Yesterday, I wrote a post about the parked domain monetization business. Since then, I've begun talking to a variety of people here at the ICANN meeting. It is clearly a complex issue and I have decided to suspend judgement until I have more information. I think that these "professional registrants" are clearly a different group than "user registrants". I think we should differentiate people who buy domains as their primary business to people who use domains to use in their business. It could be argued that professional registrants "use" their domains to run ads, but I think most of these professional use tools like Google AdSense for domains which automate the process and does not require the professional to engage in the business of actually running a web site or service.

I am going to try to gather as much information as possible before I come to any conclusions. I urge people, especially those people who are in this business, to help me understand the issues and nuances. I've just started a page on the ICANNWiki about this. Please contribute there as well. Thanks.

30 Comments

What I personally dislike about those people are that they search allover the registrars, they sign-up for domains who are not renewed, and then they take it, and offer them at higher price to their owner.
I am from a country where there's no credit cards. Obviously some people have lost their domain names because they couldn't pay the fee in time.
What they faced was that their domain was taken by the so-called businessmen, who use advanced software techniques in order to, how you call it, cybersquat their names!??

It's not fair, it's not moral, and it's against normal commercial rules.

It's good if you and ICANN can stop this somehow.

Who should watch the guards?? They formed today a coalition to control you, but who will control them? Besides, their coalition seems like an association of wolfes to protect from the lambs.

It's a business. Approach it from a business standpoint, not a feelings standpoint. Is it ethical. I think so. Is it right maybe. Should ICANN intercede no. More legislation on the net is a bad thing. No matter who it comes from.

I think above all, these people are SPAMMING search engines, with UNRELEVANT websites that have yet MORE spamming advertisements.

The domain "watchers" who steal domains as soon as they expire is also violating a US statute regarding commerical property where the contract holder must be given reasonable time to renew the contract before it is given up to competition.

A friend and very knowledgeable guy on the topic has a good write-up on the economics and sometimes nasty incentives of domain parking, at least as Marchex pursues it:
http://berk.typepad.com/bshaw/2005/11/irrelevant_traf.html

A follow up post is here:
http://berk.typepad.com/bshaw/2005/12/more_marchex_ar.html

Note: this is my friend's hobby investing blog and he definitely has an editorial point-of-view and he's put money behind that POV.

Aside from the general principle that ICANN should not be interfering with the actual use of domains, there can be no clear distinction between what you term "professional" and "user" registrants. Further, registrants' use of domains changes over time, rendering even per-domain distinction impossible.

Example: www.fineartprints.com used to point, via an "enter here" page, to a supplier of framed art prints. That not having been entirely satisfactory in terms of ROI, it has recently been changed over to containing self-optimizing PPC ads while we work out exactly what type of products its visitors want. Already that is a more lucrative option, but given a suitable opportunity and the time to invest in it, we could still use it for what some might think of as a "real business".

Andrew, good point... But clearly the incentives and needs of someone who has 1000 domains vs someone who is trying to get a domain for the purpose of making a blog or a small business web page are different. I'm sure that there are the mom and pop shops that fall in between. One purpose for this distinction is that I think the professionals will eventually get a voice in the ICANN process and are actually here at this meeting in Vancouver. I think ALAC should work on how to get the voice of the user registrant into the process. These users have the ability to speak through their registrars, but I think the voice of the professionals might be louder to the registrars since they are probably better customers, buying more domains and value added features.

Please let's not confuse things.
A cybersquatter uses a domain name that infringes on someone elses intellectual property such as a trademark. If someone has infringed on your rights to a domain, you have the UDRP process as a recourse. You are already protected from "cybersquatting"


Killroy, If you registered the domain name initially, then you obviously have the capability to pay for the domain when it comes up for renewal. If you don't have the sense to keep it renewed or extend the length of the registration upon purchasing the domain intially, there should be no reason for you to lash out against someone who purchases it when it expires.

People purchasing domains after expiration and "cybersquatters" are not one in the same as you try to equate them to one another.

Jonathan - Spamming search engines ? Can you please elaborate? Is a domain/website that shows relevant content considered spam now?

It does no good in this discussion to classify someone as a spammer or cybersquatter, if you don't know how their business operates and don't understand the business.


Joi, what about a person or business who uses domains to route the traffic to their website? I would really love to have the domain name auctions.com as I have a "business interest" in this name. However, apparently cnet.com has used this domain name to redirect it to their website, which happens to be filled with advertisers. According to the logic displayed by other comments, they must be spammers and cybersquatters too I suppose. The logic above would lead to the questions : Does cnet.com have anything to do with auctions ? Why should they own auctions.com ? and that would lead me to say Why is it your business? and What's the probelm with this?


