Website owners know that on the Internet, the name of the game is traffic, that is, the flow of data. The more people regularly visit a site, the greater its chances of attracting advertisers and earning more money. Along with the millions of people who have established websites with the goal of making pocket money from them, or maintaining their hobby through blogging, there are also those who trade in domain names, and generally hope for the best.
Mike "Zappy" Zapolin is one of the entrepreneurs who succeeded in profiting from the trade in domain names a market which reportedly generates $2.5 billion a year. His successes include the sale of the domain name Beer.com for $7 million, Creditcards.com for $2.75 million, and Shop.com, whose price tag hit $3.5 million.
Zapolin, who will visit Israel to speak at the "Globes" Israel Business Conference 2008, belongs to the optimistic school those who aren't really unnerved by the possible repercussions of the current financial crisis on the Internet industry. In this market, they see potential acquisition opportunities.
“Although the current economic situation is dismal, the Internet is a ray of light where it is possible to do business on a larger scale than ever before, says Zapolin in an interview with "Globes". He adds, "Today, 21% of content consumed is online, but just 7% of the money channeled to the advertising industry reaches the Internet. This gap will narrow.”
"Globes": How did you begin trading in domain names?
Zapolin: “I came from the infomercial business, where I had a company that specialized is producing independent content and advertising. However, in the 1990s, I realized that television was a very expensive business, and I thought to myself how nice it would be if I could obtain for myself a private network where I could broadcast all the time, 24 hours a day.”
At that time, the Internet was still in its infancy, and Zapolin was charmed by the online phenomenon. “I discovered the Internet, and I fell in love with it. I come from the field of direct marketing, and I very quickly realized that this was an incredible opportunity and that I had to understand how I could fit in with it.”
The Super Bowl test
Zapolin quickly found the magic formula that would enable him to make millions of dollars within a short time. “I realized that if I owned a domain name in a popular category, I could strengthen the website, load content on it, and generate revenue from the traffic. At a time when more and more people were going online, it seemed to me to be a winning model,” he said.
In order to decide which domain names were worth buying, Zapolin created the “Super Bowl test”, based on the top-rated sport event that every year draws the leading advertisers in the United States, generating millions of dollars in revenue. Zapolin says, “I made a list of the most popular categories that appear at the event, and I spotted that most advertisements were for diamonds, computers, and cars. But the top of the list was advertisements for beer. When I typed “beer” in the browser, I found an amateurish site, which showed pictures of young men drinking beer.”
Zapolin quickly discovered that the website was owned by a 21-year old kid from Colorado who, in order to attract advertisers, wrote on a web page banner, “We need advertisements so that we can drink more beer”. Zapolin contacted him, and together they contacted beverage marketers with the goal of reaching the beer companies.
Zapolin says, “In 1998, I offered to buy 80% of the website for $80,000. He agreed, and we began to develop the website as a beer portal with content about the production of beer, what is the most popular beer, and so forth. Traffic began to build up fast, and advertisers were quick to follow.”
The golden opportunity came shortly afterwards. Zapolin relates, “We got a phone call from one of the world’s largest breweries, Interbrew, which expressed its interest in buying the domain name. Just three months after we invested $80,000, we sold the domain name for $7 million. I was very excited, and the kid who still owned 20% of the site couldn’t believe that he was about to get more than $1 million.”
Diamonds are forever
Success whetted his appetite. Zapolin and his partner Andrew Miller, with whom he created Internet Real Estate Group, began to look for other attractive domain names. The next category they entered was diamonds. “I saw that there was a lot of activity in the field, and that the Internet could provide a great deal of information about diamonds,” said Zapolin.
Zapolin discovered that the most sought-after domain name in the industry, Diamond.com, was owned by a software company that did not realize what a gem it possessed, and therefore did nothing with it. “We bought 80% of the portal for $300,000, and we began to flood the website with content. We set up a fairly basic portal, and very rapidly sold it to Benny Steinmetz (an Israeli diamond merchant, N.P.). We made back our investment with a bit of profit,” says Zapolin. The domain was later sold for $7.5 million.
When talking with Zapolin, it is very hard to miss his smile as he talks about his business, even when talking by phone. It’s clear that he loves what he does, and that’s not hard when he has a string of successful exits, and when he is considered the expert in his field and is invited to conferences to relate his success story.
