Like many people, I misspelled a domain name today when I was trying to visit a web site. I typed Twiter.com (with one T) rather than Twitter.com. I wasn’t surprised to land on a site with ads, as is common when entering typos. I was surprised that both Google and Yahoo were making money off those ads.

Google has a program known as AdSense For Domains, previously known as DomainPark. Got a tasty domain but no content for it? AdSense For Domains will put lucrative ads up on it, for you (really lucrative: see more here and here).

The practice is known as domaining. And before some domainers start working up heated rebuttals, let me make it clear. There’s nothing wrong with domaining. If you were lucky enough or smart enough to land a generic domain like usedcars.com or taxforms.com, my hat’s off to you. It’s well known that people will simply slap words together, tack on a .com and see if they reach a site that has information about a particular topic relating to those words. Domainers earn off that traffic, and no one is misled when visitors directly navigate this way.

So saying domaining = spamming is the same as saying SEO = spamming. Neither is true. But there are spam tactics that happen in both areas along with the legit stuff. In the domaining world, it’s the typo traffic that’s often scummy, in my book.

Typo domains are domains that are nearly identical to the domain name of another well known brand. Here, there is often harm. Someone expecting to reach a particular site instead lands on a different one that’s cashing in on the other brand’s fame.

OK, it’s the person who is entering the domain name wrong in the first place’s fault, right? It’s like they dialed the wrong phone number. Why shouldn’t a domain owner be able to earn off of misdirected calls to their phone? Or, it’s the “real” company’s fault for not registering all the typos out there.

What about companies that have a name in use before another company becomes more famous? Is there really anything wrong with UTube — a well established pipe company — benefiting from a spike in traffic after some upstart YouTube video site came along? Or in the case of Twiter, that domain existed well before Twitter became popular, so why shouldn’t it tap into new found popularity.

These are fair objections. In counter to them, some typo domains are often registered after a brand becomes popular, with the obvious intent of riding on someone else’s coattails. For another, it simply violates the policies of some ad networks, Google’s included. In other words, the fault isn’t with the domain owner themselves. It’s with companies supplying ads in violation of their own guidelines or policies.

That leads us to what I saw when I reached Twiter.com, the single “T” web site:

These ads are provided by Google, not that anything on the page tells you this. Domain ads apparently aren’t forced to carry those “Ads By Google” notifications as with contexual ads. That’s a handy way for Google to distance itself.

The first and fifth ad indicates a relevancy issue for Google advertisers. If you’re advertising “Free VoiceXML platform” or “Monitor Server health,” why on earth is someone from Twiter (one T) going to convert for you? They might click out of curiousity, but the probably aren’t going to buy (in fact, there’s a lawsuit against Google over the quality of domain ads pending. Google’s has also been sued over trademark issues with typo domains).

Now look at the second ad, which I’ve pointed an arrow at:

Twitter? Twitter is here Need Twitter? Official Twitter site Twitter lets you share. Its Twitter www.Twitter.com

That ad surprised me. Really, Twitter (that of 2 Ts) decided to buy an ad for its own name via Google? Actually, no. Instead, it’s a Twitter user that bought the ad, driving people to their particular profile which, while indeed being on the official Twitter site, isn’t providing Twitter but rather a pitch for a book:

Clever person, right? Yes, but they also likely being misleading. That would violate Google’s ad guidelines and also may violate advertising laws in various US states, as well as nationally and in other countries.

That ad also shows two flaws in Google’s ad system. Clearly no human being looked closely at this ad, to review it for quality guideline violations. Meanwhile, Google’s requirement that the display URL in an ad match the domain name someone arrives at get exploited. This ad correctly shows a Twitter.com domain, even though the ad itself doesn’t speak with the authority of Twitter itself.

Check out the third ad, with an arrow pointing at the domain (which I’ve also bolded below):

Twitter Looking for Twitter? Find exactly what you want today. Yahoo.com

Why yes, I was indeed looking for Twitter. Glad to know that Yahoo has it now. I guess I missed news of that deal being cut. Let’s go get us some Twitter at Yahoo:

Ah, Twitter, er, shopping results. Maybe that lamp beams out tweets, when you turn it on. The results are kind of crummy. But that’s OK, because right at the top of the page, we get three paid search ads from Yahoo.