Parked domains provide content and redirect traffic to advertisers. If the internet user came to the site and didn't find value in what was presented, they wouldn't click. If they didn't click there would be no "parked pages"

With respect to regulation. I'm not talking about increasing regulation through ICANN. It is just that policies like the 5 day refund grace period create opportunities for people to "exploit" this to lower risk and make more money. The ability for registrars and registries to use traffic data in their contracts with ICANN affect this business. The pricing of domain names in the ICANN agreements affects this as well. The registrants should have a voice in the process and I'm trying to understand the dynamics to make sure that everyone is fairly represented.

The "moral" issue comes into play when identifying the "value" of a player. If there is some contribution to the common good, I think it is easier to get the consensus of the rest of the stakeholders.

Adam: Agree. We should differentiate cyber-squatters from parked domain owners.

To drill down a bit on where I think I still have a question is... With the increase in consumer generated content, are these new content generators getting the domains that they want? Are they being "crowded out" by professional domain registrants into other TLDs like .info? Is this necessarily bad? I agree that a parked domain might arguably be better than a 404, but is this something that should be addressed at the domain name level or something that can be addressed at the application or search engine level?

That example of auction.com and CNet is a good one. I'll have to noodle on it a bit more.

Are there any metaphors or similar situations that we can learn from? Is real estate a metaphor that makes sense?

Joi,

I think a major problem is the Registrars! Many registrars have been holding domains after they expire sit on it (with advertisements on the page) for 5 days to see if it has traffic and and if it makes them money. If it does then they keep the domain! I think that is a problem.

Now if someone wants to own God.com when it expires their are plenty of services he could sign up to capture it. The same services that professionals are using can be used by normal people.

The business of sitting on a domain like god.com and selling bible advertisements should be perfectly legal so long as it doesn't infringe of any copyright or trademark. If someone wants to own 1000 domains that do not infringe on a patent or trademark and use them for advertising revenue why should we be concerned?

This is the way free markets work.

If someone registers sunsystems.com and SUN believes that it infringes on their trademark or patent then they have URDP and ACPA to fight with. The little people do not. For example hackercracker.net was taken from my, it is a service mark of mine but in all honesty I would have to hire a lawyer to get it back because URDP and ACPA processes aren't for the faint of heart or someone that doesn't have time to fight these things.

The loophole is what it is. Every business model has loopholes that someone will take advantage of for profit. Many of the root DNS providers have access to these traffic logs and use that to buy domains WITHOUT testing the names since they know already the names will receive traffic. This is another loophole that isn't being mentioned in your posts. Should we close all loopholes so that no business can be conducted ?


Analogies

Sure. Realestate is a good analogy. If you can't set up your store on ".com Boulevard" because the price on the name you wanted is too high , you can buy on ".info Avenue" and set-up shop there instead

In the real estate world, if you provide a valuable service, people will still find your business even if you are in a back-alley neighborhood rather than Times Square. Sure it will take more work in advertising and marketing but that's the cost-to-benefit that the business owner needs to determine when deciding where to "locate". If you choose .com in general it's akin to choosing Times Square.

Don't you think the casinos would love to own the entire Vegas strip ? There's fast food chains, Walgreens and yes even small businesses situated on this land that likely is worth millions.

In the .com space, mom and pops still can operate on a great domain (virtual property) Those that got them early have seen them become more valuable. Those that are coming to the table now in hopes of securing a great name like computers.com, auctions.com can be compared to those wishing to buy a vacant lot on the vegas strip. Is it a crime or SQUATTING that the landholders of these vegas properties won't sell for cheap ? Is it a crime that they rent the property to a small business person who might only hand out flyers/coupons for casinos when a perfectly "legitimate" business like maybe a shopping center could be built on that land? Is it unfair for a landlord to divide up that land and rent it to several companies selling similar services?

Adam: I don't think closing loopholes will make it so that no business can be conducted. I think that rules that have unintended consequences that create loopholes should be reconsidered. If the exploit of this loophole doesn't have significant costs to the community, maybe it doesn't matter. My point is to analyse and look for any unintended negative consequences.

Ejovi: I generally agree with you about free markets, but left unchecked free markets can create monopolies and free markets can aggregate influence. Part of ICANN's job is to make sure that all of the stakeholders are represented in the consensus process. With increasing influence of domain parkers through their increased revenue to the big 3 portals and the registrars, I am just wondering whether we need to increase the voice of the ordinary user.

