Domain business positioned as end-to-end domain provider, spin-out on track.

Demand Media just concluded its first quarter earnings conference call, and much of the talk centered on new TLDs.

The company is working to spin out its domain name business into a separate business and expects that to happen by the end of the year or in early 2014.

CEO Richard Rosenblatt explained that the company wants to be an end-to-end provider of domain services. The group will continue to own its own portfolio of domains, hold an expansive distribution network, and provide services to buy, sell, and monetize domains.

Demand Media applied for 26 top level domains and has rights to up to 107 more domains that were applied for by Donuts. The company thinks its first new TLD may come online as early as Q4 of this year based on ICANN’s current timeline.

Rosenblatt said he likes the registry model because it’s higher margin than selling domains as a registrar.

When prompted by an analyst, he said the company should reap the benefits of slotting fees when more TLDs start competing with each other. Slotting fees, sometimes part of marketing programs, are fees domain registries pay to show up higher in domain check results. Demand Media may also determine it is better served to slot its own domains higher and forgo some slotting fees.

The company said that 40% of its revenue in the first quarter came from Google. It will be interesting to see how that is split out after the domain business becomes a separate entity.

Demand Media puts new TLDs front and center in earnings release.

Demand Media just released its first quarter earnings. It reported a slight profit of $0.7M before adjustments.

But more interesting to the domain world is the focus the company’s earnings release places on new TLDs.

The first paragraph proudly announces that the company has signed up 400 resellers for its new TLDs (though eNom) and has received 2 millions “expressions of interest” from people interested in registering particular new TLDs. You can think of these expressions of interest as good leads for the company once new TLDs finally come out. (The 2 million number was announced by the company previously.)

Demand Media’s domain name business ended the first quarter with 14.0 million domains under management, thanks to the Name.com acquisition.

The registrar business made up 35% of Demand Media’s business in Q1, down from 37% in the same quarter last year.

The company is exploring spinning off the domain business.

Short .org domains go on auction block beginning next month.

Next month .org registry Public Interest Registry (PIR) will begin auctioning off domain names as part of Project 94.

Project 94 is the marketing name for releasing 94 one and two character .org domain names that have been reserved since the top level domain was introduced in 1985.

A handful of the 94 domain names have already been allocated to users (such as country code owners) and the remaining 85 will be auctioned off with the help of Go Daddy and eNom.

The first set of domains will be auctioned at Go Daddy starting March 18. eNom will auction domains through NameJet beginning April 7 with the last auction closing April 19. eNom’s information page should go live next week is here.

In a somewhat interesting but smart move, Go Daddy and eNom selected domains in a round robin format similar to a draft. Go Daddy ended up with some really good vowel domains (a.org, e.org, i.org, o.org) while NameJet selected all of the single digit domains (e.g. 1.org, 2.org). It’s kind of amusing to picture Go Daddy’s Paul Nicks and eNom’s Chris Sheridan sitting down for a fantasy football draft but drafting domains instead.

PIR also made a smart marketing decision by setting up the domains to resolve to web pages that announce that the domains are for sale.

Unlike some previous registry auctions for short domains, these auctions come with restrictions and some rather high reserve prices.

In order to bid you need to apply, and all applications will be reviewed directly by PIR. The exact applicant requirements are a bit fuzzy. The Go Daddy application requires you to state the intent of your purchase and to check a box saying you agree to certain buyer qualifications and will not use the domains for morally objectionable activities. The buyer qualifications give examples of how you may use the domains, but there are no states exclusions beyond morally objectionable uses.

The bottom line: PIR wants people who buy the domains to actually develop them and make them .org domains they will be proud of. I don’t think they’ll be happy if the domains end up parked, although it doesn’t seem to be strictly forbidden.

The reserve prices on single character domains will be steep, which will make people without a business plan think twice before placing a bid. Single character domains being auctioned at Go Daddy have starting bids of $50,000 and reserves north of that.

At Go Daddy, two character domains will start at $1,000 with no reserve and two number domains will start at $10 with no reserve.

Bidding more than $2,500 for a domain at Go Daddy requires passing a verification process and/or making a deposit into a Good as Gold account.

Although .co has had success selling single character domains at high prices, I’m somewhat skeptical that .org will be able to repeat this beyond a handful of obvious domains (e.g. Overstock and o.org). Some domains will sell for high prices, but I suspect a number will go unsold.

Domain business might become its own company.

Demand Media, parent company of eNom and Name.com, is considering splitting its business in two.

The move would see its domain assets and online media business separated. The domain business would have annual revenues of $150 million+ with gross margins around 20%, and the media business would be $250 million+ with 30%+ margins.

Michael Blend will be working on the process of spinning out the domain business.

While the domain business is certainly heading down a different path than the media business, this move could create some complications.

The way Demand Media has reported its earnings in the past has been somewhat convoluted. Many domain industry watchers believe the company has been able to use the registrar revenue as a bedrock as the rest of the company caught up on the revenue side. Of course, not that the media business is large this isn’t as big of an issue.

Others have speculated that a big part of the content revenue the company has reported has been from domain parking, and it will be interesting to see this when split out in greater detail.

Additionally, Demand Media has argued that its domain business is key for collecting data used in its media business.

Another online media and advertising company, Marchex, is in the process of spinning out its domain business as well.

What will domains sell for at auction?

This week Public Interest Registry, the non-profit that runs .org, announced auctions for 85 one and two character .org domain names. The domains will be auctioned through Go Daddy and eNom in what the company dubs “Project94″.

Although basically anyone can bid on the domains, PIR’s pitch to ICANN to release the short domains said that bidders will have to be “committed to building out the domain name with a sound marketing and branding strategy, including a strong focus on quality, creativity and the desire to launch the site in a timely manner.”

(It’s worth noting that in all auctions I’m aware of with this sort of restriction, the rules were never strongly enforced.)

A domain industry colleague just emailed me asking how much I expect these domains to sell for. It’s a good question. I think there will be a wide range based on the character combinations.

But why not tap the wisdom of the domain crowd? Please answer the two questions below: what will the typical price be for a 1 letter .org? 2 letter .org? For the purpose of these polls, consider only one and two letter .org domains, not ones with digits in them.

[poll id="18"]

[poll id="19"]