Now, it’s not Yahoo doing this directly. Looking at the URL that brings me to the shopping page, I see an affiliate reference. So this is someone earning money by driving Yahoo traffic. But Yahoo takes some of the blame here. It’s their affiliate, getting paid by Yahoo, and Yahoo should be policing this.

Yahoo, by the way, joined a coalition against typo domains back in 2007. They’re no longer listed as a member, which given these type of ads, is probably best.

The rest of the ads are all products somehow related to Twitter, so at least the misleading aspects aren’t there. But there still seems to be a violation of Google’s domain ads program policies:

Domains submitted for the AdSense for domains program may not violate any trademark (and related rights), copyright, trade secret, patent or other intellectual property right of any third party….

Google AdSense for domains is committed to respecting the rights of trademark owners. It is our goal that advertisers, users and trademark owners all be aware of Google’s process for reviewing perceived trademark infringement in the AdSense for domains network. If Google becomes aware of a domain name that contains a trademark (or typo), that domain will be removed from the AdSense for domains network.

At best, Google might argue that Twitter hasn’t submitted a formal complaint, so as far as it knows, there’s no trademark violation happening. That’s still pretty weak. Does Google, which often holds itself out as championing the relevant organization of information, really want to hold its head up about what’s happening on that page?

I don’t think so. That’s especially so when you consider the type of ads that show up on Google’s own site for a search on twitter:

That Twitter user claiming to be the official Twitter site doesn’t show there. Neither does the Yahoo ad promising to deliver Twitter.

If those ads aren’t good enough to be shown on the shining storefront that is Google’s search results page, they don’t get any better being plastered on some dark alley of the internet.

Postscript: After publishing this, I sent these questions to Google.

• Are the ads from that Twitter user and from Yahoo meeting your relevancy guidelines?
• Are they not misleading?
• If they are, were these actually reviewed by a human?
• And does the site violate your guidelines on typo domains or not?

In response, I was emailed this statement:

We don’t comment on specific ads or domains – but our AdSense for Domains policies are here. When we’re notified of complaints, we investigate for compliance with our policy.  We’ve found that advertisers enjoy the benefits of the additional reach that AdSense for Domains offers.  Many advertisers find that ads on parked domains perform as well as or better than ads on more traditional search and content sites.

Today, the site is no longer showing ads from Google. Instead, another company is providing the paid ads.

Google Sued For Selling Ads On Parked Domains from InformationWeek reports Google was slapped with a class action lawsuit over the AdSense for Domains product. In short, advertisers are upset with the quality of traffic driven through that program and feel that their money was taken from them without any return.

The suit was filed on Friday in a U.S. District Court in San Jose, California. The law firm, Schubert Jonckheer Kolbe & Kralowec, is based in San Francisco. The one suing is actually a lawyer, suing under Levitte International for his advertising campaign he ran from June 1, 2007 through August 18, 2007. The campaign received 202,528 impressions via the AdSense for Domains program. The campaign also was shown on the AdSense for Errors program, which received 1,009 impressions, 25 clicks, and zero conversions. The AdSense of Domains and AdSense for Errors traffic and impressions cost him $136.11.

Levitte hopes that other advertisers join his lawsuit. “We believe it’s a problem that affects all [Google's] advertisers equally,” said Kimberly Kralowec, partner at the law firm representing Levitte.

It is important to note that in August 2007, when this lawyer’s campaign was still active, Google announced that they will be enabling a feature to allow advertisers to opt out of AdSense for Domains traffic. Google began beta testing this feature in November 2007.

In addition, the domain park (AdSense for Domains) is not new to getting Google in trouble. We reported it landed Google in a trademark case back in January 2007.

In response to popular request, block domain ads looks to be coming, along with other blocking features.

I have reported at the Search Engine Roundtable that some AdWords advertisers are now able to block categories of sites, plus they are able to block domain ads and error page ads. Back in August, Google told us that AdSense For Domains Opt Out Coming To AdWords Advertisers. It appears that some advertisers are now able to take advantage of that feature.

The Site Exclusion features, which I personally do not yet see myself, reportedly include:

• Block sites by domain, sub domain, or folder (has been live for a while)
• Block sites by category (so if you do not want your ads to show up on technology sites, you can specify that)
• Block your ads from showing on AdSense of Domains (domaining ads)
• Block your ads from showing on Error Pages

We do not have confirmation from Google on this release yet, nor do we have screen captures. This is all based on a DigitalPoint Forums thread that has discussion about this new feature. I hope to update this post when I hear back from Google on this.

