This introduction to domain speculation was given at the ICANN Domain Name Marketplace Workshop on 27 June 2006.
Tim Cole, ICANN, Chief Registrar Liaison
The classic model that people have of domain speculation is that I may find an interesting domain name, perhaps I may have registered the name of some, you know, common household item or a term of current interest, and then I then seek to sell this domain name at a higher value to someone else.
That classic picture of what goes on in domain speculation is largely not relevant to the market forces from which value is derived from domain names today.
The largest force occurring now is what's called domain monetization.
It turned out that in the late 1990s and several years ago, there were people who had accumulated large portfolios of domain names, thinking that, well, some of them I can resell at a higher value.
The question arose, what can I do with these domain names in the meantime?
And one of the things that people found was that if I have a domain name such as lipbalm.com, a common household product, or photography.com, these names have value simply to provide links to merchants who deal in the products denominated by those sorts of products.
So the types of pages that one will find at a monetized domain very often people say, oh, well, this domain name is not being used.
Well, actually, it is being used.
And these links that you see on a page such as lipbalm.com or photography.com earn money simply been accumulating the traffic that comes to them.
There is a point of view that says, well, these are just, you know, ugly little Web pages with a bunch of advertising links and no real content.
The other way of looking at it is that there are generic terms such as lip balm or photography which, if, for example, "lipbalm" was registered by one vendor of lip ointment who was in a geographic location remote from you, it may be someone's blog about how they love lip balm and all sorts of fascinating information about lip balm.
But if you are an Internet user who used the navigation bar, as many people do, because of the way that certain browser software operates, as a search bar, it's probably more useful to you to find links to relevant vendors and links to more than one vendor who has products that may be of interest to you.
This type of advertising, which you'll hear a lot, is commonly referred to as PPC advertising, or pay-per-click advertising.
Many people call it "paper clip" advertising.
And the way that pay-per-click advertising works is that there are fairly large companies, such as Yahoo! overture or Google, which will consolidate bids on key words by which people can seek to have placement within search results.
I know that many of you are familiar with Google on the right-hand side of the screen, you'll see a set of links apart from what are the organic search results, and these links that appear are paid, and their placement is determined by current bids.
So I used the overture bid tool here as an example.
And for a search term such as "lip balm," the current high bid is 76 cents.
That means that that advertiser will pay 76 cents for each person who visits lipbalm.com or any of thousands of other Web sites that may be advertising limb balm.
That advertiser will pay 76 cents per click to their site.
And you can see that the bids go down from there, 75 cents, 74 cents.
And nearly all search terms that people can type that relate to everyday products or services have a click value, have a maximum bid value.
One of the ones that is of particular concern and advertisers are also concerned about whether or not all these clicks are genuine, these bids can go as high as 25, 30, $50 a click for the word "mesothelioma," which, as a tribute to the legal profession, is a disease of the lung.
And the highest bidders for that term are, surprisingly enough, not doctors, but lawyers.
The common criticism levels at these sites is that they are simply content-free Web sites which earn money through advertising.
And as you can see, we have an example of yet another content-free Web site which earns money through advertising.
That is, there is no original content which is placed at these sites.
And all they do is they seek to earn advertising revenue from people who type things into a space on their computer screen and hit a search button.
And to compare the two models, what the domain registrants are doing, the so-called domainers or domain portfolio owners are doing, is simply taking advantage of the fact that the browser search bar -- or the browser address bar is used nearly as often as a search bar is used in order to locate things that are relevant to various key words.
And the truism of domain names particularly in dot com is that all the good ones are taken.
There are several sources where people obtain domain names at this point.
There is still an active secondary market which has become fairly predictable in that the value of a domain name is determined by some multiple of that domain's annual pay-per-click revenue.
For example, there was a portfolio of nearly 150,000 domain names which attracted 19 million unique visitors per month, which was sold at eight times annual revenue, at $164 million.
The next category are expired and abandoned domain names.
Many people register domain names either they can't determine how to make money with them or they lose interest, whatever.
There are 22,000 domain names which expire each day.
And a number of practices have grown up that are variously called drop-catching.
And these practices depend largely on registrar post-expiration procedures, which relate to the ICANN domain deletion policy.
There's also just blind registration, a term that may be of interest to you.
On the way back from the Luxembourg meeting last year, I noticed that there was this term printed on the side of all of the cigarette packs in the Netherlands, and I thought such a popular term might have value.
And apparently it is the Dutch smoking warning that is printed on the cigarette packs.
I was very disappointed to find that as a domain name, it only gets three visits per month and will not earn its registration fee.
To avoid the speculation risk in blind registration, the add-grace registration or the domain-tasting procedure takes advantage of a fact that domain name under certain circumstances can be registered for five days before a permanent annual $6 payment is due to VeriSign to register that domain name.
So what has been happening as nearly all of the dot com names which are worth $6 a year in pay-per-click revenue have been registered, the question is, how does one find, you know, domains that will earn their keep.
And the process is sort of like mining for various minerals where one takes a large amount of ore and, through various refining processes, saves that portion of the ore which is worthwhile.
There are a number of sources that people use to search through large numbers of strings.
These can be from search engines, dictionary algorithms, and so forth, that people are using to test.