Globes: In the current crisis, are there more domain names that can be bought and sold for millions of dollars?
“In the present circumstances, it is necessary to focus on fields that actually benefit from the difficult economic climate. One example could be a domain that includes a word related to ‘savings’, and is not related to something that requires a financial outlay. Today, I wouldn’t buy a website that deals with car sales, but I’d focus on fields that enable people to save money. These are the things that will probably succeed in the short term.”
Zapolin does not just dispense advice, he acts. He owns Insurance.com, as well as other domain names, such as Chocolate.com, Jeans.com, and Patent.com. He has already sold domain names like Computers.com. He does not disclose the amount, but it is easy to imagine that it was for a few million dollars.
Zapolin admits, “Some of the domain names I own are going well, but others are small sites for which we’re still seeking growth opportunities. I don’t always buy for the purpose of selling. There are also domain names that I want to hold for a long time, such as Music.com. I continuously seek out the next trends in order to hold strategic domains in those fields.”
Globes: How will the crisis affect the online advertising industry? After all, it will have effects on the trade in domain names.
Zapolin replies, “It’s true that the growth rate in the online advertising industry is slowing, but it’s still growing, and it will only continue to grow in the coming years. Advertisers are now abandoning traditional advertising channels, and rushing to the Internet, where it’s possible to measure the marketing and to create a high ROI (return on investment, N.P.).”
Traffic means money
Globes: Do you have any tips for someone looking for domain names that could be sold for high prices?
Zapolin answers, “Good domain names can be found in the environmental and renewable energy industries. It’s possible to think of all kinds of combinations and buy them very cheaply today, insert content, and sell them in the future at a very high price. It doesn’t require a large financial investment or special technological skills. This field is a kind of Wild West.”
Other fields that Zapolin believes in include medical devices, globalization, and even Barack Obama. “I don’t necessarily know what will take off, but I constantly seek to buy domain names and sell them for tens of thousands of dollars. Even today there are companies that own domains with special value without realizing what they are holding,” he says.
Globes: What can you contribute to someone who wants to enter the trade in domain names?
Zapolin says, “First of all, find a field that excites you. There are a lot of examples of people who took their enthusiasm to the online world, and began to make money from advertising. One example is Michael Arrington, who founded the blog “TechCrunch” out of love for it, and now has one of the most popular blogs in the field. Another example can be found in Canada, where a young entrepreneur founded a free dating website called Plentyoffish.com, which rapidly gathered pace and now generates millions of dollars from advertising every month. There is also the blog Bankaholic.com founded by a young American, which he soon sold for $20 million.
Zapolin plans to shortly publish a book that will include tools for finding good domains and tips for creating reputation, reliability, and traffic. Meanwhile, he is prepared to say that the most important thing is to find ways to build traffic and to create a high presence for the website on search engines. “Everyone who knows how to use Word can enter the business and succeed,” he asserts. “The important thing is to find the thing that excites you.”
Globes: As someone who survived the last Internet bubble of the early 2000s, how is the present situation similar?
Zapolin says, “The situation is quite similar. Then, too, valuations on Wall Street were exorbitant and out of proportion. People began to lose faith in the Internet. In practice, more and more people came online and began to feel more comfortable in the Internet environment, whether by using e-mail or buying something online.
“In 2001, I wasn’t worried about the bubble, and I continued to buy domain names from companies that had given up on the Internet. We saw that situation as an opportunity, and the same is true today. It’s important that people neither panic from the recession nor make the same mistakes as in the previous crisis, and believe that nothing will work. They should seek out categories that can profit from the current situation.”
Mike Zapolin’s big deals: Beer.com sold to Interbrew for $7 million Shop.com sold to Ultra International Ltd. for $3.5 million Diamond.com sold to Odimo Inc. for $6 million Telephone.com sold to an investment firm for $2 million
Zapolin was also involved in the sale of College.com, Computer.com, and Timeshares.com for undisclosed amounts.
Mike "Zappy" Zapolin will speak at this year's Israel Business Conference at the David Intercontinental Hotel in Tel Aviv, to be held on December 14-15.
Published by Globes [online], Israel business news - www.globes-online.com - on December 10, 2008
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