Postscript: Google called me late Friday to tell me that this is a beta they are running with a select number of AdWords advertisers. They were unable to give me any more information about this beta. I asked for a lot, but all I got was a confirmation that this exists. David at RedFly Marketing is part of this beta and has posted some detailed screen captures of this in action. Check out the screen captures here.

I reported at the Search Engine Roundtable that Google has said they will be allowing AdWords advertisers to opt out of the AdSense for Domains product.

I quoted AdWordsAdvisors2 from a WebmasterWorld thread as saying:

We are working on making it simpler for advertisers who don’t want to show on domain sites or error pages to exclude them.

AdSense for Domains, also known as DomainPark, is a product of much controversy. Google places ads from AdWords campaigns on parked domains and match the relevancy of those ads based on the words found in the domain name of the site. In fact, Google was sued for trademark and typosquatting for ads being displayed on typosquatter’s domains.

On the advertiser side, many feel that AdSense For Domains does not give them the return on investment that they are expect. They have been asking Google for choice over if they want their ads to be shown on parked domain sites or not.

It now appears that Google is working toward providing that choice. I currently do not have an expected date of completion for this feature. Note From Danny: It’s important to understand that some people think they’ve opted out of AdSense For Domains if they opt out of contextual ads altogether. Not so. Do that, and you’re opted out of paid links on parked domains that people browse and find, by clicking. But if someone does an actual search there (search boxes are almost always provided), then you’ll get traffic from parked domains that way, if you’re accepting traffic from the search network. It’s confusing and one reason why I’ve long wanted Google to make AdSense For Domains an entirely separate purchase.

Brand Owners on Web Offensive from Red Herring reports that Yahoo, Dell, Coca Cola, Hilton and others have joined together to fight cybersquatting. The companies formed a collation against cybersquatters named Coalition Against Domain Name Abuse.

Cybersquatters purchase domain names that are similar to trademark names, such as yahooemail.com and hilt0n.com. Some use that traffic to earn an affiliate commission on sales from the trademark owners, but others may use it for criminal activities, such as phishing for passwords, bank account details and other personal information.

CADNA President Josh Bourne said:

To effectively combat cybersquatting…and other Internet-based fraud, CADNA will work at the national and international levels to make these practices difficult to establish and unprofitable to maintain.

Postscript: Just spotted a Publishing 2.0 blog post that shows how he wanted to visit TechCrunch but accidently missed some letters and found typosquatters at Techrunch.com, Techcunch.com, and Tehccrunch.com. Nice timely example of cybersquatters in action.

While a decent percentage of the global business community has become aware of the importance of search engine marketing, very few businesses seem know about the best practices surrounding the purchasing and ownership of web site domain names (e.g. when to purchase, what to purchase, etc.). Unlike SEO problems, where a banned site can get re-included if the webmaster fesses up to bad behavior, mistakes involving domain names are frequently permanent (though sometimes large amounts of cash can be used to overcome problems).

Here is an example of a particularly egregious corporate domain name foul-up:

Torrent Pharma, an Indian pharmaceutical company, recently sent out a press release announcing that they are bringing to market Rimoslim, a generic version of the very popular weight loss drug Acomplia. I first learned of Rimoslim while reading the release and as a domainer (domain speculator)-in-training, I immediately searched to see whether the .com domain name was available. Shockingly, it was. I did not buy it because I believed that I would be setting myself up for a future conflict with Torrent, thinking that they would likely respond with considerable fury if they ever became aware of the gravity of their error.

Sure enough, Rimoslim.com was quickly purchased by a “resident of France” known as “Dave the Red Frog” (at least some domainers have a good sense of humor). Instead of spending $10 to purchase their branded domain, Torrent either must spend a considerable amount of energy and resources chasing down “Dave the Red Frog” who has parked the page for ad revenue or accept that they have lost their branded .com domain name.

