Seven Mile, Uncategorized

The ERROR is in the Details

Greetings from Malibu. No matter how bad things get in the local economy the surf and sand and birds and trees always look the same. It’s much colder this year.. very chilly. A fitting metaphor for the difficult economic times this state finds itself in. I first came to Malibu as a teenager from Canada in the 1980’s. I was a broke tourist, unable to afford to live here but dreaming of the LA beach lifestyle. I am still a tourist who can’t afford to live here today – a convoluted web of high taxes and rules keeping it unaffordable in a different way.

My reflections on Malibu and how the town looks a bit more hardscrabble this year, got me noodling on the consequences of a secular period when “taking shortcuts” seemed like a good thing to do. It’s the Gordon Gecko “Greed is Good” meme, which brought us (and Malibu) to this point. First noticeable to me in the 80’s, but accelerating since the .com bubble and September 11th – Greed (the hunger for stuff) has acted like a crutch to move us forward, but at a non-trivial expense. The low interest rates which followed the .com bubble and 9-11 allowed speculators to build second and third homes in Calabasas and Point Dume. It allowed private equity guys to pump companies like yours full of debt so they could flip them to the public markets. This leveraging came during a period when population growth (the number of new consumers born) began to stagnate. It was this slowing of population “growth” which Bill Gross recently described as: “likely a significant factor in the leveraging of the developed world’s financial systems and the ballooning of total government and private debt as a percentage of GDP from 150% to over 300%”. The borrowing and levering up, allowed us all to consume more per person, and fill the “demand” vacuum left by slowing population growth in our developed part of the world.

That leverage or debt had to be serviced though, and its shackles have led to a greater need for short-term PROFIT in order for all those borrowed dollars to be financed. It’s been a chain with unholy consequences. Consider how the quest for ever-greater profit has changed the nature of our food supply. The food you and I eat has been cheapened to garbage at the expense of our long term health, because the food producers needed ever greater profits so they could pay the interest payments on the money they borrowed to expand. Consequently it’s harder for you to stay fit and healthy, and more difficult to avoid a future life hooked on the expensive medications, concocted to fight the ills which the cheaper food causes. Good for the drug companies I suppose.

The ecosystem which short-term thinking and the hunt for ever greater profits has spawned is leaving terrible and often invisible consequences for us all. It’s really manifested to a head in the last 10 years though, the most visible example being the global banking and financial crisis which continues today.

Those of you feeling a bit bummed out after reading the preceding paragraphs, please don’t throw yourself in front of that Prius on PCH just yet.

Tomorrow will bring a brighter day and not everything which happened in the last 10 or 20 years has been bad.

The Internet for example, allows us to share information like this and to think about how we can solve for better outcomes. This is my 10 year anniversary working on the Internet. Ten years ago I was just another guy trying to find his way in the domain business.

I still remember mining for available two and three word generic phrases (unregistered), only to light them up, and immediately start harvesting (and selling) the organic traffic those names got. It was a terrific moment in time. I remember calling my rep at Goto.com (now Yahoo), to discuss my first direct deal there, feeling quite proud of the little tranche of traffic I’d cobbled together over the preceding weeks. He politely set expectations: “3500 unique visitors a day isn’t going to blow anybody’s hair back Frank”. It was a humbling beginning, and gave me pause. Fortunately it also gave me the resolve to grow. Today we marshal 24 to 26 million unique visitors per month. That’s a lot of reach. But while we’ve grown, if you talked to my first goto.com rep’s modern day counterpart, he’d tell you that 24 million households is nice, but not blowing his (now grayer) hair back. “Taking Shortcuts” to grow traffic have made 24 million the new million. You see there’s a new belle in town and her name is “error search”. Many of the deals being done these days are with ISP’s for their error traffic. The audience numbers are terrifically large and so are the dollar volumes of the deals. The average user will make 8 errors typing on their keyboard each month, or so goes the oft quoted industry metric. Frequent users like me probably make that many each day.

Error search volumes have grown and domain traffic declined as a desperate but quiet war has waged to dam the river upstream. I recently typed the domain names of some of my colleagues in at a hotel and found those visits redirected by the hotel or ISP to an “OpenDNS parking page”. The website at the domain was substituted for a page with advertisements provided by OpenDNS. The visitor (me in this case) was thwarted from reaching his final intended destination because the ISP and OpenDNS made a deal to change the user’s experience, substituting one website with ads for an “error search result”.

