CIO Briefing

Inside the Hidden World of Offline Auctions for Online Property

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The man with paddle number 68 wasn’t shy about it. He wanted an adult website, and he wasn’t going to let a few hundred dollars stand in his way. The bids inched ever higher: $3,000, three-one, three-two. The underbidder, an anonymous online account, stopped at three-four. The hammer went down at $3,500. The man with paddle number 68 beamed. He was now became the proud owner of the web address adult.global. “Good evening, sir!” cried the auctioneer, as he moved on to lot 320: gamble.global.

You might expect internet domain names—the basis of any website address you visit—to be sold on, well, the internet. And indeed, offline auctions for online property are rare. The sort of people who understand the value of something as seemingly inconsequential as a domain name are geographically dispersed. At this auction alone, participants came from Finland, Britain, the US, Ireland and elsewhere. These people—called domainers—tend to congregate instead at online secondary markets at GoDaddySedo or Namejet. And much of the industry operates quietly, with non-disclosure agreements regarding the final price of a domain a commonplace occurrence.

Yet at least 100 men and women—mostly men—filed into the ballroom at the Hilton in London Paddington on Tuesday, June 25. They were there to get an early chance at buying brand new web properties: addresses ending in .global, which is just one of hundreds of new top-level domains (the last part of a web address, like .com) being created this year. Of the 82 on offer, 35 domain names found a home, selling for a total of $63,780.

The auctioneer, Charles Hanson, deserves some of the credit. A minor celebrity, he has previously auctioned Queen Victoria’s underpants for $9,000, and, in 2012, a piece of toast from the wedding of Prince Charles and Princess Diana in 1981. “We’re on the runway. Let’s open up and let’s lift off,” he beseeched the crowd as he pitched flights.global, which sold for $5,000.

Going .global

The man behind the event is Rolf Larsen, a 48-year-old Norwegian who now lives in France. Larsen bought his first domain in 1991, at a time when the internet was used mostly in research labs and universities, and the web was very much in its infancy. Over the years, his portfolio has evolved. He now holds about 300 domains.

But Larsen’s days as a property speculator are over. Instead, he has crossed over to the potentially much more lucrative side of the business by becoming a developer. He is one of a small group of individuals, businesses and government bodies to own an entire top-level domain (TLD). Larsen dreamed up the auction as a way to promote his domain, .global, and to show people what it could be used for. Among the domains on offer last night were translate.global (which went for $500), ipo.global ($1,500), and, the priciest, banking.global ($12,000). In the normal course of business, the wholesale rate for .global domains stands at $50. (The retail price depends on the margins added on by GoDaddy and its peers.)

It helped that Larsen planned the event for this week’s meeting of the Internet Corporation for Assigned Names and Numbers in London. Representatives from the national and international organizations that oversee the plumbing of the internet were already in the neighborhood to talk shop. Many of them, like Larsen, have been in the industry in one capacity of the other for decades. The head of .fi, Finland’s country-level domain, was there, as were the bosses of the new Chinese-language domains .在线 (which means “online”) and .中文网 (“website”).

Oh to be a domainer

These people more than anybody understand the value of domain names—specially now that there are hundreds of new ones coming online. Think of it, one of them suggested, as the internet’s version of the cable explosion. American television went from a handful of terrestrial TV networks to hundreds of cable channels, some of general interest and some catering to niche audiences. The same thing is now happening online, with the introduction of new TLDs covering everything from .guru and .photography to .web and .app.

Among the bidders was Jothan Frakes, who bought his first domain, jothan.com, in 1995. Frakes bought three domains in the time I stayed at the auction: politics.global, fineart.global, and omg.global. “I know someone who will buy fineart,” he says, adding that omg.global is bound to be popular with social-media types.

Frakes says he thinks of his domain portfolio—he owns about 7,500—as a mutual fund. One way to develop domains is to place ads on them, particularly ones that people might stumble onto. That provides Frakes with a secondary  income, as do sales to other domainers or to businesses that want a particular web address. “I take those proceeds and put it into renewing the old ones, and if there is a surplus, I buy some more,” he says. The expense involved is substantial. Domains need to be paid for on a yearly basis. Depending on the domain, renewals can cost anywhere from 10 dollars to several hundred. At a minimum, Frakes must spend $75,000 a year on keeping his domain portfolio going.

Frakes “diversifies” his portfolio by looking at names beyond .com. He holds addresses on many TLDs and country-level domains, from .org and .net to .co.uk. In addition to diversifying, Frakes offers two bits of advice for prospective domain investors: Stay away from trademarks (their owners could sue you), and don’t take advantage of natural disasters. The rest is fair game. And with hundreds of new top-level domains coming online this year and the next—which means an untold number of possible addresses on them—there’s plenty to go around.

Reprinted with permission from Quartz. The original story can be found here

(Image via hxdbzxy/Shutterstock.com)

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// July 23