Also, as I write this, a very large U.S. Commercial Real Estate Company has announced the name of a major Southeastern development but hasn´t forked over the $10 necessary to secure its .com domain name. These examples are only the tip of the iceberg…

Keep these examples in mind as I present some best practices for Corporate Domain Name Management:

Buy first, publicize later. (The Torrent Rule) Before publicizing a new product, business, service or project, purchase the relevant .com domain name. Also, strongly consider purchasing the .net, .org & any relevant country-specific domain names as well. If  “The Torrent Rule” isn´t followed, a smart domainer can register the intended domain name within minutes of a public announcement. Ideally, purchase the domain names while the idea is in its “conceptualization/development” phase and if multiple “brand” names are being considered, buy the .com domain names for all of them (because they could vanish at any time). You can discard the ones that don´t get used simply by allowing their registrations to lapse.

Register misspelt variants. Once you have purchased your relevant domain names, determine the most common misspellings and purchase the .com domain names of each. Redirect these URL´s to your primary site. From my own experience, I know that “Acomplia” is frequently spelled “Accomplia” and the drug manufacturer smartly has purchased both .com domain names (though curiously hasn ´t used them to help educate consumers about the drug). Domainers will capture the most prominent misspellings of any brand if not secured.

Register generic variants. Task several members of the team with the following creative exercise: if a prospect were searching for your product or business but didn´t know what it was called, what generic words or phrases might they use to describe it? Once a final list is created, buy each available .com domain name on the list and redirect each of these URLs to your primary website. This exercise will allow the capture of “type-in traffic” (the traffic generated from people typing the word/phrase directly into the browser address bar without spaces followed by .com). Depending on the terms involved, this could be a substantial number of visitors. In my most recent Search Engine Guide article, I told the story of how I permanently poached some generic type-in traffic that the manufacturers of Lybrel failed to protect. A domainer will see your publicity as an opportunity to purchase domain(s) that will not only permanently capture your type-in traffic but potentially acquire an asset that can be sold for a premium price in the future.

Protect your domains. Make sure that your domain registrar login information is secure, that your domains are set to “auto renew”, that your WHOIS information is accurate and that a non-expired credit card is setup in the account. Losing domain names to an administrative foul-up would be a bitter pill to swallow.

There are quasi-legal administrative actions available that can help a business potentially recapture a trademarked (or close variant of a trademarked) domain name. However, following proper domain name management best practices will enable businesses to avoid wasting resources needlessly.

For Search Engine Land readers who want to learn more about domaining, I strongly recommend the blogs of Frank Schilling and Jay Westerdahl.

Todd Mintz is the Director of Internet Marketing & Information Systems for S.R. Clarke Inc., a Real Estate Development and Residential / Commercial Construction Executive Search / Recruiting Firm headquartered in Fairfax, VA with offices nationwide. He is also a Director & Founding Member of SEMpdx: Portland, Oregon´s Search Engine Marketing Association.

In the earlier installment of this article I covered the topic of local-oriented subdomaining. In this second installment, I’m covering domaining. As you may recall, I described "domaining" as the practice of buying domains mainly for their potential keyword value. Speculators purchase keyword domains with a view towards reselling those properties at a considerable markup, or to get revenue by "parking" the domains with minimal content and lots of ads. The "local space" version of domaining is where a domainer has set up shop on a name which includes some sort of locality parameter like a ZIP code, city name, or regional name. How beneficial is this, and is it valuable for generating revenue?

I confess, when I began researching this topic, I had some predisposition against domaining, because most of my exposure came from instances of brand-name cybersquatting and brand-misspelling typosquatting I’d come across in the past. The growing business mainstream of the domaining industry has been working to distance themselves from the stigma of such practices by trying to shift to using a newer name for the industry: "Direct Navigation" or "Direct Search"—referring to how many users will type a keyword into their browser’s address fields and tack a "dot-com" onto the end of it with expectation of going directly to appropriately related content.

Beyond the distasteful practices of some domainers, I’ve also been highly distrustful of the traffic claims surrounding the industry. After all, it seemed to defy common sense to a degree to believe that huge droves of users are typing all of these keywords directly into their browser address fields. Why should they, when Google has improved to the point where everyone goes to them to search for everything? And, why would users repeat the direct navigation experience after they’ve seen the thin and spammish content that’s frequently found on those sites? It seems even less likely that users would type-in many names based off of bizarre keyword combinations. Yet, the domainer industry cites figures showing that Direct Search usage has been growing rather than dropping off.

If the usage of domainer sites is suspect and the quality of so many of those sites is low, how worthwhile can their ad clickthroughs be? How profitable will these outfits be in the long run?