OpenDNS isn’t the only unwanted intermediary injecting themselves between users and the sites they request. You have literally thousands of toolbars and error traffic diverting applications which bundle along with the smiley screensavers and free backgrounds, unwittingly downloaded onto people’s computers. You have browser makers who partner with computer manufacturers to divert traffic above them. You even have those running the Internet DNS advocating taking BACK the DNS (from whom they would take it back is unclear) .. Literally everyone and his mother is trying to get in on shaping the user’s experience, often for their own economic benefit. Errors are always constant of course but the fight to steal more legitimate site visits and label them errors has marginalized the domain name paid-search business’ and domain name’s importance to the keyword marketplaces. We’ve gotten to the point where some keyword marketplaces will not do domain deals, opting instead for more error search “short cuts” which bring larger quantities of traffic more quickly and easily.

Not all shortcuts are good ones however. As you’ve gathered by my backstory, there are consequences to taking the easy road and short term profits in favor of long term investments in more stable and sustainable forms of traffic.

The Achilles-heel of error traffic is that it’s all drive-by .. The experience is not uniform to the user. A user can’t visit a site and then tell their friend to go there for a shared(viral) experience. I can’t guarantee that I’ll make the same error twice, or that if I do make the same error twice, that I’ll ever have the same experience again. Errors are unduplicable mistakes built on less sincere lay-up, which offers no road back and has little intrinsic value beyond what it can generate on PPC.

Perhaps that’s enough for some, but Google has largely sworn off error traffic as an undesirable source and left that marketplace to those less able to innovate in search. Ask.com, Yahoo! and a few other also-rans have embraced error-search and tried to figure out a way to gentrify it into something useful, or through a back-door into Google’s healthier keyword marketplace again. Judging by the stock prices of the companys in question, the embrace of error search is showing itself to be an error.

Far better to leverage a large network of distinct households coming to the specific websites they type in. I imagine an upstart search engine which discovers that they can take 10 or 20 or 50 million visits coming to a portfolio of names and direct each name to a results pages within their index, building both branding, search revenues and the opportunity for visitors to find a return path for them and their friends. That is a much more value adding implementation in the long run.

My view (while clearly biased as a site owner) seems to be corroborated by the secondary market for domain names which has completely decoupled from paid-search revenues. The marginalization of domain name traffic has perversely (and inexplicably) dovetailed with strengthening names sales. In fact, we are now at the point in the domain business where traffic sales are a sideshow to the deals which happen for the names themselves. The world’s small website makers, individuals and companies are learning what lumbering public companies and also-ran search properties have been slow to awaken to. Or perhaps these entrepreneurs are sufficiently spooked by unpredictable platforms like Facebook that they are building on their own platform (domain name) more often. The surprise if any is that folks are not satisfied with a single name – many of them opting for dozens of names to give them a greater measure of diversification and reach. While it’s heartbreaking to see PPC domain deals so uselessly implemented and mismanaged to the point of irrelevance, I see this as a huge disruptive opportunity.

Consider our present reality and imagine a world where error search intermediaries tried selling inactive domain names for thousand dollar commission checks rather than trying to subvert incorrect domain type-ins for nickels in traffic. Imagine entering an exact match domain name with the intention of navigating at the Google or Yahoo search-box (as we have all done) and then being served a small one-box result helping to facilitate the purchase of the name and it’s escrow.

While not every name will sell, there are sufficiently many which do in this multibillion dollar industry that double-digit percentage commissions could equate to 600 million a year in potential brokerage revenues. I think we will live to see some version of that. Or perhaps a second tier search engine which finally will get the religion that they can use domain name traffic as first-stage rocket-fuel to lift their property into homes around the world.

As complicated as the Internet seems to have become in the last 10 years, it is really very simple in that there are only 4 ways to get significant traffic (3 are legal), buy a meaningful generic domain name, create a property with a utility people will come for, bleed link traffic from another website with traffic or send spam email.

Perhaps it’s my older naïve thinking at work, but if the name sales and prices we see are indicative of anything it’s that there are still some high-minded people left in this world who haven’t been blinded by short-term greed and cashflows. There are still corporations and individuals out there who plan and invest for the long term, for permanence and lasting value. If the last 10 -20 years have taught us anything it’s that we can all do with more of those sorts of folks. That, and more beaches are always good.