Will we see domain name companies go bust in 2009?
It’s capitalism at its best. Circuit City is being liquidated after failing to find a buyer. Linens ‘n Things is finishing up the liquidation process (I wonder when they’ll sell the LNT.com domain?).
And that’s how it’s supposed to be. Weak companies fail, strong ones thrive. Thank goodness the government didn’t step in to bailout Circuit City. Best Buy (NYSE: BBY) offers a superior shopping experience. Even though it is facing hard times, it has knocked a competitor out and should reap the rewards.
Will we see similar failures and consolidation in the domain industry this year?
Domain Parking Companies
At last count there are about 20 well known domain parking companies.
Companies go bankrupt when they can’t service their debt. The startup costs of running a domain parking company are minimal. So parking companies rarely carry long term debt, unless it is for another part of its business. Advanced parking companies, such as DomainSponsor, have higher costs of doing business because they hire mathematicians and optimizers. But the point is that most domain parking companies could survive even if they scale back to a couple people managing the system.
We could see some consolidation in domain parking, but there’s not much benefit in buying a competitor’s parking business. Customers are usually under no obligation to keep their domains there, and can flee to another service the day after the company is acquired. Sometimes buying a parking company for its technology or advertising contract makes sense.
Domain Name Registrars
There are huge economies of scale for domain registrars and consolidation makes sense. I think we’ll see a lot of consolidation in this space over the next year or two. Domain registrars may have taken on some debt to get going (or to buy an existing registrar), but it’s still limited compared to other types of businesses. But the benefits of combining operations may be compelling.
Other Domain Businesses
We might see failures at other domain related businesses. Banks.com is essentially dead thanks to its heavy debt load (backed in part by IRS.com). One other company to keep an eye on is Live Current Media (OTCBB: livc.ob), which is scrambling to raise cash. Although debt-light, it technically owes its cricket partners lots of money this year (although they have forgiven some those payments in the past). Other debt-laden companies include NameMedia, but NameMedia is doing a good job extracting case from its assets.