So let’s look at these questions with an eye towards assessing whether domaining is worthwhile in the local space.

Is the traffic for real?

One thing which has made me distrustful about the domainer industry is the level of hype going on with it. Articles about figures such as Kevin Ham have caused many CEOs to take notice, and domaining is now set to be a big deal on Wall Street as people seek ways to get in on the relatively nascent industry. For those of us who lived through the dot-com bombs, we can’t help but approach hype-laden rhetoric with a large degree of skepticism. So, is the traffic really for real?

Google and Yahoo believe it is. They have programs for ad distribution on parked domains and have partnered with some of the top domain aggregators (see Google, Yahoo!). They have pretty good tracking systems, so they’re in a position to know about whether the traffic on these types of sites is bona fide or not.

We know from tons of web analytics that users type domain names into search engines and browser toolbar search fields—the keyword referral reports of most major sites show that a site’s own domain name is often the most-popular term typed into search engines to bring users to them. So, the converse could easily be true: users probably also type keywords/domains into the address box.

I confess I do this a lot as well, though primarily only for sites that I’m familiar with, or for major brand names when I have a reasonable expectation that I can deduce the domain name faster than using a search engine. Advent of submission field hints provided by PC operating systems, browsers, and Google Suggest embedded in their toolbar may further encourage user to do type-ins. The browsers address fields also can fluidly turn a bare word into a search engine query.

AOL has for a long time had a special service to set up keywords as aliases for domain names. When users type a bare keyword into the AOL browser address field, it maps to an actual domain name. Former company RealNames used to do this as well, and used to be integrated into IE browsers. Could AOL have trained a whole generation of internet users to do direct navigation through this method? Whether or not this behavior transferred out of the AOL version of the internet, the usage of the address-bar as search form was substantial enough to be beneficial for the partner sites associated with the keywords. That sort of usage is perhaps a good indicator of the level of usage from broader direct navigation activity.

There’s not a lot of independent reporting of domainer traffic figures, likely because those companies having significant portfolios of names are understandably secretive about their holdings and associated traffic due to obvious competitive reasons. They wouldn’t appear on the radar screens for net tracking companies like comScore or Hitwise, since no one knows to associate all their sites’ traffic together as an industry or for a single company.

Visual Sciences (formerly WebSideStory) reported in 2003 that over 64% of internet users arrived at websites via direct navigation, compared with 53% in 2002. Unfortunately, there’s likely a lot of assumption in these figures, and probably the vast majority of that traffic would be on name-brand domains, rather than on the unbranded domainer sites.

There is a very good chance that various figures stating high amounts of traffic from purely direct navigation could be overestimated since there are many cases where the referrer variable of the user isn’t passed on to web servers. Many people assume that if their analytics systems don’t show a referrer for a visit, the user must’ve typed the URL directly into their browsers or used a bookmark to get to the site when this isn’t always the case. This error would only affect interpretation of the source of traffic, and it wouldn’t change the total amount of visits received by such sites. Even so, the domainer industry loves to widely quote the Visual Sciences traffic estimates, even though they could be way off. This should be approached with some degree of skepticism as some of these firms may be looking to IPO or may be hoping to impress Wall Street analysts if they’re already publicly traded.

One domainer trade organization and political action committee, the Internet Commerce Association (ICA), states in a white paper entitled Growth & Sustainability of Direct Search Traffic: "Average direct search traffic grew at a 35%+ compounded annual growth rate (CAGR) between 2002-2006…"

The ICA report displays impressive graphs, but doesn’t share where their sample traffic figures come from. One assumes it’s compiled from internal traffic figures of some of the top domainer firms which are represented in its leadership and membership.

In a recent article in Domainer’s Magazine, Bob Martin, iREIT CEO, writes:

"As global Internet usage continues to rise and as consumers increasingly trust the amount of relevant information available on web sites with descriptive names (e.g. bands.com, creditreports.com, carrims.com), the direct search market is poised to grow at a rapid rate. By offering high-quality, segmented traffic, the direct search market now represents 6% of the entire search advertising market and is growing at 35% a year (in contrast, the search advertising market as a whole is expected to remain stable or grow by 1-2% a year through 2009)."

Google and Yahoo probably have some of the best independent data on this, but they’re officially mum about relative traffic levels. Just based on Google’s and Yahoo’s involvement with delivering ads on parked domains, I’d be inclined to accept that as indirect evidence that domainer traffic is believably substantial. It’s apparently profitable for them. The traffic is apparently for real.

