2009 could include more mergers, acquisitions, and outright closings.
Domain name companies including registrars, parking companies, and portfolio holders are considering their strategic options in 2009.
Domain Name Wire has learned that Dark Blue Sea (ASX: DBS) has been shopping its services businesses, including Fabulous parking and registration. Dark Blue Sea CEO Richard Moore wouldn’t comment directly on what the company is considering, but he did refer me to the company’s third quarter release:
In the context of the expected industry consolidation, the Company is currently exploring a range of strategic options with other domain industry service providers. Whilst it is a difficult time to consummate transactions given the industry-specific and general economic uncertainty as well as market volatility, discussions with other industry participants suggests the timing is appropriate.
Whether or not Dark Blue Sea sells any of its businesses or enters into other agreements, 2009 will be an interesting year for domain companies. Based on conversations with a number of domain company executives and sources over the past four weeks, here’s how I see the playing field.
Services businesses’ margins are small and getting smaller. Domain services, such as registration and parking, work on fairly slim margins. These are under increasing pressure. Companies are considering what, if anything, to do with their service lines. Under particular pressure are small domain parking companies.
There are fixed costs and variable costs at parking companies. The fixed costs include the cost of initial servers, technology/software, and enough people to service accounts and keep the lights on.
Small domain parking companies get less revenue from Google and Yahoo than their bigger counterparts (perhaps 10%-15%), but still have the same baseline costs. At some point, small parking companies become unprofitable.
With a fall in parking revenue, some of these parking companies may have slipped below thresholds required by Google and Yahoo and may not have their contracts renewed.
Fabulous generates $2M-$3M USD quarterly in gross revenue from parking customers’ domains and about $1M USD from parking its own domains. It hands over roughly 80% of the gross from customer domains to its parking clients.
You can expect to see smaller parking companies selling themselves to big players and at low earnings multiples, or simply shutting their doors.
Outsourcing is in. Look for Directi, parent company of Skenzo, to reap benefits of its lower cost operations in India. Skenzo already provides the back end for a number of parking operations (including those of domain registrars) and registrars. Perhaps existing parking companies will outsource some of their operations to Directi.
Who’s in a good position?
Sedo – although its domain parking revenue has taken a hit, the company remains strong. Its brokerage business is holding steady, even though it’s a small part of the company’s revenue. It can also tap into the resources of its parent company Adlink.
Oversee.net – buoyed by a $150M investment and no debt, Oversee may be opportunistic in 2009. The company has been burned by its two big acquisitions (SnapNames because it lost Network Solutions and Moniker because it bought at the top of the market). But lessons learned may lead to smart buys at the bottom of the market rather than the top. And although SnapNames isn’t performing as planned, more drops in the coming year may boost its revenue.
Directi – I have less knowledge of Directi’s positioning, but it does appear strong. It received an investment in its Skenzo unit and remains an outsourcer of choice.
Demand Media – Demand Media, parent of eNom, NameJet, and HotKeys, is a wildcard since it’s hard to understand its strategy. But I expect the company to be opportunistic in the downturn.
In general, companies that own more of the value chain should hold up better than one trick ponies.
Specific acquisitions
Here are a couple ideas:
Existing Google partner buys Fabulous – existing Google (NASDAQ: GOOG) partners include NameDrive, Sedo, Oversee.net, and this little company called GoDaddy. Perhaps GoDaddy should form a serious domain parking unit to take advantage of its massive scale. GoDaddy already has a partnership with Dark Blue Sea to sell domains. Maybe GoDaddy could pick up a true domainer’s registrar and create a new brand around it.
Oversee goes international – it’s no secret that DomainSponsor is the dominant Google U.S. partner and Sedo the dominant Europoean/international Google partner. Although buying domain parking companies can be a tricky business (no long term customer contracts), it will be interesting to see if DomainSponsor makes a play here to bolster its international capabilities.
[Update: DBS CEO Richard Moore e-mailed me to suggest that the paragraph I took from the company’s third quarter report should be read in the context of the entire section. You may read the report here (pdf). Update: this link is no longer active and has been removed.]
I wouldn’t be surprised to see Godaddy make a move. They are the leader in the domain registration space but seem to be lacking in the parking area. Why not go after an established leader in the space? I would imagine they are in a strong financial position and could afford to make the move. Bob Parsons is a smart business person, so the deal would have to be right to make the move.
@ Elliot – with all of the domains they park as “coming soon” for customers I would think they have pretty good good revenue share. Granted, most of these domains have little traffic.
Great article. Let’s hope for another iReit type liquidation!
