Company lays off 18% of staff in preparation for “very difficult economic environment in 2009″.

Domain Name Wire has confirmed that Los Angeles-based domain juggernaut Oversee.net is laying off employees today. From what we’ve been told it’s in the DomainSponsor division, but the layoffs may be more widespread. We are waiting on comment from the company regarding the number of effected employees. [See Update] The layoffs come just two weeks before the company’s DOMAINfest conference in Los Angeles.

Mason Cole, Oversee.net VP of Communications, released the following statement to Domain Name Wire:

Oversee is reorganizing its businesses because it expects a very difficult economic environment in 2009. As part of the reorganization, we have had an 18% reduction in force, including some managers.

Oversee will focus over the next year in the areas where it has a leadership position. Going forward, areas of focus include: Domain name monetization, Domain name aftermarket, Registrar, and Travel.

Accordingly, we’ve discontinued activity or investment in areas that aren’t as promising (mortgage, for example). The reduction is a result of the refocusing on key areas.

In August Oversee.net laid off 10% of its employees across its divisions including DomainSponsor, SnapNames, and Moniker.

Since then the domain parking business has continued to deteriorate. Current revenue from domain parking cannot justify previous staffing levels at many domain parking companies. Other divisions of the company are also likely hurting, including NameKing. The previous layoffs occurred under the former company president Lawrence Ng. This is the first round of layoffs under new president Jeff Kupietzky.

Oversee.net is not the only domain name company cutting employees. NameMedia trimmed its workforce near the end of last year, and domain registrar Tucows cut 15% of its staff in November.

January’s Great Domains auction hopes to match last month’s total.

After selling over $500,000 last month, January’s Sedo Great Domains auction kicked off earlier today and runs through January 22. Already two low priced but notable domains have met their reserves: Forgive.com at $4,999 and gaps.com at $2,350 (the latter started with no reserve).

There are two two character .com domains in the auction with reserves between $50,000 and $100,000. One is PZ.com, owned by DNForum owner Adam Dicker. Dicker sold ZP.com for $81,000 at the last Great Domains auction, although the transaction does not appear to be complete yet. WQ.com is owned by an Illinois man.

Fired.com, the subject of a no-brainer UDRP action last year, is on the block for between $10,000 and $25,000.

Sedo managed to get some great domains in the auction with no reserve, including Starship.com, Adverbs.com, Cheetahs.com, FZF.com, and VZJ.com.

Other domains to keep an eye on include:

CountryRock.com $5,000-$10,000
Sued.com $25,000-$50,000 – perfect for a defense lawyer
PinaColadas.com $1,000-$5,000
Virus.net $25,000-$50,000

There are some good auctions at Sedo outside the Great Domains auction as well.

InTheCloud.com – $1,250 – great name for cloud computing
EasyWeb.com – $6,100
WeDo.com $10,000 – certainly the bidder wants to create a wedding web site
Debate.org – $9,000 – The steal of the decade award goes to Debate.com, which sold for only $2,500 back in 2004

Google’s black box of ad pricing makes it impossible to understand if partners are getting a fair share.

When Google (NASDAQ: GOOG) offered a “direct to consumer” domain parking option last month, many cheered. “Finally, we can cut out the middleman!” they exclaimed. But others worried about potential downsides. Specifically, domain owners realized that they have little bargaining power with Google compared to parking companies that aggregate significant traffic.

Google’s Domain Parking Agreements

To better understand how Google can squeeze its partners, it’s important to understand the deals Google has in place with partners such as DomainSponsor, NameMedia, and Sedo.

These contracts are confidential. But thanks to NameMedia’s (since aborted) attempt to go public, we can peek inside a Google Adsense contract. Here are some things to note:

1. There are three types of feeds: Adsense for Content, Adsense for Domains, and Adsense for Search. Adsense for Search is the search feed from Google. This ad feed can be called anytime someone types a search query into a box on a parked page. It is also called if someone clicks on a link on a parked page labeled “Related Searches”. I’m still unclear as to the difference in ads shown on Content and Domains, but these ads can be shown on the landing page of a parked page or on additional pages. If you have a one-click lander with Google, all of the ads on the home page are from the content or domains feed.

2. Parking companies get a higher revenue share if they send more traffic. The NameMedia agreement has three tiers, which presumably pays a higher percentage of revenue to NameMedia if it sends a greater amount of revenue to Google. (Note that it is based on revenue amount, not traffic amount.)

You may be thinking “Great! The parking companies have negotiated certain revenue share percentages with Google that cannot be changed. We’re locked in.” Well, sort of.

First, this is one of the main concerns with going direct to Google parking and cutting out the middle man. You won’t have a guaranteed percentage, so Google can squeeze you whenever it needs to boost earnings.

Second, just because the percentage payout to the parking companies can’t change during the contract period doesn’t mean the actual amount paid out can’t change, as I’ll explain below.

An Elusive Revenue Share

Let’s consider how percentages mean very little in these agreements, and why Google may have an incentive to collect less per click on the parking pages even if it means Google in turn earns less per click.

In order to understand this you need to consider Google Adwords, the program that supplies ads to Google Adsense. Google Adwords Advertisers generally bid a maximum amount per keyword. But they also set a budget. For example, I may say “Bid $1 per click for these keywords, but I don’t want to spend more than $1,000 a day”.

At first it seems Google will want clicks on all pages — whether part of the Google.com or Adsense sites — to be close to the maximum price. But Google’s margin is much higher on Google.com because it doesn’t have to pay partners. So it has an incentive to have more of the ad budget spent on Google.com than at partners.

