The domain name business is very different today than it was in the 90s, 2000, or even 2005. It is very possible that a shift in value away from domain names is underway (but there is still incredible value to be found by people who understand traffic value and excel at marketing.)

Why is a domain name worth anything? Because a domain name, specifically from a recognizable extension, is an internet address — a destination — that consumers understand. I know that I can type in whatever I am looking for .com and find it. Unfortunately for domainers the tide has begun to shift, both as major traffic players begin to wage a war on direct navigation and as major brands shift to alternative internet communication streams (how many of Zynga’s 200 million+ active users do you think have actually visited zynga.com?)

One thing the top domain name investors got right was understanding that this business is about traffic. Quality, targeted, internet traffic delivers many billions of dollars in value every single year. Capturing even a small portion of that flow easily results in a multimillion dollar cash flow. It would seem that a mere 5 years ago the majority of internet entrepreneurs had substantial difficulty understanding this.

From my observations there is no shortage of D list domain names priced in the high five figure and six figure price range. A D list domain name is a domain name in which the end buyer has to add immense value in order to come out ahead. Often an individual marketplace can only support a handful of serious contenders while there may be hundreds or thousands of D list domain names for sale.

D list domain names require an end user to utilize additional ad dollars and know how in order to leverage the value out of the domain name (generally that means spending millions of dollars on advertising over the course of a year or two.)

Unlike the D list, generic domain names produce a value stream on their own. As of today, search engines still disproportionately value generic keyword domain names over many other factors. Not only does this mean free organic search traffic (with a little SEO effort) it also means an edge over competitors in the pay per click marketplace thanks to a higher ad clickthrough rate. The same can not be said of D list domain names.

To me, the domain name marketplace resembles a landscape that was once overflowing with natural resources that has now been ravaged bare. The sharp eye can still find a few remnants of value but the novice is overwhelmed by hucksters marketing worthless rocks as gold. As for the real gems, on occasion they surface, such as at auction (Moniker’s are fairly good.)

So what is your domain worth? If its a single word or phrase found in the dictionary, probably a fair amount. Anything else, and its probably not worth a whole lot on its own.

The business model of the traditional domainer is crumbling. Google and now Microsoft control how much money you make from parked pay per click revenues. Google and Microsoft control how many people get to your domain name through the web browser (and Firefox and Apple and at an increasing rate your telecom provider, more on them at another time.) Google and Microsoft control the marketplace for how you receive traffic through the search engines.

Microsoft’s takeover of Yahoo’s search has an extraordinary implication to domainers. The companies that control the platform visitors use to get to your website now control how much money you make from your parked domain. Don’t want to let these companies monetize your traffic? Then why should they send their valuable visitors to you at all?

By the way, I’m spending more money on domain names than I ever have before. Why? Because I understand how to extract their value. If you don’t, I would suggest learning how. Personally I prefer the environment we have now. The harder things are, the more they change, the better off I am because its that much harder for everyone else. Adaptive learners thrive in this environment because new opportunities appear (and vanish) daily.

Internet Brands, the owner of vBulletin, is being taken private for $640 million.

Besides vBulletin, Internet Brands owns a bunch of message boards and websites across different categories. Back before their 2007 IPO it appears they dealt primarily with vehicle and mortgage verticals. After their IPO they expanded to new categories such as careers and travel, using the IPO money to buy up lots of developed websites and domain names.

The exact benefits or reasons for going private are hard to tell. I would suspect it may have to do with the current availability of cheap credit and the owners/directors not having a very positive outlook on their long term future. On the other hand it eliminates the costs of regulatory compliance being a public company and allows a company to operate without making all their business activities public via SEC filings (its easy to demand more money when you know exactly what your prospective buyer has been paying out to everyone else.)

There are several other companies like Internet Brands that have a strong track record of purchasing the type of websites developed by self employed website publishers. The biggest mistakes I see publishers make are building out sites in the wrong vertical and treating their business activities as a part time hobby.

Even though companies such as Demand Media are heading the other direction and seeking an IPO, both events are good for website publishers because they publicly establish financial valuations that allow more investors to “understand” the business. Publishing content is very much a hot area and you can count on more copycat acquirers to help drive up the valuations of your internet properties. Also don’t be afraid to use your knowledge of how the business works to purchase, or short sell, companies that make money from content publishing (however understanding how to read company financials is just as important.)

My competitor has one product that is not free and can’t be given away for free. This single product is so profitable that my competitor uses it to fund development of a copy of my main revenue driving product (that they give away for free) just to fuck with me.

My first business model is in a lot of danger. I already make some money from my competitor’s main market, but there aren’t a whole lot of my companies resources dedicated to that market and we spend a bunch of money on other random crazy shit.

My competitor is Google and my company is Microsoft (not really, its a story.)

Microsoft’s complete takeover of Yahoo search business is imminent. The organic listings have already transitioned and paid search results will come shortly.

Big problem for Microsoft, its not a seamless transition. Each Yahoo advertiser will need to manually move their campaigns from their Yahoo account in to Microsoft’s Bing Adcenter. Account limitations and set up on Yahoo are very different than Microsoft’s Adcenter. So different that some people are recommend you take your Google Adwords campaigns and migrate them to Bing! Guess what, a lot of advertisers will not be able to fully make the transition. Some will make it, but with a struggle. In the meantime, Microsoft is not going to make as much as they expect to (hopefully Yahoo got a flat rate guarantee.)

I feel bad for Microsoft. When big industries change, and they have poor leadership, your good employees go work for your competitors and make them better companies. The people that are left aren’t the visionaries. They may be bright, they may be sharp, but they weren’t sharp enough to see bigger opportunities for themselves, and they certainly won’t be able to take advantage of those opportunities for their employer.

I hope I’m wrong. Google needs strong competitors. It means a better environment for advertisers and stronger payouts for web publishers.

Update 10/30/10: Looks like I was right, to some degree. Yesterday Search Engine Roundtable reports on advertisers seeing a “major” drop in traffic in their Microsoft Adcenter accounts (which is how you buy advertising on Bing.) I can confirm this first hand as its happened to us as well.

What I reported in this post earlier was an early sign, to me, of potential problems. While they finally did come out with an account migration its likely that this transition was not well prepared. That is not a good sign for Yahoo or Microsoft shareholders.