The news of JustDropped.com joining forces with Epik has prompted a number of reactions in the domainer community. It also raised some questions about Epik’s motivation to integrate drop-catching capability as a service offering and in particular whether we will continue to make domains available cheaply. The addition of JustDropped, preceded by the addition of the DNKO auction platform, also raised questions about Epik’s strategy. This post — the first of many — will begin to answer these questions.
One question that has come up a number of times relates to the topic of drop-catching and specifically can anyone beat the “big boys”, e.g. Snapnames, BuyDomains, Pool. I think this is the wrong question. The real question is what is the future of “abandoned domains”? To answer that question requires a discussion not only about strategy but also the macroeconomic factors that informed it. Briefly stated, I believe that a lot more domains will be abandoned, starting with the marginal TLDs, and expanding to the premium TLDs.
Macroeconomic outlook — Kondratiev Winter
As context, I believe the current economic downturn is far from over. Many economists believe that we are in what is referred to as a Kondratiev Winter. This is an economic super-cycle whereby the period of prosperity we just witnessed from 1982-2007 is likely followed by a period of recession (current) and then a depression (pending). This “shakeout” period is highly disruptive — what Joseph Schumpeter referred to as “Creative Destruction“. Business models get tested. Those who execute well, and adapt to the new climate, are able to persist.
Consider for a moment that China’s foreign reserves have rocketed to an unfathomable $2 trillion while the US has racked up an equally unfathomable one year deficit of $1.4 trillion. This is seismic stuff. There will be aftershocks. For anyone building a business, the success models and instincts that worked in 1982-2000 and 2002-2007 are not likely to be the same ones that will work in 2009-2020 and beyond. As entrepreneurs, we have to consider the scenario of a protracted downturn, potentially lasting a decade or longer.
For Q2 2009, US GDP shrank by 1%. The only reason why Q3 and Q4 will likely not be negative is because of massive government spending. Remember your college economics class: C+I+G+(X-M). Well, C (the consumer) is in the tank. It is the “G” that is carrying the water at the moment. Fed Beige Book notwithstanding, the recession did not really end. It was mathematically avoided through government stimulus. Businesses know this which is why they are not hiring. The ticking time bomb is that national economies of the US, EU and Japan, can’t continually fund government spending without inviting a worst case scenario.
Downturns lead to efficiency and that’s a good thing
So what does a Kondtratiev Winter have to do with dropping domains? Turns out a whole lot — many domains will change hands during this cycle. Back in 2001-2002, you could buy a domain on the drop, wait for the recovery in 2003, and profit as the ad market boomed. This created wildly profitable domain parking businesses and entrepreneurial icons like Frank Schilling. However, I believe this time will be different. The winning model will likely not be the same one that worked during the last great buying opportunity, largely because the ad market will stay soft for some time.
As it is, many domain owners are not covering their registration fees. Monetization from parking continues to fall as domainers bounce from one parking company to another. Some have experimented with minisites — usually not recouping their investment. To make matters worse, the likely next move for domain renewals fees is UP, not down. As a result, I believe that cash flow forecasts that are predicated on a return to 2007 CPM levels with no change in annual registration costs are too optimistic. Sure, selling domains in the interim can provide some offset against falling parking revenues. However, this is not a sustainable strategy.
Epik’s strategy: capital-efficient domain development
So, how does Epik intend to weather the storm? Simply put: capital efficient domain development using a platform-based approach. Here are the main development themes:
- Directory portals: Sites like Tanning.com, Karate.com and Haircare.com all use the same back-end platform. Traffic is growing 300+% per month through entirely organic methods. We are adding new category directories at the rate of 2-4 per month. Clothing.com, Bookstore.com and Dive.com went live last week. Dining.com and Court.com should be live within 2 weeks. Each site gets fresh content added several times a week.
- Product portals: The launch of HardDrives.com 2 weeks ago is part of a larger strategy. The platform behind it will improve steadily. We will release 10-50 new product portals per WEEK through an exclusive partnership with Wishpot, a company I backed in 2007. Wishpot will go way beyond using Shopping.com and Amazon.com feeds. It will enable suppliers to directly list their SKUs through what is called a social storefront.
- Reference portals: In June we announced an exclusive deal with Evri.com. The deal is delivering. The network of reference portals has grown to 630,000 topics in more than 600 categories. By year-end, we expect this to be at 1.7 million sites. Wherever possible we want these portals to be run on the stand-alone domains that most logically map to the topic. Otherwise, we’ll use an epik.com subdomain as a placeholder.
Gloom and doom aside, I believe it is a great time to be a domainer. The web remains the most efficient platform for processing transactions — buying products, disseminating information, answering questions, making new friends, etc. However, undeveloped domains — like raw land — are not all that economically useful. To extract value from the raw land, it has to be developed into something that is genuinely useful to some target audience whether it is something ridiculously simple like PostOfficeHolidays.com or OilPrices.com, or something way more complicated like Patents.com.
The other major advantage of a platform approach to development is the ability to do intuitive cross-linking between related topics built around a unified semantic ontology. We have spent the last 4 months (June-September) building platforms, while adding production capacity in site hosting, content development, graphic design and project management. The factory is open for business! We are also adding more features to the platforms and providing increased flexibility to power users — the upcoming launch of Epik Pro (powered by DevHub) will make this more clear.
To build out the Epik network, Epik needs more domains. It matters less to Epik who owns these domains. What matters more is that the domains are able to benefit from the massive network effect made possible by semantic cross-linking. Epik’s primary function is to provide the unified architecture, regardless of who owns the underlying domains. However for the Epik network to be a win-win with domain owners, we know that Epik also has to bring liquidity to the domain economy, through a combination of short-term monetization and long-term value appreciation.
It is my personal goal for Epik to earn the reputation of being “The Domainer’s best friend”. Epik intends to provide domainers with many of the tools and services needed to thrive through the downturn with a primary emphasis on cost-effective domain acquisition, capital efficient domain development, and timely sale of developed websites through either private sale or public auction. The pieces of this enabling ecosystem are rapidly being assembled. However, Epik can’t do it alone. If you have not submitted your names, do it today by visiting us here. It’s free and there is no minimum commitment.