For instance... I used to live in Hawaii. Speculators came and raised the price of land. The natives has to move to poorer and poorer areas. This analogy might or might not be accurate. Is .COM an island? Are there "natives"? Should they have some voice on rules that may promote or hinder real estate speculation? For instance, simply changing the tax laws for real estate sales can lubricate or cause resistance for speculators. The analogy in domains would be cancellation policy and pricing.

Another analogy would be whether people who are involved in city planning should be allowed to be in the billboard business... because they would have an unfair advantage.

Again, I'm still trying to understand the dynamics more and am not making any judgements yet. It could be that this business doesn't harm the system and the argument that parked domains are better than 404's is correct. I do think we need a dialog with this industry directly, rather than just through the registrars.

If you are doing business, then you are speculating. Period.

Oh btw, what were you doing in Hawaii? If people like you had stayed home, then natives wouldn't have to move poorer areas. Don't blame just speculators.

We are all hypocrites, aren't we?

Speculators are different from "just doing business". Japanese real estate agents would buy their own listings to jack up the price. They were gaming the market. This is very different from someone renting an office to set up a business. I was in Hawaii primarily to see if I could help set up a univeristy Internet and help the local government on IT policy. I don't think I had much to do with displacing natives. In this particular case, I don't think I'm a hypocrite.

Let me state from the outset that my position is very close to Adam Strong's, and that I consider attempts at regulation (especially when "moral" considerations are bandied about) with extreme circumspection.

Buying a domain name that a previous owner let expire, IMHO, is not cyber-squatting, and I see little reason to regulate attempts by people to monetize parked domain names by generating ad revenues. If this has a detrimental effect on the click-through or sales conversion rates of the ads served, that should be an issue to be dealt with by the ad infrastructure providers like Google or Yahoo, and by market forces (e.g. by exerting a downward pressure on the ads' prices)

My concern lies elsewhere. This interesting article seems to suggest that about 2% of the .COM and .NET domain names served by VeriSign are fleeting, and cannot be recognized for revenue purposes, as their registrar fee will have to be refunded by VeriSign within the 5-day grace / “returns accepted” period.

Let's do a wild back-of-the-envelope calculation based on the (admittedly suspect) factoid derived from the above article.

A 2% churn of the 44-million .COM and .NET domain names per five-day period suggests that a total number of domain names equivalent to about 150% of the database size will be added and then deleted / refunded over the course of one year, without any net payment.

Let's compare this figure to the database update (adds/deletes) operations caused by normal, paying transactions:

- If a .COM or .NET domain name has an average lifetime of 3 years, about 33% of the domain database entries will trigger “delete” operations per year.

- The number of registered .COM and .NET domains seems to grow by about 30% per year. These new, non-fleeting domains will trigger “add” operations.

So, on the one hand, we might have, over the course of one year, relative to the database size:

- Circa 150% of non-paying "add" and "delete" operations by people "tasting" the domains and returning them within the 5-day grace period.
- Circa 33% of "delete" operations for old, expiring domains that had paid their registration fee.
- Circa 30% of "add" operations for new domains that have a lifetime longer than the 5-day grace period, and will thus actually pay their registration fee.

The "tasting", non-paying operations might thus comprise 150/(150+33+30) ~= 70% of the yearly update and replication load imposed on the .COM and .NET TLD servers.

We'd of course need more detailed figures from VeriSign to establish whether the percentage of the free-riding load on the TLD infrastructure could be as high as that back-of-the-envelope calculation indicates. Still, the article I referred to above seems to suggest that such "tasting" traffic might be growing. One thus wonders whether domain tasters shouldn't be forced to shoulder part of the costs of providing a working TLD infrastructure, perhaps by eliminating that distortion-inducing 5-day registrar grace period, making all domain name registrations – i.e. sales — final, not subject to refunds.

Economic forces (e.g. competition or proper cost allocation) will generally eliminate free riding, or the use of shared infrastructure without shouldering its cost, or taking advantage of loopholes. For example:

Electrical power isi usually billed based on the power consumed, but with AC, the actual power delivered is dependent on the phase difference φ between the voltage and current sinusoidal waves. At the extreme, an AC signal driving a purely capacitive or inductive load might have a phase angle difference φ of about 90 degrees, resulting in no net (billable) power being delivered to the load (V(t)*A(t)*cos(φ) = 0 if φ=90 degrees), even though that load might be drawing huge currents through the distribution lines. A utility company will typically apply financial penalties, or force a subscriber with a bad power factor to deploy phase correction equipment, even though that subscriber might not be drawing any "net" power from the grid.

As another example, in the banking sector, clients would frown upon a bank that would take, say, 5 days between debiting one account and crediting another when executing a transfer. Depending on the payment traffic intensity, that 5-day "float" could yield a huge nearly-permanent pool of interest-free money for the bank...

