicate and work together.

A domainer should especially make sure the DPS company has a history doing business online and that it can perform its promises. The total percentage payment should not be the sole governing factor. Remember that ten percent of $5,000 in sales is much less than 3% of $200,000 in sales.

There is No Cure

Mark Twain lived for 13 years after newspapers first reported his death. Unfortunately for many domainers, it seems that the prognosticators may indeed be correct this time. Domain Parking may truly be dead. However, for individuals with great domains like product.com names, domain parking will not be missed, as such domainers will partner with DPS companies to convert those great names into truly productive properties.

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Source by Doug Marks