The $8 billion dollar question

By November 4, 2009 February 27th, 2017 One Comment

Rick Schwartz served up another provocative post this week and then chased it today with another — suggesting that Microsoft should acquire a very large cross-section of the most valuable domains for the princely sum of at least $8 billion.  The $8 billion dollar question is does Microsoft have a domain strategy.  As near as I can tell, they don’t.  At the New York City TRAFFIC conference, it seemed to me that the primary Microsoft strategy was to SELL their ~45,000 domains.

While I don’t agree with Rick’s big bang approach, I agree with Rick that Microsoft desperately needs a domain name strategy.  As for the $8 billion price tag, that sounds about right if the goal was to secure a monopoly.  However, there is actually no need to own all of the best raw land. I believe it is possible to integrate domain names into the Bing search strategy, and that this can be done even without owning all the names. In particular, where I believe these two themes converge is in the area of vertical search.

Why Microsoft needs a vertical search strategy
Google is no Netscape.  Microsoft will not topple Google in the head-on way they creamed Netscape in the browser wars.  Microsoft is about even with Google (and Apple) in terms of raw intellect, user footprint, access to capital, and brand strength.  There is no sustainable competitive advantage visible in Microsoft’s current search strategy and market share seems to be stalled at 10%. This is where domain names can help. Domains are ownable and defensible. And with the proliferation of TLDs, it would be hard to lose an antitrust suit. Domains can power an unbeatable vertical search strategy.

With a large network of domains — all powered by Bing’s search engine — Microsoft has executed the ultimate “Pincer Movement” on Google’s one-size-fits-all approach to search. With the volume of content on the web exploding it will become impossible for Google to do justice to every topic. The algorithm will fail because Google will not be able to organize enough human editors to police the content. To address this, I believe community will need to converge with algorithm to determine what content is worth indexing — and which editors are worth trusting — and organize the web in ways that become intuitive so you can find what you want when you want it. The outcome is predictable because we live in exponential times — the classic video is here:

Is Microsoft playing offense or defense?
So why exactly did Microsoft launch Bing?  Did they do it with the goal of winning in search, or did they do it to punish Google for crossing swords with the Microsoft Office cash machine with Google Docs.  If the goal was to win versus Google, one would expect Microsoft to apply overwhelming force. The $100 million in ad spend on top of a me-too search engine is not exactly putting nails in the coffin.  Bing 1.0 feels more like Zune or Windows Vista than it feels like Xbox or Internet Explorer. However, don’t count Microsoft out. They are famously a 3.0 company, i.e. they tend to get it right by around the 3rd development cycle.

So, in the spirit of getting it right on the 2nd or 3rd development cycle, here follows my unsolicited input on how Microsoft could increase the probability of being a top player in search by using domain names as a structural advantage.  The total down payment to execute this experiment would be not more than $250 million for openers.

  • Acquire Dark Blue Sea: The entire portfolio of 400,000 names is now for sale for about $21 million net of cash on hand thanks to Proton’s $0.30/share offer. This seems woefully mispriced even if you value the operating business at zero. The portfolio is solid enough with healthy type-in traffic and high semantic value in the domain names. The Dark Blue Sea business comes complete with the Fabulous.com parking platform and the Domain Distribution Network.  Run the parking business at break-even for 12 months while helping domainers sell some domains. Watch the domain portfolios roll in.
  • Acquire Tucows.com: If you are going to be a domain name power house, it pays to be a leading registrar. Newly-married Bob Parsons might be willing to sell Godaddy for a reasonable price … but probably NOT. Enom is locked up inside of Demand Media as the captive cash machine so also likely not for sale. This leaves Tucows.com as the eligible wallflower with ~7 million domains under management and a decent base of quality names in their portfolio. Even at a 100% premium to the current  valuation, at ~$75 million (or 1X revenues) the buyer is getting the domain portfolio for free.
  • Populate parked domains with queryless search:  Beyond the vertical portal domains, there is the long tail of descriptive domains. What Epik is doing by populating domains with content could be replicated with Bing. In effect, Epik is building a queryless search platform by mapping content according to a semantic ontology. Parked domains could become queryless searches, powered by Bing. This applies not only to reference content, but also to products as Epik has started to do with the launch of the product portal platform, e.g. HardDrives.com as well as descriptive names, etc.
  • Integrate Single-sign-on: Federated content needs single-sign-on. Facebook Connect, Twitter Oauth, and OpenID are all fine.  Google is ahead of Microsoft here: the Gmail sign-in works portably across the Google Apps platform. Now that the consumer is getting over the privacy concerns, the missing ingredient is a strategy that ties together the various sign-on methods to a unified and permanent identity. This is in essence the objective of the Identity.net single-sign-on API which is now in operation across more than 1 million (mostly Epik) sites.

Will Microsoft execute a domain name strategy that integrates vertical search?  Who knows.  If they don’t, someone else will.  I say this because I am sure of two things: (1)  As hard as it might be to imagine today, Google will not be the last word in content discovery, and (2) Domains as an addressing system will be around longer than Google will be around as an independent company. Will the industry see a multi-billion dollar domain name rollup that Rick envisions? If a national railway goes for $44 billion — ostensibly to move coal — the global internet will ultimately sell for more.

Interested in being part of the ultimate global vertical search strategy using domains names? Send me an email: rob (at) epik.com.

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