The free cash float is a fantastic analogy MostlyVowels. I believe Amex has some billions of dollars in travellers cheques that it is able to invest (probably in the short term money market.)

Joi, have you considered that there may be a stand-alone business in 'borrowing' domains for five days at no cost, and selling ads on the domain, which generates some revenue, with no intention to ever buy?

(Naturally if the ad revenue is good enough after five days, one can actually pay for the fees as well.)

If you were a bank, you'd look to recover transaction cost on these short term domains by eg. charging a $1 non refundable fee for the trial domains. That's not a material cost to real businesses (after all, they have to set up web sites, hosting services and so on.) It might be material to businesses that make money off the five-day float.

I posted this on your previous thread on the topic, but it seems stale now, and I was too late to the action.

Well, the only problem I see is that you're not monetizing your domains enough!

Why? You're providing these guys with a free option. The cost of that option should either be a non-refundable fee for the option to return the domain, or you should just sell the domain outright without the option to return it. They can always sell it later if it does have any value.

But regarding the business model of these guys, I think you should consider the broader perspective. They are actually providing a great (and costly) service to the economy by searching out the money-generating site names. They are basically doing an experimental appraisal of domain name values. You don't know how much money can be generated merely from the domain name until these guys buy them and try it out. Many people don't have the resources to do this, and the market is better off knowing the value of these domains...

Furthermore, they're generating value by giving at least some consumers something they want, whereas before, they'd just get a 404. If 5/1000 people find something they're looking for instead of finding a blank page, that's a benefit and a slightly more efficient economy.

Having to pay for the domain at an increased value because someone else found a way to make some money from it is simply a proper trade, since the new buyer already knows he can get a certain amount of traffic on the site for free.

The only problem comes where the domain parking guy attempts to register and exploit domains which gain some or all of their value from another company's goodwill; in otherwords, from another company's trademark or reputation. This is where anti-cybersquatting law comes in, so we do have solutions for that.

In sum, I don't think the business model is a problem, but you should not give people a free option if you don't want them to get something for nothing.

Lot's of good points here. Just one quick comment at this point, regarding 'search engine spamming':

Jonathan, a lot of the sites that we are talking about here are actually not even listed in search engines. Most 'parked parges' just featuring PPC ads, will never appear in search results, but will mainly be accessed by people directly typing in the domain into the address bar, or by visiting links from other sites.

Just in case you did not see it yet, here's a link to the article in the December issue of Business 2.0:

http://www.business2.com/b2/web/articles/0,17863,1132510,00.html

Well, after reading all of the comments here, I had to re-read the original post and related article to remember what it was that started this whole discussion. It scares me in a big way, to hear that anyone is considering regulating how domain names are purchased because people either park domains or buy them and run ads on a page. Let's look at it this way. ICANN says that you can no longer park a domain. Not sure what that would mean, but let's assume that means that a domain purchasor has to put up a "website." What is a website? A one page website, does that count? Is there a certain number of words that have to be on that one page? Does it have to be more than one page? How often does the content of these pages have to change? The questions can go on forever. Bottom line is that this is dangerous ground for ICANN to be walking on. IMHO, I think they should leave it alone.

The 5 day deal is silly. There is really no reason why there should be a grace period like this as domain names are so cheap, the risk associated with purchasing a domain name, or an unintended domain name, is negligible. Domain names cost less than $10 for a YEAR, if you are not careful enough to register the correct domain name, then you just learned to be more careful next time and you might have to miss out on a lunch at McDonalds (about the same price). Ditching this policy will probably have dramatic effects and will probably make a large number of domains availalbe that previously were not.

What I can't understand is why ICANN or anyone else has a problem with people (who thought of something before they did), who pay money to register a domain name, should not be allowed to own it and do whatever the heck they want to with it? It is a free country, let's keep it that way.

Joi, I just came across a second version of your first post on Circle-ID. After the comments and discussions you've had, do you think it might be time to recant/remove the term cyber-squatter from the articles on both Circle ID and your blog? You've used a very wide brush to paint a very ugly color on certain business people even before understanding it thoroughly and I think it would be a noble gesture on your part to consider this. I think it's quite clear that stereotyping like this is not conducive to any form of open discussion, "investigating" or "information gathering"

Thanks!

Joi, I have some property in the sticks in MN that had an old barn and a billboard. Years ago I signed a deal with Clear Channel for a 10 year lease on the billboard. They run ads on that billboard and I charge them a nominal fee (to cover property taxes) in comparison to the revenue they probably generate in ads. That area is now slowly becoming a suburb of Minneapolis and I've had several offers of 10x my investment in the 10acre site. I'm guessing the billboard value has increased as well.