For example, assume an advertiser has a $1,000 budget and it is maxed out every day. Google could send half of the traffic from Google.com and half from the AdSense network at $1 a click. Here’s how much Google will make, assuming the partner has a 75% revenue share:

500 clicks on Adsense x $1/click x 25% = $125
500 clicks on Google.com x $1/click = $500
Total = $625 profit

Now, what if Google discounts the clicks on Adsense 50%, arguing they aren’t worth as much as those on Google.com? The advertiser still wants to spend $1,000 a day. So the rest of the traffic goes to Google.

500 clicks on Adsense x $.50/click x 25% = $62.50
750 clicks on Google.com x $1/click = $750
Total = $812.50 profit

As you can see, Google needs to merely shift the budget toward its own properties to earn more money. The advertiser gets more clicks, too. Google can pay the same percentage to parking companies but pay less per click, while at the same time making more money for itself.

Note that this is against Google’s stated goal of offering the best deal to the advertiser. If both Google.com and Adsense convert at the same rate, the second option gives the advertiser more conversions. But a third option of all Adsense traffic would be the best for the advertiser, but the worst for Google: it would only earn $250.

Is Google squeezing us already?

A lot of people cite Google’s Traffic Acquisition Costs (TAC) metric to show that advertisers are getting less. But the metric says very little about partner payouts. Here’s a graph of TAC updated in Q3 2008:

Above: a graphic that means a lot to investors but little to partners.

The blue line represents Google’s expense for traffic as a percentage of advertising revenue. The green bars primarily represent the amount paid out to traffic partners.

Many people point to this falling percentage — 37.2% in Q1’05 and 27.9% in Q3’08 — to show that Google is paying its partners less. But this number means very little, because we don’t know what percentage of traffic is generated on Google.com versus Adsense sites. In fact, you can see that Google is actually paying more to partners now than before. But again, without knowing the actual traffic amount we know very little.

Indeed, revenue on Google.com and other Google properties increased 34% in Q3’08 compared to one year earlier. Revenue on Adsense increased only 15%. But this is revenue, not traffic, so we still don’t have much insight into if Google is paying more or less to its partners. It’s a black box, and only Google knows what’s inside.

A Ticking Time Bomb
There’s one other thing that could drop parking partners’ shares of revenue overnight faster than a gradual squeeze.

In the NameMedia agreement (and I’m told the same goes for other agreements) Google retains the right to eliminate the search ad feed. Search ads generally pay more than content ads. So overnight, domain owners could see a massive drop in revenue. Google is required to provide a replacement feed to NameMedia if it removes the search feed. If the replacement feed doesn’t perform within x% of the search feed, NameMedia has one recourse: cancel its agreement with Google.

Canceling the agreement doesn’t seem like a good alternative.

Should we bite the hand that feeds us?

For all of the complaining about Google, keep in mind that without Google the domain industry would be a shadow of what it currently is. Google’s ad network has propelled the parking industry to where it is today. Should we not complain about Google’s market power? Should we be thankful for what it has given us and not question its motives?

It’s a tough question. We know our parking revenue is dropping, but is it because Google is squeezing us? Because it’s a black box, partners’ relationships with Google are based on trust. And Google has been losing a lot of trust. Notifying parking partners of a drastic change in competitive strategy just a day or two in advance doesn’t build trust.

It’s good to question authority. Which is why we shouldn’t all run out and thank goodness that Google is cutting out the middleman.

Company awarded divisional patent covering business of expired domains and domain monitoring.

Expired domain name service SnapNames, a subsidiary of Oversee.net, has been awarded U.S. Patent number 7,472,160, covering a broad array of expired domain services. The patent is a divisional patent filing that continues several filings made by the company earlier this decade.

Among the areas of invention covered include:

Domain monitoring and acquisition – monitoring domain names for any changes to the domain name record, such as a change in owner, nameserver, or status. This could also be used to re-acquire an expired domain on behalf of the previous owner if he fails to renew it.

Domain Name Deletion and Registrability Timing – essentially grabbing expiring domains

Auction Tagger – compiling data about the demand of a domain, such as the number of backorder requests or domain availability searches at registrars. This information can be used to determine demand for the domain.

Direct Transfer – SnapNames has direct relationships with many registrars to automatically receive their inventory of expired domains instead of having to catch the domains as they expire. The patent states:

…n the second mechanism, partnerships or contractual agreements can be entered into with the various registrars. As part of these relationships, each registrar can give operators of the present invention a right of first refusal to register a name that becomes available for registration or transfer. For example, a registrar can notify an interested entity that a registrant will not be renewing a registration and the name will become available. As one option, the name can be renewed before it is purged and transferred to the interested entity. This ensures that no third party will be able to register a recently-available name before an operator of the present invention has an opportunity to do so.

SnapNames’ patents seem to give the company a lot of power against competitors such as NameJet and Pool.com.

Approval comes well in advance of big game.

Domain registrar GoDaddy has a history of butting heads with networks over its Super Bowl commercials. This year is no different, although NBC has given the green light for two GoDaddy ads well in advance of the big game. GoDaddy is asking customers to vote on which ad should show during the Super Bowl.

During my radio interview with Go Daddy CEO Bob Parsons, he mentioned my criticism of the company for becoming to institutionalized. In my criticism I mentioned the Super Bowl saga:

But then it became institutionalized. Here’s another year, another GoDaddy commercial, and another “oh gee whiz, they rejected our commercial again!” As further evidence, GoDaddy’s PR team released a “timeline” of the commercial saga. It was all planned out from day one. It was no longer edgy; it became trite.

Again this year, GoDaddy has assembled a timeline of its Super Bowl commercials, including NBC’s three rejections. The media keeps biting, so I suppose it makes sense. GoDaddy isn’t just paying for the Super Bowl ad time. It’s also paying for the millions of media impressions it gets from interviews of Parsons about the Super Bowl commercials.