Local domaining

The practice of Domaining in the local search and online business directory space has become a hot topic due to hopes that it could provide another golden source of online traffic not already thoroughly exploited.

Domaining for local will typically focus on particular vertical markets such as “Locksmiths” – www.locksmiths.com, or specific localities like “Seattle, WA” – www.seattlewa.com. Local domaining also is frequently used to target the long tail of local business search term combinations with more granular combinations of business category keywords with locality specifications such as www.seattlepestcontrol.com .

I’ve reviewed the portfolios of yet other domainer companies who came up with less-desirable, local-targeted domains, typically with increasing amounts of gobbledygook in them, such as www.local2you.com.

There are other, well-founded businesses which have locally-oriented or vertical domain names which are not really considered to be “domaining” businesses. The differentiator could be that those businesses, such as Hotels.com or Lawyers.com, are using relatively fewer domains and are using them as classic major brands with all the attendant brand-building and content development. Domaining companies by contrast are typically making money from larger portfolios of domains, and have thinner content sites with less of their own, unique content.

So, who’s doing domaining in the local space?

One particular local company, Marchex, has invested considerably in the direct search market through purchasing up more than 200,000 local search term names (source), including keywords associated with business types, and particularly local-targeted terms such as city names combined with keywords and ZIP codes. Over 75,000 of their domain names are zip code names.

In 2004, Marchex bought around 100k of their domain names from Yun Ye, a legendary and reclusive figure in the domainer industry, in a deal priced at $164 million, or an estimated 8.6 times the yearly revenue derived from those properties. What Marchex is doing that’s so impressive is to build out those domains with deeper, more-relevant content, and they’re likely optimizing them for natural search. Many domainer sites are not found at all in SERPs because their content is deemed too thin or too similar to other sites. Google has been steadily reducing rankings of "thin-affiliate" sites and filtering out content duplicated across many pages through their quality ratings systems. If Marchex can increase their sites’ traffic through optimization and increasing user stickiness, they have a very good chance of recouping their investment much sooner than in 8.6 years.

Marchex just this week announced a major launch of new UIs and content coordinated across 100k of their domains. Marchex’s work to develop out these domains with improved content and SEO tactics makes them a hybrid between the low-investment/fast-returns domaining business model and that of deeper content sites aiming for long-term usership. (Actually, the domaining industry as a whole has come to realize that improving UI and optimizing for natural search traffic can substantially augment their revenue-generating ability.)

Marchex hasn’t completely escaped all of the dicey practices which have been involved in domaining, as outlined here. They apparently inherited a few distasteful sites in the large portfolio they bought from Ye. I’d expect they’ve likely been cleaning up their portfolio and divesting any of the slimier assets.

How effective will Marchex be in this local name realm? How many users are really typing their ZIP-code-dot-com into their browsers to locate pizza delivery joints in their area? Unknown. But, if Marchex successfully optimizes their sites so that users begin finding them through search engines, they’ll undoubtedly develop a usership which will begin to expect that any ZIP code, city name, or category+cityname will work as a domain name. This is one case where if you build it right, people will eventually come.

There are other players in the local field who have also bought up local term domains, or who are intending to partner with others in order to market through large name portfolios. For instance, Local.com apparently plans to syndicate their content out across 60,000 websites (source) There are also myriad other small sites, and perhaps some other companies developing local domain name portfolios quietly, below the radar.

How profitable is domaining?

Analysts from firms such as Jefferies have stated that profit margins of direct search firms are probably right around 40%. Others have estimated that just the ad revenues alone of these sites could likely go above $ 1 billion in 2007. (source: Susquehanna Financial Group)

The ICA states that the "direct search industry comprises 6-9% of paid search market." A Yahoo! official apparently once whispered at a party that type-in traffic makes up as much as 15% of their paid search traffic! (source) And, Visual Sciences reports that: “Direct Navigation’ results in about twice as many conversions as pages located through search engines—4.23%, compared with 2.30%.”

Domaining/Direct-Search is a bit of a quandary from my perspective. Currently there is significant money to be made in this space, so it appears to be worthwhile for local companies to pursue it. But there remains a great deal to be skeptical about the real worth of it for advertisers whose ads appear on those myriad of local-oriented domainer sites, so I still question the long-term sustainability of this channel.

