It is getting really, really hard to name a new company. We’ve been working for months on a name for our new start-up, made dozens of offers for dot-com names, and done several full trademark searches, but we still have “New Co” on the door.
How bad has it gotten? We just offered +$200k for the dot-com name of a small, mythical, woodland creature and we likely won’t even get a response from its owner. Mark Cuban recently blogged about how state and local taxes and paperwork are huge barriers to entrepreneurship, but I think the domain name system may be the biggest hurdle of them all.
When Brian and I started Jellyfish.com just over two years ago, the process was much easier. We brainstormed a couple of weeks, found Jellyfish.com for sale on a domain auction site, paid $25k for it and were off to the races. Perhaps we just got lucky. But I think the process is getting tougher by the day.
Here is my theory why:
1) The “Domaining” Industry is Booming.
The Stock Market may be in tough shape, but times are good for domain speculators. Forbes just ran a piece on flipping domains yesterday and there is sophisticated money moving into the space, so this isn’t limited to Mom and Pop operations. (I guess I feel better after reading that cpc.com just went for $202,000). Why is this industry thriving? To quote your Grandfather (who likely told you to invest in real estate) “because they aren’t making anymore of it!” Consumers have been trained to go to the dot-com space and with a finite dot-com supply comes opportunity.
The other lynchpin in the domainer industry is Google AdSense, which gives domainers the ability to charge rents on all of their virtual property. The formula goes something like this: register as many names as you can for $9 a pop, slap up some contextual “Sponsored Links” from Google, let the virtual properties start to earn rent, and wait for some sucker (err, I mean visionary entrepreneur) to come along and offer you six figures. Here is an example of the type of dead end site we keep turning up time and time again as we brainstorm potential New Co names:
When you are making lots of AdSense “rents” off of a domain, you aren’t in a hurry to sell it. Seeing a website like this at the end of a dot-com name you are coveting for your next start-up typically means “Not for Sale.” If end users stopped using the dot-com address as a search tool and clicking on the first sponsored link they bumped into, the entire industry would likely implode. But this isn’t likely to happen anytime soon.
2) Everyone Wants to Be an Ad Network, Further Limiting Supply
To compound the problem, the domainer industry has also caught ad network fever. Online ad networks are hot. If you can engineer your business to fit into this space, you’ll see lots of M&A activity and very high valuations. When M&A kicked into high gear in this industry a year or two ago (capped by Microsoft’s acquisition of aQuantive for $6 billion last year), many of the big players in the domain speculation industry decided that the sum of their domains was much greater than the parts. They stopped selling off their best dot-com properties to gain the scale and reach needed to play in the advertising space. This drives the prices up on the already precious few dot-com names that are still for sale. I don’t mean to sound bitter, as I salute anyone who can make a living doing creative things, but these guys sure are making my job harder.
In my next post I’ll talk about our rules for naming and the process we are going through at New Co to come up with the next Jellyfish.com name.
August 13th, 2008 at 9:18 am
Right on. This practice of domain squatting adds minimal value and is a down right pain. IMO there needs to be some back end justification for a domain name, otherwise it makes it near impossible for any business to start in the internet world.
Perhaps one day the new domain extensions will become mainstream and the .com is seen as a “wasteland” and so “00’s…
Sam.
August 13th, 2008 at 4:57 pm
I have to concur. It’s amazing how the most obscure names are even taken. It took me 6 weeks just to find a name (that wasn’t taken in the .com space) that conformed to what I wanted. I remember an Irish hacker was caught registering random language words through a bot. ICANN, this year will be expanding its domain suffix with that such as .love, .hate or .city. You could buy your own suffix such as .companyname but the new name might not come cheap. There are a lot of speculation about price been as high as $60,000- $120,000. But that’s all they are for now, speculation.
Link to one of the many sources: http://news.cnet.com/8301-10784_3-9975757-7.html
August 13th, 2008 at 10:09 pm
Thanks for the positive comments. I’m glad to hear we aren’t the only operators frustrated by the existing system. As both of you mention, adding supply through additional extensions may help, but the key problem we face is that the average consumer always defaults to the dot-com extension. Naming your company with a .love extension to save money would likely be suicide if you are marketing to consumers. I’m all for being bold (idiot or genius), but I can’t say I’d have the guts to take this risk. Unless we can shift end consumer behavior, I don’t see this changing anytime soon.
August 14th, 2008 at 6:38 pm
Mark, I agree with you, .com was the first and its been the first on everyone mind. I also think the issue is what resonates with non-tech people. My grandmother knows about .com. If I said to my mom and dad,check out the site flywheel. There first thing they will do is check http://www.flywheel.com. If that doesn’t work, they will have no idea what to do next. So I agree with you, even though the .net and others do exist, .com has become so much of a de facto.
August 19th, 2008 at 4:18 pm
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September 7th, 2008 at 3:21 pm
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[...] tooth brushes, toilet paper, trash bags with consumers. The founder’s blog, FlywheelBlog, also features a series of interesting posts about the decision to name the company [...]
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[...] brushes, toilet paper, trash bags with consumers. The founder’s blog, FlywheelBlog, also features a series of interesting posts about the decision to name the company [...]