Two businesses based on great domains have faltered. Why?
Ron Jackson of DN Journal is reporting that SanDiego.com and related assets are being foreclosed on. They will be auctioned off on Friday, May 7.
Just a couple months ago word first got out that Sex.com, another big ticket domain, was being foreclosed on.
How can two killer domain names like this end up in tatters? Just a year ago GeoDomain Expo took place in San Diego, and I recall sitting on the balcony of the hospitality suite with SanDiego.com founder Mark Burgess as he talked about expansion plans for the site. They were ambitious, but we were watching old media falling apart all around us.
So what gives?
First, it shows how tough it is to build a content-based web business regardless of the domain name. Consider that SanDiego.com was only generating $700,000 a year in ad sales and search revenues according to DN Journal. That’s nothing to sneeze at, but it hardly supports a staff of more than a half dozen people. As for Sex.com, you can’t buy a domain for $14 million and expect to execute on a plan with only one employee.
Second, this shows the dangers of debt. If they didn’t have to service debt, both SanDiego.com and Sex.com would be moving right along. Maybe not humming along, but they wouldn’t be going to auction. SanDiego.com could have scaled back its workforce and survived.
Another geo domain heavyweight, Boulevards New Media, has mortgaged several of its city domain names. Many of the domainers that go around talking about how much money they’re making as domainers have also borrowed money on their domains. If they’re sitting on a lot of cash earning 1%, why are they paying double digit interest on loans? Don’t get me wrong — debt can be an efficient way to finance growth. But it has a severe downside.
That’s my take. What’s yours?
Snoopy says
I think you are right, over leverage. I’d say there would be a reasonable number of domain deals “on the edge”. Not surprising to see them now. The bust is largely over but revenue hasn’t really changed, it is the time when people will say “time to throw in the towel” on some over leveraged business in my view.
jun lim says
Robert Kyosaki, the Author of Rich Dad, Poor Dad says, less than 5% of business can survive for many many years.
David J Castello says
The SanDiego.com story has little in common with Sex.com and out of respect to Mark I won’t delve into it here. Boulevards is a completely different situtation (Dan has almost too much of a good thing to completely wrap his arms around). Regardless, as 1932 was to the 1929 crash, 2010 is to 2008. The real economic pinch is now because the show waves have caught up to everyone and people are sitting on their money. Nevertheless, Geodomainers are one of the few trying to expand in this market because they know this is when it counts. And it can have disastrous consequences as we see now. We like to think of ourselves as pioneers, but one famous description of a pioneer is a guy standing on a hilltop with an arrow in his back.
Andrew Allemann says
One obvious difference b/t the two is that Sex.com’s debt was for buying the domain name, whereas SanDiego.com’s was to grow a business.
David J Castello says
@Andrew
Correct. And I was shocked to learn it was only grossing 700K. Would have expected $1.5 million minimum – even in this economy.
Andrew Allemann says
@ David – I know they had a lot of investment into content. Seems like you guys put more effort on getting traffic to businesses. Boulevards also focuses on business listings I believe.
In some ways SanDiego.com was trying to emulate old media, perhaps too much.
This is only my thought based on a brief conversation a year ago, so it might be dated.
Michael Berkens says
David
How much do you think this domain is going to sell for?
David J Castello says
Should pull minimum $2,000,000, could hit $5,000,000, but who knows in this economy? It’s 100% going to come down to the enduser. Very few people know what to do with a Geo this big and if we didn’t have enough already on our plate we’d definitely go for it. Michael and I choose our Geos based upon attraction to the area and I can’t think of too many more beautful cities where I’d like to get another place than San Diego.
David J Castello says
@Andrew:
You nailed it: “In some ways SanDiego.com was trying to emulate old media, perhaps too much.”
We concentrate on one thing only – sales (and your analysis about us is spot on). Mark built a fantastic site with great content and wonderfully talented writers, but it scared the daylights out of me because only ads pay the bills. Even now, I look at their front page and I think, “Where are the ads?”
It’s ironic that we’ve been criticized for having too many ads on our sites like we do on the front page of PalmSprings.com, but it pays the bills.
