Let Your Fingers Do the Crossing: “Direct Navigation” Companies Heat Up

The statistics are hard to believe, but hundreds of thousands of Internet users are apparently so intimidated by conventional search engines that they find things on the Web by typing random, imaginary domain names into their browsers’ adddress bars and hoping against hope that the made-up URLs will lead to something useful.

And sometimes, they actually do. Type in “www.leatherluggage.com,” for example, and you’ll be taken to a site with dozens of ads linking to companies that sell bags, briefcases, and even backpacks made from cow skin.

It’s a hit-and-miss affair, obviously. But give this scattershot way of locating Web pages a name like “direct navigation,” and it begins sounds lofty and purposeful—like something you could actually build a business on. And that’s what two local startups, Waltham-based NameMedia and Cambridge-based Sedo, are trying to do.

Both companies deal in Internet domain names—NameMedia by buying and selling them directly, Sedo by running online auctions. Both companies host placeholder sites on domains owned by other parties until they’re turned into real businesses. And both wring profits from these “parked” domains by filling them up with keyword-related ads provided by Google or Yahoo. Every time visitors click on these ads, the companies and their clients receive a fee. In fact, NameMedia reported revenue of $29.8 million from such ads in 2006 and another $30.4 million in the first nine months of 2007.

NameMedia styles itself as an Internet real estate broker, both buying and selling domains with valuable (i.e. attractively generic) names and “developing” other Web properties by helping domain owners earn cash for their unused names—rather like renting out billboards on disused lots adjacent to freeways. And now the company wants to take its business public, saying that it hopes to raise $172 million in an upcoming initial public offering.

In its registration statement filed with the Securities and Exchange Commission, NameMedia notes that direct-navigation traffic is increasing, and that the sheer number of registered domains is skyrocketing—some 65 million new .com and .net domains were created in 2006 alone, according to VeriSign. “As the volume of undeveloped domain names continues to grow, the demand from domain name owners for monetization services will increase,” NameMedia argues.

But it’s a curious kind of business that depends for its existence on consumers’ cluelessness about finding things on the Web. Coming upon a direct-navigation site can feel like stumbling into the lair of an obsessive-compulsive link collector. At Freefonetones.com, a domain parked by Sedo, you will find a list of such enlightening headlines such as Free Cell Ringtones, Get Free Ringtones, Free Ringtones, Ringtones To Your Phone, Ringtones, Download Ring Tones, Get 10 Ringtones, Download Music Ringtones, and Real Ringtones. The sites feel obsessive, of course, because they are populated automatically by ad-placement software tuned to watch for keywords.

Sometimes, NameMedia or Sedo will develop one of their domains into a subject-based portal—or at least a close-enough simulacrum of one to convince casual visitors. For an example, check out NameMedia’s site Photography.com, which is ostensibly a community site about taking good pictures but which dissolves, upon a bit of digging, into a collection of ads, stock photos, and product reviews recycled from other sites.

The direct-navigation companies are not insensitive to editorial quality. “We want to produce pages that consumers really value, so that when they show up at that page they’re happy they found it,” says Jeremiah Johnston, Sedo’s general counsel and chief operating officer. But in the end, the content of a direct-navigation site need only be good enough to get the unsuspecting visitor to click once and leave.

And that’s enough to justify these sites’ shadowy position in the online universe, in the eyes of some generous observers. “There are an amazing number of people who simply guess that if they want a particular product, such as ‘running shoes,’ they need only put those words together and slap a dot-com on the end to find something relevant,” Danny Sullivan, editor-in-chief of news site Search Engine Land and former editor of Search Engine Watch, told me. “Sometimes that works, where they get to good, solid, editorially-driven sites making use of a generic name. Sometimes, they end up at a page full of ads.” Either way, Sullivan figures, they’re getting something useful.

And it’s the ads that keep the domain-name startups and their potential investors drooling. Click-through rates for ads on direct navigation sites are higher than those for ads on search-result pages. Even more importantly, the “conversion” rate—that is, the percentage of click-throughs that result in actual purchases—is, for some reason, almost twice as high at direct-navigation sites (4.23 percent) as it is at conventional search sites (2.30 percent), according to a three-month study conducted in 2005 by WebSideStory. Aggregated over thousands of visitors, an advantage like that adds up to real money, which explains why advertisers who use keyword-based programs like Google’s AdWords and AdSense are, for the most part, happy to have their ads show up on parked domains.

And which also may be enough to launch NameMedia to a successful IPO and to keep Sedo growing (the company purchased generic domain-name trader GreatDomains from VeriSign in June and now has more than 3 million domains in its parking lot). “Even accidental Internet traffic can potentially be valuable if you present the person with what they’re really looking for,” says Sedo’s Johnston. “And even a click-through rate in the 10 percent range can be extremely valuable.”

That’s undoubtedly true. But to this reporter, direct-navigation sites are more than just the Web’s 21st-century, hyperlinked equivalent of the Yellow Pages. They’re more like big malls where everyone arrived by getting lost, where all the stores have hauntingly generic names, and where somebody collects a fee every time you stop to look at a product. Call me a snob, but I’ll be doing my Christmas shopping over at Google’s.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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