1. Elliot, I agree. Godaddy should be a buyer in this market but Bob Parsons is a businessman, not a domainer. I’m not even sure if he even owns one domain.
So, I don’t think he really sees the domain industry big picture. This is not directed at you but have you ever heard of Bob attending even one domain conference? I have not.
2. Andrew, I would be careful with these kinds of stories, you don’t want to cause a run on a parking company or registrar.
As you say, they don’t have long term contracts. With a bulk nameserver change and a bulk purchase of transfer request, ALL customers can move to another parking company or registrar overnight.
That is one of the benefits of this business but also one of the problems.
Rob, I’d never write “I heard registrar X is going under”. Unless of course I had proof that it was closing down, because that would be important to readers.
I know. I’m not doubting your ethics. I just flinch a little bit when I read stories like this especially about such a great company like Fabulous.
I think the “run on the bank” mentality is running high these days but when the companies own statement is “Whilst it is a difficult time…” and “discussions with other industry participants suggests the timing is appropriate”, then I do read that as “we need cash now and understand that valuations are low”.
I don’t think Fabulous is in a cash crunch. It has 2.5M AUS on the books as of the end of the year, which is about the same it had on the books at the end of 2007. It also paid a dividend.
Good point.
Then why is the “timing appropriate” for “strategic options”?
Now that I read this again, it can be read to be that they are looking to BUY other companies.
So, are they looking to buy? If so, it sure is a good time.
If they are looking to sell then why if they have so much cash?
Rob
I believe that fabulous has been “opened to offers” for years now for all or part of their company. I do not believe this is a new development
Rob and Michael – this is a fairly new development and they are not looking to buy. They have very recently approached companies about selling off the parking business and perhaps the registrar as well. At the same time, they aren’t committed to selling.
They are not shopping their portfolio.
Dean Shannon who founded Fabulous cashed out $11,000,000 a little over two years ago. He was the majority shareholder in DBS.
As I’ve posted recently here and there… Fabulous.com is one of the companies that have lacked from innovation unfortunately and is in trouble.
As for some of the questions “why sell now” well because it is better to sell now, because things just aren’t looking too good. Everybody knows this. It is nothing new.
It is unforunate to see, but it’s happening.. The best companies are struggling. I love Fabulous and have been supporting them for over five years but there re-structuring is required and better late than never.
All the best,
Mike
It’s better to shop now than when you are out of cash.
Nobody likes to sell into weakness.
.
I think fabulous is a great company, strongly pro-domainer, great honest and ethical people.
I wish them luck and pray that they get stronger.
I am little surprised to know that they may sell their registrar….
The folks at Fab are good, honest, knowledgeable, caring, hard-working people who well deserve any benefit of the doubt.
Shoot; you’d have to be a fool; or too rich to care; to not be “for sale” at some price.
Doesn’t that apply to virtually all of us?
The registrar biz of fabulous.com is wholesale and they make absolutely no money off of it whatsoever I bet you.
They offer the lowest prices and pass on all the discounts they can.
The infrastructure, customer support, etc… That stuff costs money. A lot of money..
They probably lose $$$ on the registrar side of the biz. Yes really.
It is more of a complimentary service offering in order to attract domainers and clients for their domain monetization (parking) business which is where the money is.
Fabulous.com has an approx total of 1,200,000 names registered there with half of those being their own portfolio. The other half are domainers.
No doubt fabulous.com is an awesome company company but unfortunately they have seen their best days a while ago.
The AUS > USA currency drop also doesn’t help much.
I do hope that they are able to re-organize and pull through.
It will involve cut backs, closing some businesses down, etc.. But it’s time.
It is not 2002 or 2005 anymore.. Things have changed big time. Way past due.
Time to think about the future.. 2010 and beyond.
It would be a shame if any other company bought out Fabulous registrar… they are simply the best out there right now, any sale would be to a lesser company. 🙁
As someone who once was a Mayor of a small town and as a lawyer who filed some newsworthy lawsuits I can confirm that statements can be taken out of context.
I have it on fairly competent authority that the “news” about Fabulous might be analogous to me saying “make me the right offer and I’ll sell you the shoes off of my feet” and then it’s reported in the news that I’m opening a shoe store.
@ wannadevelop – the drop of the australian dollar actually helps them somewhat since they report earnings in AUS and are paid by Google et al in USD. Many of their expenses are paid in cheaper AUS (although not payouts to parking partners and registrar fees, but registration fees are paid to them in USD anyway).