Andrew Allemann says
As far as the valuation goes, really depends on who the buyer is. It was grossing $700k a year in ads, and was likely losing money. So if someone just looks at that and only places value on the domain, I’d say it might even fall short of $1M. Of course, someone who has done well in this geo game could buy it for more and recoup the investment sooner.
DR.DOMAIN says
Gonna be interesting to see what they both fetch.
David J Castello says
@Andrew:
Don’t forget that the usual metric for selling a radio station is 40X revenue. Of course, we’re a new industry and are still the new kids on the block, but I was speaking with a very respected media business broker at the Geo Expo in New Orleans last week and she made the same comment. Regardless, whatever price anyone pays for SanDiego.com it will look like a steal ten years from now. Major US city.com brands are in a league all their own. Concentrate on hard advertising sales, watch your overhead like a hawk and you’re off to the races.
Troy says
“Major US city.com brands are in a league all their own.”
The .org’s are not too bad either=).
I agree that one of the main problems is debt. If you bought SanDiego.com back in the early 90’s and had no debt then you should be able to make a great living off of just one major city site. If you continue to mortgage it trying to build faster than you can handle then eventually it will all come falling down. $700,000 per year in ads would have been just fine for a business that had an owner and a couple of sales people but it is unsustainable for a business that has mortgaged itself again and again.
Why are we so obsessed with getting bigger and bigger to quickly. Grow naturally and you will naturally have what it takes.
I am surprised about Boulevards being mortgaged as well. If that ball ever drops we will see some very interesting things happen in the Geo realm.
Snoopy says
“Mark built a fantastic site with great content and wonderfully talented writers, but it scared the daylights out of me because only ads pay the bills. Even now, I look at their front page and I think, “Where are the ads?””
///////////////
Great post, that explains alot as to why sandiego.com didn’t work out. When I looked at the “about us” section I was very surprised to see so many names listed.
Patricia Kaehler says
This is sad news…
My heart beats faster for
for Mark… I hate to see things go down like this…
So there is NO Reserve
of record for the domains
auction ??
Who’s handling the sale ??
Are the current employees
contractually tagging along
with the domain for a period of time ??
Those of you that have projects like SanDiego.com — do you hire ad sales people that work there – with you on a face to face level… or telemarketed staff ??
~Patricia Kaehler – DomainBELL
Josh says
Its only a steal in 10 years so to speak IF the plan is right, otherwise its another name with potential. I thought after our current market down turn we would stop this “its a steal” and “potential” BS. The name will only be as good as the plan and apparently with a GEO the success rate seems rare or should I say harder to come by.
If the name truly sales for big 6 figs to low 7 and the people in this thread don’t step up its apparent their all talk or perhaps over leveraged themselves. The geo market is taking blows.
Steve Cheatham says
A good name does not guarantee success. You also need a business plan that works.
Jim Holleran says
As somebody who lives in San Diego such as myself, I would love to own SanDiego.com. Don’t have the funds and would not borrow it either.
I feel bad for Mark who is a great guy. It’s a lesson learned, online real estate is just like offline real estate. Don’t borrow money and overleverage yourself or it can come back to “haunt” you. It’s sad, but there are many more category killer domains that we will see in foreclosure within the next couple of years.
Thanks, Jim
eric rice says
everyone thinks development is so easy… 95% of generic domain name development projects fail. I hear Candy.com guys barely selling anything or making any money (just heard it so could be wrong but from the traffic I do not see how they could be)
domain guy says
first of all what this conversation clearly shows there are no mbas or media experts on this panel.just to crank out a solution is worth a million dollars here. and to do that all we have to do is look at a comparable property here.this is why a consultant charges a fortune just for advice.
the comparable property i choose is charter communcations owned by paul allen.with 8 billion dollars in debt all accumilated from buying media assets over the last 10 yrs.
charter filed for bankruptcy everybody got a haircut, became recapitalized,reapplied for a nasdaq listing and paul allen stayed in complete control all the time.
the same could be done here with any asset in foreclosure.we have all seen how carl icann works.
