In a recent interviewed with Roger Collins, president of ProProject and the new owner of Afternic.com, CircleID investigates the logics behind ProProject’s strong belief in the domain name secondary market. Once known as a primary domain name auction site, Register.com had purchased Afteric.com in the September of 2000 for $48 million in cash and stock—2 years later the site was shut down as money-losing unit until ProProject came along.

CircleID: Let’s start by asking about your background in the area of domain names. What did you do before the recent purchase and relaunch of Afternic.com?

Roger Collins: Before starting our first domain name exchange (NameBuySell.com), I developed software and websites for other companies and taught web application development as an adjunct instructor at the local university. I was not a domain name industry insider.

My partner (who is also my older brother) and I launched NameBuySell.com in June 2002 because we saw a need that was not being met by the well-known exchanges. That was a part-time venture until we decided to jump in with both feet by purchasing the most popular brand in this space: Afternic. By the time we finished this acquisition, we had studied the industry and developed a vision for improving the market dramatically.

Now I’m very excited, because I think we have the rare opportunity to actually restructure an important market to greatly benefit website owners/developers.

CircleID: At one point, the former Afternic and GreatDomains were two of the most popular secondary domain name destinations. Both sites had been purchased for fairly large sums by Register.com and VeriSign, respectively. Recently, though, both were discarded, because the owners believed that the secondary market was no longer a viable business. Why are you still hopeful and pursuing the domain name secondary market?

Roger Collins: If you look closely, you’ll see that these companies did not abandon the secondary market; they are only changing how they reach it. VeriSign is replacing GreatDomains with its Name Store concept, which attempts to reach buyers and sellers of registered domains through the registrars. I can’t discuss Register.com’s plans, except to say that the announcement on Afternic.com before it closed said that its Virtual Broker (a service that lets buyers make offers and negotiate on any registered domain name) would be available on Register.com.

There is a huge supply: millions of domains are apparently registered and for sale. There is substantial demand: the most common complaint at the registrars is that all the good names are taken. A good URL is worth hundreds, if not thousands, to many commercial website owners/developers. Yet there are few aftermarket transactions. As an amateur economist, this both fascinates and motivates me.

Yet, you might ask, if there is supply and demand, why is the market so tiny? Here’s one reason: potential buyers don’t know where to go to purchase a registered domain. You were right when you said Afternic and GreatDomains were the most popular secondary market sites, but I wonder what percentage of domain name registrants have heard of either one. While a high percentage of Internet users know where to go to register a new domain, only a tiny percentage of them know where to purchase a registered domain name.

I think the makings for a great market are present, but a few changes are required. The first change addresses the problem of buyers not knowing where to buy “used” domains. That’s why we are targeting registrars to become the new primary retail channel for the secondary market.

CircleID: With the recent drops in domain name registration and renewals, do you still think people would bother buying names in the secondary market?

Roger Collins: I think the prices in the secondary market are affected by the general interest in websites that is measured by the registration and renewals market. However, I think the secondary transactions are so much lower than they should be (in a mature market) that it’s not very useful to compare the two markets. The registrar market is amazingly mature for its age; the secondary market is not.

CircleID: Based on the data from your site, it appears that some names are still being purchased, some at relatively high prices. Would you be able to share with us some statistics with regard to the number of names being sold on a per day basis? What is the average price?

Roger Collins: We sell from 0 to 3 domains per day. The lowest price paid was $100; the highest was $12,500, for wish.com. We expect this level of activity to increase dramatically. This is still the “before” picture as far as we’re concerned.

CircleID: The majority of domain name buying and selling used to be dominated by domain name speculators. Has this trend changed? Are you seeing a different set of buyers today?

Roger Collins: I think the mix is pretty much the same; only the prices are a little lower. I guess about half the names are purchased by businesses looking for a premium name for a new website, and the other half are purchased by speculators. I also think that the speculators (they might prefer “investors”) today have gotten savvier about their properties. They generally avoid registering obviously trademark-protected names and develop their domains to earn some money and improve their asset while they hold it. They know that an improved domain, a domain with traffic, is worth more money.

CircleID: What is the logic, and what are some of the motivating factors, behind domain buyers’ willingness to fork out $1000, $5000, and sometimes over $10,000 today? Do you think the days of million-dollar domains are gone forever? What about your own experience with regards to the purchase of Afternic.com domain?

Roger Collins: I think that so many domains are registered, that the secondary market might be the only choice for the most serious new website ventures. If you take a look at alexa.com’s top 500 sites list, you’ll see that almost all the sites on that list (in the US) have domain names with the same characteristics: premium domain names are short, hyphen-free, number-free, and easy to remember. That is pretty much the expectation of visitors now. If your domain name does not meet these criteria, your image probably suffers. Unless your new website has a unique name, all the domain names you can think of that meet these criteria are probably already registered.

Consequently, if a company has $100,000 budgeted for a new public website, it might need to spend several thousand dollars for a premium domain name, to maximize the image of the site overall.

Regarding our own purchase of the Afternic.com domain name, we did basically end up purchasing a domain name with traffic. However, our deal was mostly about buying an established brand, the most popular brand in its market. It required a lot more interaction than is customary between buyers and sellers on a secondary domain name exchange site like Afternic.com.

CircleID: What about the introduction of new TLDs—would this further decrease the viability of the secondary domain name market?

Roger Collins: Yes and no. Names are amazing things. How many business schools would it take to decrease the viability of the name “Harvard?” I don’t think new TLDs will affect the value of dot-coms much, and even the other TLDs will always have an image associated with them that is mysteriously permanent.

CircleID: Could you tell us a little bit about your company’s position with respect to other types of secondary domain name services providers, such as SnapNames?

Roger Collins: We’re just getting started and have no relationship with other providers yet. Also, we are being very careful what services we offer or advertise. Our primary focus is partnering with registrars, so we will not offer new registrations, for example, because we do not want to compete with our partners.

CircleID: Judging from your website, there is obviously still no shortage of domain owners trying to sell their names, some at much higher prices than purchased. What about buyers? What is your strategy for attracting buyers?

Roger Collins: First, let me address the comment about high asking prices. I think this is a sign of the immaturity of the marketplace. When dramatically more sales occur at reasonable prices, then the opportunity cost to sellers who ask too much will be more obvious and painful, and they will then lower prices. No one has to tell the owner of a $100K house not to ask $10M, because it’s obvious to him that such pricing only removes any chance of selling. But we’re not there yet in the secondary domain name market.

Our primary strategy for reaching buyers is to show alternative premium domains for sale at the registrars where customers are looking for a new name to register (and probably being frustrated about the lack of good choices). That’s why I say that partnering with registrars is our primary focus, and it’s why we’ve structured a partnership program that shares revenue 50-50 with registrar partners. We have only just introduced this idea to the registrars and it’s being received well, but I look forward to seeing the concept in action.