I’ve read the above comments by all. Dub-A is correct that this year will be a bellwether year for domain company acquisitions, but singling out DBS/Fabulous and assuming they’re in a “weak” position and needy to sell is ludicrous.
Most domainers know that Fabulous is probably the most domainer-friendly/service-oriented registrar/parking service around. They’ve been in the game longer than most, and every domain conference today has sucked the teet of the first-ever domainer meeting by Dean Shannon 8 years ago in LA.
Along with the fact that not one domainer/blogger has EVER legitimately complained about Fabulous.com and their “fabulous” team, comes the reality that DBS’s type of domain industry positioning alone is extremely valuable. I don’t know one domainer who has something negative to say about Fabulous/DBS. (compare that with GoDaddy, where I have stated before that Bob Parsons doesn’t involve himself in promoting the very business community that allows him to think and behave likes he’s Larry Flynt.).
Also missing in this article are other domain industry power punchers, such as Name Media and a few others.
Dub-A is right to “tease” us with this article about buyouts and consolidations, but none of us (that would print it publicly) can really say what the market leaders are going to do… yet. 😉
Stay tuned for a wild ride through 2009, but don’t believe for a moment that Fabulous is “weak” or hurting. Any move they make will be seriously profitable for them, and at the same time, advantageous to the domainer community.
Stephen,
First of all, I must say that I am also a fan of Fabulous. I’ve never heard any complaints about them and believe they share their customers interests. All my interactions with Fabulous leading up to the publication of this article have been very professional.
I originally started writing this article when I found out that DBS was talking to parties (plural) about selling off some of its products, specifically inside fabulous. As you know, I never print anything without thoroughly researching it. This article was researched over several weeks.
After communicating with Richard Moore at length, I decided it would be more valuable to readers to write an article about the factors driving M&A over the next 12-24 months rather than discuss Fabulous alone. I subsequently talked to high ranking execs at a number of domain companies to get their take on the industry, which is part of how I came up with the factors that are driving change in the industry (slim margins, Google/Yahoo contract negotiations, et al). Not all of these factors apply directly to Fabulous’ situation, nor should that be implied.
Fabulous is merely a backdrop. I’m not singling them out as being weak and “needing” to sell. In fact, their cash position is the same as it was this time last year. That’s part of the reason I note that they may not sell anything this year.
That said, Fabulous is clearly not as strong as it was a year ago, just like other companies in the industry. They are facing many of the challenges that other companies in the industry are facing. They are not immune, but I think they’re well positioned compared to some other companies. But they’re feeling the squeeze in their services businesses. Had I heard of (and confirmed) another company actively talking about selling one or more of its units, I would have published that.
I know you’re not questioning my integrity or reporting, but I do want to make it clear that I stand by this story at accurate.
Hi Andrew,
By no means was I directing my comments to you. I know you are a consummate neutral reporter in this business. I’m actually sorry that my comments made it seem this way, I was actually directing my comments to those who read your article and “assumed” Fabulous was in trouble. I’ve talked to Dan and Richard at length, and I know a little bit of where they’re intending to go. Making profits on selling your company isn’t a “red flag” that your company is suffering, although many noobies will think that.
I appreciate your answer (as I know DBS/Fabulous does too!). However, I will make it clear here right now that your article in no way made me doubt your knowledge of upcoming possibilities in the way of acquisitions. I know of a few myself, but because I’m involved with several of the companies, I can’t post them on my blog or comment on them publicly.
I apologize if my comments seemed to question your veracity, which I have never done, and probably never will.
I’m just trying to calm the kneejerk reactions from some of your readers… lol
By the way, did you check out the pic I have of you at the Playboy mansion? It’s on my facebook page bro… NOW you should be worried… but just as a matter of “Elliot can’t be trusted – he’s a sneaky troublemaker…” cuz you’re standing right next to him and he knows you are a top story scooper… WHAT WILL ELLIOT DO TO SABATOGE US??!!!!
Thanks Stephen. Apparently some people did read way too much into this, making assumptions that are clearly not in the story. Which brings up another question: is it a big deal if your parking company or registrar is bought? Probably not. An article for another time…
DBS stock has been in a free fall since peaking in late 2007 from it’s all time high of $1 to now 20 cents
Looks like people are just waiting to see what happens next.. No action so far this year.
This is going to be be very interesting.
Hi Andrew,
Thanks for accepting my explanation of my original comment on your article. Your work stands unchallenged from this reader.
On your final question above: “is it a big deal if your parking company or registrar is bought?”
My answer is: “It is a big deal if the acquisition changes the scope of your company’s profit-making platform, or adds significantly to it.”