the second problem here is the biz model applied advertising in a market that has contracted over the last 2 yrs.as we have all scene the tv upfront ad buying is falling,newspaper,magazine ads are falling
every day.3. there is no financial base here.
everbody laughed at jobs when he took over apple and changed the color of the monitors
every analyst laughed at jobs..now 10 yrs later every analyst is concerned that apple has 40 billion of cash sitting on its balance sheet.
so the answer here is bankruptcy,a restructuring of the debt,a tweeking of the biz model,cut expenses,possibly bringing on
a revelant partner.also 700k in past sales
is not an indication of future ad sales.the market is on an upswing mode…so there is a change in market demand.
M. Menius says
SanDiego.com is obviously a superb domain. Without having all relevant financial details, no way to understand exactly what went wrong. $700,000 in revenue sounds low for a city of that size.
Dale Ehrgott says
The good news is that this could be a blood bath coming down the pike so that other domain properties come into play and that will mean more opportunities for others wanting to come into this market. I do look forward to seeing what this brings in at auction as well as sex.com and of course who purchases them and what they end up looking like down the road. With every adversity is the seed to an equal or greater opportunity (Napoleon Hill) I think 🙂
Charles Carreon says
“the comparable property i choose is charter communcations owned by paul allen.with 8 billion dollars in debt all accumilated from buying media assets over the last 10 yrs.
charter filed for bankruptcy everybody got a haircut, became recapitalized,reapplied for a nasdaq listing and paul allen stayed in complete control all the time.”
Brilliant observations. I wrote an article years ago for The Ashland Free Press when Charter wanted to buy Ashland Fiber Net (one of the first and few city-owned ISP’s) and forecast the bankruptcy years before it happened. http://www.ashlandfreepress.com/The_New_Years_Issue/Charter_Communications_Paul_Allens_Toy
Stephen Douglas says
Eric is right, development should be a well-planned investment before you start, because 95% of full blown developments will fail because a lack of money.
As I stated back in 2004 when I decided to “get involved” publicly in domaining, the keys to the pure value of a domain name is determined by the END USER. So if that end user doesn’t have a good business plan to build out that domain, doesn’t matter how good the domain is, they’re going to go into debt without a good cash liquidity. So end users should be brick and mortar companies who are looking to expand to New Media marketing, with the budget set to expand on this.
NOTE: One way to live comfortably as a domain investor is to focus on “less consumption” and to remove GREED from your lifestyle. It’s not that hard to stop posing and focus on family, friends and the simple things, and live on your own time as a domain investor. There’s one thing I value more than money, and that’s MY OWN TIME and FREEDOM. You’d be surprised how much satisfaction there is in not having to answer to someone else’s “commands” in order for you to bring home the bacon, and keep your bills paid.
The day I see El-Sil announcing Burbank.com is clearing $100k a year in profits will be the day I pull my savings out and start building out a geo portal on some of my geo prodserv domains. In the meantime, just selling domains and keeping costs under control is my game, and it works pretty good. (knock on wood).
Jim Holleran says
@Stephen,
You are 100% correct. I try to follow exactly what you do. What a great post!!!
Thanks, Jim
Ronald J says
I don’t see how anyone could blow that type of money developing a property that inherently has a very substantial amount of type-in traffic, along with strong potential to acheive top search engine rankings, and an excellent brand.
Competing sites like http://DiscoverSD.com and http://NBCSanDiego.com seem to have a way better grasp on things. The former has roughly the same traffic and as I’ve heard was built with relatively little investment. Seems like the wrong people have been at the helm of an amazing asset for far too long.
Stephen Douglas says
@ Jim
“”Stephen… I try to follow exactly what you do….”
Jim, was that you peering from behind my hedgerow last night? 😉 I thought someone was following me!
Jim Holleran says
@Stephen,
After my Cinco De Mayo celebration, I don’t know what I did nor remember last night. It might of been me though:)
Domainer says
Looks like nobody met the 3M reserve.
Jim Holleran says
3 Million, I am surprised nobody paid that much. Maybe because I live in San Diego, I feel that way and see the potential.
Thanks, Jim