Should local companies be in on domaining?

The current dominant cost-per-click ad industry has large degrees of invalid or fraudulent clicks occurring, and one can’t help but believe that the percentages must be higher for ads delivered on domainer sites based upon very unlikely and low-quality domain names. Reports show that click fraud is on the rise. Some amount of click-fraud is likely going on in the less-reputable segment of domainers. This is of less concern for domains owned by larger companies and publicly traded outfits, but it would behoove the industry along with Google and Yahoo! to publish more information about this segment that’s apparently generating so much revenue. It may be that when cost-per-action becomes more widely adopted, the perceived ad channel worth of a large portion of the domaining industry could degrade rapidly. It seems likely to me that thin content domainer sites will likely end up as dead-ends in future business as the internet industry moves towards true pay-for-performance ad models. I believe that we’ll find that really esoteric and unlikely multi-keyword-term domains will become exposed as having generally worthless traffic.

Domaining has been growing up as an industry, and is now focusing on designing sites for SEO and with real content for good usability. As the industry builds up their sites and moves away from the shell pages that contain only thin content, they’re increasing their overall traffic and improving the quality of traffic they’re sending to advertisers.

Marchex’s strategy is a very strong approach, but most local companies might be well advised to approach domaining cautiously. Up-front investment through purchasing domain portfolios could be very risky, and it’s not clear that the initial investment would recouped as quickly as using the capital investment dollars in some other ways. What if Google or Microsoft move more aggressively into this space? What if cost-per-action metrics begin exposing problems with conversions on the bulk of the domainer sites?

Local firms seeking to increase distribution through direct navigation might be best served by partnering with the companies that hold localized domain portfolios, and testing traffic and the quality of that traffic with an eye towards the conversion rates. Go with domaining for now in order to exploit the traffic, but carefully assess feedback from your advertisers in that channel regarding their conversion rates compared to the bulk of clicks for which they’re paying.

Google Sued in Domainer Lawsuit–Vulcan Golf v. Google from Eric Goldman covers a new lawsuit in which Google is being sued for allegedly violating trademarks by helping domainers monetize “typosquatter” domains.

Eric explains that this filing (4.3MB PDF) may be the first lawsuit against Google for its domainer relationships. The complaint considers Google as the domain name licensee, because AdSense for Domains effectively takes control of domains in the program.

Google’s policies aren’t supposed to allow typo domains to be in its program, but these get through. And since Google puts ads on them, the case alleges Google is contributing to trademark infringement.

Business 2.0 has a fairly comprehensive (cover) story about domain portfolios and “direct navigation.” It starts off with a profile of Vancouver entrepreneur Kevin Ham (”The Man Who Owns the Internet”), who operates a $300 million domain “empire” but goes on to discuss others who have become wealthy from domain speculation, parking and domain portfolio ownership. (The author of the article Paul Sloan has a related post here.). The ads on Ham’s domains are served by Yahoo.

There’s something vaguely unseemly about profiting off domain ownership and parking, often a kind of “bait and switch” for users who type in a URL thinking they’re going to a content site but wind up getting something less than that. However, Marchex, an owner of a large domain portfolio (and mentioned in the article), has been upgrading and enhancing its sites with search functionality and content from its acquisition of travel and local search site OpenList last year.

Here’s a 2005 article on the same subject from Paul Sloan for Business 2.0 and two pieces by Danny on the phenomenon: Search Engines Making Millions Off Type-In Traffic From Domains and Google AdSense For Domains Program Overdue For Reform — And Yahoo & Microsoft Should Also Take Note.

Postscript From Danny: One of the most interesting aspects of the story is how Ham has struck a deal to populate any unregistered domain from the country of Cameroon with ads from Yahoo. Cameroon uses the .cm domain. People might type that by mistake rather than a .com, such as microsoft.cm or oscars.cm. Yahoo and Google both provide ads to domainers, but they say rules do not allow for “typo” domains that are trademarks of others to carry ads. For example, Yahoo would not allow ads to go on a site like microsft.com. The question is, would microsoft.cm be viewed as a typo of a registered trademark of Microsoft. Legally, perhaps not. Businesswise, I can’t see the difference. If Yahoo’s not going to allow typo domains to carry ads, the principle should apply whether the typo happens before or after the dot.