October 16, 2000 5:00 AM PDT
Catchy domain names lose their luster
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"Our thought was that it would be very significant in raising capital," Patten said. "Obviously, to have the generic industry URL gave the group instant credibility."
Such thinking was common during the go-go days of the Internet, when a generic URL plus some research figures about the potential size of a market often equaled millions of dollars in venture capital and even a high-flying IPO. But as the rise and fall of Jewelry.com and countless other sites shows, playing the name game has often been a losing proposition.
Jewelry.com folded last month soon after it was bought by Miadora.com. Patten won't say how much he and his partners paid for the Jewelry.com domain, but he acknowledges that a good name does not make a successful business.
"The name could get us an appointment with anybody we wanted to see," said Patten, "but it still comes down to the management team and the marketing plan."
Jewelry.com is not the only site to realize that a good domain can be more of a bauble than a jewel. Dozens of online e-commerce companies, with ownership of domain names considered some of the most valuable property on the Internet, today are facing a drought of funding and investor disinterest on Wall Street.
Which raises the question: Just what is the value of a domain name?
This issue is especially pertinent now, as the Internet Corporation for Assigned Names and Numbers (ICANN), the regulatory agency for Internet addresses, prepares to approve a list of new Web suffixes. Applications have included request for such suffixes as ".kids," ".biz" and ".xxx." If approved, the dramatic addition of names could affect the value of the ".com" suffix.
William D. Miller, a partner with Kirkland, Wash.-based venture capital firm Olympic Venture Partners, believes such a move would dilute the value of domain names. More people, he surmises, will start using a feature that lets people type words such as "food," "stocks" or even "akamai" into their browser and pull up the most common Web site along with a list of other options.
"Technology will remove the need for what will come after the dot," Miller said. Indeed, such technology already exists but has not been widely adopted.
Others disagree, arguing that a confusing jumble of new Internet suffixes will further enhance the value of the common ".com" suffix.
Substance over style
Regardless of who is right, most seem to agree that the value of an easy-to-remember domain name is secondary to the quality of the management and business plan.
Take Garden.com, for example. Co-founder Lisa Sharples and her partners bought the domain name in 1995 for $2,500 and were clearly the first to emerge in this market. While Sharples is thrilled to own the name and believes it is superior to the names of her competitors, she holds no belief that it alone will carry the company.
More than five years after its founding, Garden.com has yet to show any profits. Following its IPO in September 1999, the company's stock climbed to more than $24 but now trades around 50 cents--and is at risk of being kicked off the Nasdaq. Last month, the company laid off about 40 percent of its staff.
"I think the layoffs and stock price have a lot less to do with the URL and a lot more to do with the sentiment of the market," Sharples said. "The market has had a somewhat schizophrenic approach to dot-coms. A lot of good companies that are hitting their metrics are still going down."
And while Sharples said she never relied too much on the company's name, it was certainly easier to get cash with a good name and no profits a couple of years ago than it is now.
"It was definitely easier to get funding back then," Sharples said, referring to the months and years before last spring's sell-off in the Nasdaq. "We're beating revenues, beating margin, and our stock still goes down."
Food.com, Garden.com, Furniture.com and Living.com are just a handful of companies with seemingly valuable names that have been forced to issue pink slips while unusually titled Web-based businesses such as Yahoo and eBay flourish. Many dot-com companies report that the funding is simply no longer there.
Olympic Venture Partners' Miller says he doesn't even consider a company's name when determining whether it deserves funding.
"It doesn't even make the radar screen," Miller said, adding that when helping companies seek out new names, he would never advise anyone to pay more than $100,000. "You can just pick a name that rolls off the tongue and fill it with branding," he said, ticking off Amazon.com, Inktomi, eBay and Akamai as examples of companies that have done this.
Others disagree, saying a company can spend millions on branding and marketing or use that money for a domain name that provides the equivalent. "Lycos went out and spent tons of money to brand their dog to get people familiar with their business," said John Beausang, CEO of Cyberfinancial.net and owner of Stocks.com. "Or you can type 'stocks' into an Internet browser and our site will be the first to pop up."
Beausang has the domain name Stocks.com for sale on GreatDomains.com for $2.5 million. He also owns Bonds.com and several other names.
Keeping it simple
Beausang is not alone among believers of the value in a strong name. When Bank of America bought the domain name Loans.com last January for $3 million--the second-highest amount paid in public auction ever--the banking giant said it wanted to build its online business and hoped to start with an easy and accessible domain name.
And clearly the immediate traffic was a factor when eCompanies bought Business.com for $7.5 million in 1999, reported to be the highest price ever paid for a domain purchase.
"Loans.com was getting three to four thousand hits a day. Bank of America, they were able to justify that expense," said Jeff Tinsley, CEO of GreatDomains, which hosted the sale of the name. "That's the case with many of these really good domain names.
"Some of these names are so good that people are just typing the name into their browser," he added.
Still, the average price paid for a domain name slipped by $10,000 between July and August at GreatDomains, which also facilitated the sale of Loans.com. The median price, a more accurate measure, fell during that same period by $1,000. So far this year, the median price for all domain names sold is $3, 315.
Tinsley says that more transactions are taking place, only for less money per name.
Whether the days of million-dollar domain sales are over depends on factors such as how many people are willing to second-hand shop.
Like physical real estate, even the most coveted domain names can be expected to resurface on the market at some point, as people and companies die.
But Charles P. Waite, a partner with Olympic Venture Partners, believes some names will be tainted by the struggles of the original owner. In fact, he is funding an Internet company that falls under the domain of gardening. Despite the catchy brevity of Garden.com, Waite said he wouldn't consider buying the name, should it go up for sale.
"I don't think even if it were available at a reasonable price I would take it because the company would have to spend so much more on re-branding and marketing," Waite said. "This is a problem I think you're going to see."
Peter Sisson, CEO of WineShopper.com, agrees. His company recently merged with Wine.com, and the combined entity will adopt the domain name Wine.com. However, Sisson does not imagine that he would want to sell the domain name WineShopper.com or that anyone would want to buy it.
"I don't think we see it as an asset that had value for selling," Sisson said.
Ultimately, Sisson believes that a company's actual domain name will give way to an Internet dominated by keyword searches, voice activation and other tactics. The URL, he predicts, will be "a passing theme."