Millions of internet domain names sit on pages full of ads. To the novice, it appears like a waste. Doesn’t a great one word domain name deserve a real website?

The pros and cons of each are pretty straightforward to the experienced internet entrepreneur. Parking is quick & easy, development requires a big time & capital investment. Parking has a higher revenue per unique visitor thanks to 100% of the content being ads (and PPC payouts that far surpass Adsense & YPN), developed sites have lower earnings per visitor because of traffic leaks and abandonment. Parked domains miss out on organic search traffic, links, and word of mouth, while developed sites receive both.

When switching from a parked page to a developed web site you will typically see a revenue drop off. It is going to take time for the curve to move upwards and surpass your pre-development revenues.

Here is where the problem comes in: time. The cost to park a domain name is almost non-existent. Relative to this, development requires a staggering amount of time and/or money (e.g. 15 minutes verse perhaps thousands of hours.)

To add to all of this, the values of premium domain names have decoupled with the name’s earnings*. What this means is doubling the earnings by developing may have no impact on its value (if and when you choose to sell.) That is a strong statement, but it is quite true. Because of this decoupling domain investment has become more about the selling price than what the domain earns in PPC revenues. If a big corporation comes along and wants to drop 7 figures for your generic name, the developed site will be “demolished” without a second thought.

The value of a premium domain name may far outweigh that of its developed content. That means your developed site needs to add substantial value standing on its own to be really be worth it. This is far from a hard rule, based on your own personal needs (cashflow now) as well as the domain name and niche’s.

Developed web sites are not a passive investment. That is a myth. Without fresh content and links your traffic volume will erode. You’ve built a full site, there is still have lots of work to do.

Is there a short cut? From what I understand, Demand Media is attempting to roll out a content platform across their gigantic domain name portfolio. It might be kind of like a combination of Wikipedia and a social network. This is an approach that allows for mass scale, critical if you want to rapidly develop a large group of domain names.

Alternatively you could hire a team of employees to manage & update a group of developed names. This eliminates redundancies and maximizes your capital investment, much like how Jason Calacanis paid writers to author content across multiple Weblogs Inc blogs. No reason to have a full unique team for each developed domain.

What if you have a single, valuable generic domain name, no capital, and nothing else to do but develop it?

If you really like the niche and can stomach working on the site day after day for at least a year, go ahead. To maximize your revenue avoid Adsense, go to direct ad sales and/or selling products. Learn absolutely everything you can about that market — who buys, who sells, who spends the advertising dollars. To build backlinks set up a blog and make it the best in the niche.

To sum this up in one sentence: parking is better than a half-assed attempt at development (but that doesn’t mean you shouldn’t test domain parking alternatives.)

*trademark and typo domain names tend to still be priced by their earnings, for obvious reasons.