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

11/26/07Follow @wroush

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 Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • http://www.dataconversiontools.com/ Toolz

    Holy crap! 30 million from type in domains in a year, I am in the wrong business.

  • http://www.tidyinternet.com/ Adam Fairbanks

    $30 million in revenue — from $2 million + parked domain names, which is less than $15 revenue per domain name, and less than $7 per domain name profit (average). Not all domain names bring in the same traffic or click-thrus, so some make more than $15 and some make less than $7. If you have a few really good domain names or a lot of above average domain names, it can be very profitable.

  • http://www.successclick.com Stephen Douglas

    Hi Wade,

    You have the exact opposite viewpoint on what Direct Navigation (or a better name “domain direction” or “browser surfing”) is all about.

    It’s not about users being “lost”. It’s about users thinking one of two ideas when they type in the generic phrase or word of the item they’re interested in:

    1) They will arrive at a site that is in fact, a landing page like that of Name Media or 10,000 other domain investors which they know will provide them with a lot of relevant links for sites that provide what the domain describes, or…

    2) They will arrive at a smart company that knows how to blow their competition out of the water by buying the domain name that perfectly describes their product/service. Ask Johnson & Johnson why they bought “Baby.com” which started an uproar in the advertising world in 2005.

    The reality of the internet is that if you own the exact keywords and phrases of the product/service you provide your customers, you are in the best position to shut out your competitors online. There is nothing more frustrating to your competitor than you owning a domain name that describes their product/service.

    There are huge lists of domains owned by Fortune 1000 companies who have realized this and pay tens of thousands to millions of dollars to obtain ONE domain.

    It’s not easy to understand this business if you haven’t looked at it from the multitude of marketing angles a domain name provides for a company and analyzed the return on your investment. Simply put, a domain name is an “appreciable marketing asset”. It makes you money continually 24/7/365, and increases in value each year you own it.

    I wouldn’t be worrying about companies like Name Media or Demand Media and other domain conglomerates headed up by big name CEO’s who were involved in major successes in the brick and mortar world. A little more investigation would provide you with that “inside info”. Domain names, in my estimation, are the most valuable commodity any investor could sink their money in right now.

    You can contact me if you want to find out more, or just visit my blog at http://www.successclick.com.

    Stephen Douglas

  • http://www.tidyinternet.com/ Adam Fairbanks

    Amen Stephen.

    Premium domain names are “premium” because indended or not, they are where the traffic is going.

    Naive marketers will create a marketing campaign and put a URL as “the” landing page for their campaign. But what they don’t realize is that people often don’t enter the URL that’s in the marketing literature (especially if it’s an obscure one).

    Instead, they often enter what they “remember” or subconsciously what they “think” it should be (especially if it’s offline marketing and they are not able to enter a URL immediately).

    So marketing campaigns usually push traffic to *dozens* of “landing pages,” in addition to the “official” landing page in the marketing literature.

    Another disconnect is that landing pages created by companies are often “mycompany.com/mypromotion,” instead of “keywordphrase.com,” which is what many people think/remember and where they go.

    So marketing departments wonder why their marketing campaign is not generating a lot of traffic, and it *is* — just to other landing pages:

    Intended:
    mycompany.com/mypromotion

    Unintended:
    keywordphrase.com
    keywordphrases.com
    keyword.com
    keywords.com
    keywordkeywordphrase.com
    keywerdphrase.com

    The good news is it’s usually fairly simple to find out what those “other” landing pages are — or will be — by checking the popularity of related keywords using the AdWords Keywords tool, Overture’s Inventory tool, Wordtracker, etc.

    The bad news is that those domain names may already be taken. Which is why it’s important to plan the keyword landing pages *before* the campaign is launched, so the campaign can use keywords whose domains can be acquired or used.

  • http://www.linkedin.com/in/adamfairbanks Adam Fairbanks

    I believe this comment by Wade is definitely true for some users:

    “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.”

    I’ve also learned (by observing users directly) that many users type keywords into their browser’s address bar for these additional reasons:

    1) Since browser toolbars like Google Toolbar and Yahoo Toolbar are so prevalent today and since the Toolbar Search field and the browser Address field are usually right next to each other, often users think they are using their Toolbar Search when they are typing the keywords into their browser’s Address bar.

    2) Many internet users are not computer savvy, and they simply type the keywords in the first field they find at the top of their browser — maybe it’s their MSN Search Toolbar and maybe it’s their browser’s Address field — they don’t know the difference. In fact, many don’t even know what a Toolbar is or how it got there (since it was probably installed during the installation of another application, which is a common distribution method).

    3) Yet others (especially AOL users) have never been trained on using a search engine, believe it or not. They just click the internet icon on their desktop and enter a search in the first field that comes up (ie, the Address bar).

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