My point is that, similar to buying property, buying domains is all about understanding future opportunity and cashing in on the profits at a future date. You can call it squatting if you'd like, but just as Clear Channel saw opportunity in "old school" billboards, new marketers understand the web is starting to build its own suburb in unrealized domains.

There's nothing wrong with making money...

Joi,
I also take great offense at the statement:

"parked domain monetization" operation (cyber-squatter)

This is akin to saying:

She's a pediatric nurse (pedophile).

There is a very clear distinction between the above two forms of "love of children".

Likewise, there is a very clear distinction between registering multiple generic domain names and monetizing them from the practice of registering domain names in order to infringe on a business' trademark rights.

Please let us know you see the distinction.

Marcia, I've apologied for equating cyber-squatting with parked domain monetization and realize that they are not equivalent.

I think domainers have a right to register domains. I don’t think they should be able to do it with no risk and no cost. Domains are a public good and no one should get a free ride.

Should we let people buy government land at low prices, check for oil or gold and get a refund if they don’t find any? How about buy unused spectrum at low prices, if they can’t find a valuable application for it – return it to the government? Perhaps the government should sell bonds and if interest rates go up allow people to get their money back?

I think domainers have legitimate businesses, but the loophole regarding refunds does not make sense to me. ICANN could just change the rules to not allow refunds. Registers could charge a small fee to return a domain. Or perhaps a lower price for a shorter window - $1 to register for 30 days. The wackiest idea might be to auction off expired domains and use the money to fund advanced ICANN projects.

I think the bigger problem with domainers may be that in the drive for growth they sometimes engage in sketchy behavior to drive traffic – search engine manipulation for pages that only have ads or irrelevant traffic arbitrage. You can see examples of how Marchex has been using Google and their partners to drive traffic to Yahoo ads on my blog at http://berk.typepad.com/bshaw

Disclosure: I own puts on MCHX shares.

I think it is absurd that registrants can get a full refund. By all means, allow people to reduce the term of their registration (eg. register for three years, but get two years refunded if you decide to cancel), but don't allow free short-term use of domains.

But then, I also tend to think that registering a domain should not be done lightly. I grew up in the early days of the .au domain name space, where there was an expectation that each organisation have only one domain, then split into subdomains as necessary. Why icannwiki.org and not wiki.icann.org? So, maybe I'm not the best person to express opinions in this commercial age where every product, campaign, or whim gets a domain.

But really, domains are cheap enough as it is. Any registrant who feels she needs a domain for a legtimate purpose should be able to forego the initial registration fee of $15 or whatever it is. And if you feel that's too much of a burden on registrants, find a way that domains can be registered for a shorter period, or implement a cancellation fee to accompany the cooling off period.

Frank- I'm sure that's very true, and a majority of these sites may not spam search engines.

But I've seen atleast 500 parked sites from search engines, so far this year. Usually 2 or 3 a day. If they don't explicitly target search engines with their spam then it won't bother me.

While I am against disabling META for parked pages, as that would neglect honest webpage owners whose sites are "under construction", I think it's an issue that needs addressed.

I agree with Berk completely. I think the service of "Parked Pages" is being abused. The service was not intended to allow commercial profits off a site that WILL NEVER exist.

It was meant for webmasters whose sites are under construction, so they don't have to purchase a hosting plan until their site is ready to go.

First, let me say that companies grabbing every sensible combination of words to host the same crap on is killing the web. I mean, when sites like del.icio.us start popping up, you know it's bad. I have to spend weeks trying out word combinations to find something suitable that's not taken.

Is is moral? that can be argued. Is it good for the web? Can anyone actually argue that it is and keep a strait face? As for the people that think it's okay to grab domain names when they expire before the owners can react, what would you think if you came home and your house was being torn down to make way for a mcdonalds because you missed one payment? You'd be beyond mad.

what happens if someone just adds one letter to the end of a domain name to make it plural? Is that ingringement?

Did you hear about tax day freebies? Well, there are a lot of businesses giving out tax day freebies. If you live around Baltimore, the McDonald's fastfoods has this tax day freebies, where you can get a free small hot or iced coffee. You can't get a free payday loan, but there are other deals. There are free Cinnabon bites and Maggie Moo's ice cream freebies as well. Some tax day freebies might come in handy as some credit repair on the part of April 15th. How I wish its always tax day freebies.

CLICK HERE FOR MORE DETAILS: http://personalmoneystore.com/moneyblog/2009/04/15/tax-day-freebies-start-finish-day-free-stuff/

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