Rafael Sosa’s Weblog

“There must certainly be a vast Fund of Stupidity in Human Nature, else men would not be caught as they are, a thousand times over, by the same Snare, and while they yet remember their past Misfortunes, go on to court and encourage the Causes to which they were owing, and which will again produce them.” – said Cato several thousand years ago (from The Battle for the Soul of Capitalism)

Here’s an interesting analysis from John C. Bogle’s book “The Battle for the Soul of Capitalism“

“When the S&P Index rose from 130 in March 1981 to 1,527 in March 2000, the return on investor capital, excluding dividends, was 13.8 percent per year. Earnings growth amounted to 6.2 percent annually, less than half of the return, with the remainder the result of a rise in the price-earnings ratio from eight times to thirty-two times. That increase alone accounted for 1,100 points of the 1,400-point gain, or 7.6 percent per year. If one were to attribute even a 5 percent corporate cost of capital as a threshold for stock option grant- a return a company might have earned merely by placing all of its assets in a bank certificate of deposit- corporate management could claim responsibility for an extra 1.2 percent per year.” (emphasis added)

So how does Wall Street manage to “meet” or “exceed” their generous quarterly guidance with such a high success rate? Here’s an example:

“In 2001, Verizon Communications reported a net income of $389 million and awarded its executives bonuses based on that amount. Net income would have been negative, however, had the company not included $1.8 billion of pension income. Thus, Verizon was able to use pension earnings to convert net income to profits, giving the firm cover to provide managers with higher bonuses [and meeting expectations, and keeping their stock options way high in the black]. It gets worse. It turns out that Verizon’s pension funds did not generate any real income in 2001; they had negative investment returns, losing $3.8 billion in value [What?!]. How then, could Verizon report income of $1.8 billion from its pension assets? The company merely increased its projection of future returns on pension assets to 9.25 percent, a move allowed under the accounting rules then in effect. Thus, the $1.8 billion in pension income used to move Verizon into the black did not even reflect actual returns generated by the pension funds. The pension income was simply the result of a change in the accounting assumptions. This certainly did not create any value for the firm or its shareholders.” (emphasis added)

OK, so lets do this simple math. They claim they made $389 million in net income, because of the $1.8 billion of magic pension fund money that doesn’t exist. This means they actually lost $1.4 billion, but that’s not it. They didn’t make $1.8 from pension, rather lost $3.1 billion in value for that fund.

Who ends up carrying those losses? The individual investors, fooled to believe a company is stable, holds the stock and takes the heavy losses when all the cards in the table are finally shown at once.

Last time I analyzed CNET’s individual assets, the company was acquired 4 months later. Now, amidst the current economic nightmare, there is a fresh new opportunity to grab a gift – Marchex (MCHX). Yahoo, who’s recent conflicts have left many asking for Yang’s head and who’s stock has lost almost 50% since failed negotiations with Ballmer, has a small opportunity to vindicate themselves.

Of course, there’s also Google who needs to continue increasing their revenues in order to support their generous stock PE. Although I would insist that this is a more logical acquisition for Yahoo! to build themselves into a more attractive position for Yahoo! to be acquired, possibly still by Microsoft.

So, what does Marchex bring to the table?

High quality traffic and prime Internet Real Estate.

By its own, Marchex is priced slightly below their current value. However, when you take Google or Yahoo’s advertiser base and traffic sources and fuse it with Marchex’s high quality domain portfolio you get a multiplier effect.

Marchex has made two brilliant moves:

1. Spanish domain portfolio acquisition

This portfolio contains over 100 of the most attractive Spanish domain names and was calculated to generate more than one million unique visitors per month. Of course, these are mostly visitors coming straight to the sites, because of type-in traffic. Take a look at the jewels:

mujer.com (women.com)
fotos.com (photos.com)
deportes.com (sports.com)
salud.com (health.com)
peliculas.com (movies.com)
mascotas.com (pets.com)
futbol.com (soccer.com)
cocina.com (kitchen or cook.com)
tarjetas.com (cards.com)
dietas.com (diets.com)
computadoras.com (computers.com)

The whole list is found here http://www.emediawire.com/releases/2007/5/emw527846.htm

The value of these domain names are like a slow curve that quickly accelerates exponentially as the Spanish market (Spain, Mexico, Caribbean and South America) online advertising solidifies. One must understand that this market has been extremely slow to develop, mostly because of the number of computers available in each household and lack of understanding from old school marketing executives. However, the panorama is changing quickly and will fuel advertiser dollars to the ‘net.

The Spanish domain portfolio could be easily worth $500 million to $2 billion in a 5 year window, depending on the development of all these domain names into fully usable content and social portals.

The second source of value in Marchex is their 2004 acquisition of UltSearch’s domain portfolio.

In this portfolio, there are over 100,000 domain names of high search traffic value. There are also a few generic jewels in the mix like beijing.com, debts.com, and remodeling.com.

It’s hard to value the whole portfolio and I suspect that most of the names would probably not be of any significant worth. However, assuming even 1% of the names are of the quality of debts.com and beijing.com would make the portfolio highly attractive.

I wouldn’t doubt that this portfolio had at least $100 million in value (Marchex paid over $150 million a few years ago for the portfolio).

Finally, someone over at Marchex decided to accumulate zip code domain name. Wrap them up, put a bow on top of them and sell it for a few million to some telephone company still figuring out their online strategy. I’d also garage sale the auto content generation technology.

Marchex is currently priced at $300 million. Year-to-date they are down almost 30%. This is exactly how much it is worth.. a 30 to 50% premium on its current price.

An American military supercomputer, assembled from components originally designed for video game machines, has reached a long-sought-after computing milestone by processing more than 1.026 quadrillion calculations per second. – NY Times, Military Supercomputer Sets Record

If you have $133 million in spare change, you could have yourself one of these to install MS Office and type in your thesis.

So, are we getting closer to an answer to “The Last Question“?

Lately, I’ve been inactive in this blog, and one of the main reasons for this was my plan to obtain a Juris Doctor. After being involved in Internet businesses for the past eight years, I’ve been able to appreciate the current legal structures (or lack of) and the scarcity of good lawyers who understand what is going on in the World Wide Web.

I still remember how one of the best law firms failed to understand the Anticybersquatting Consumer Protection Act, when my lawyer sent their client a C&D back in 2003. Much of the ignorance on Cyberlaw still permeates the legal community. And much of this is due to a lack of understanding on how the Internet works, from a consumer and commercial point of view.

I’ve just been accepted to the only Law School I was interested in, and the only one I applied to. For the next 3 and a half years, I will be building the skills necessary to put my grain of salt in the improvement of the necessary legal structures to support a safer and more efficient commercial operation through the net. So, look out for more legally oriented blog posts dealing with domains and internet business.

Last night I read of the auction for “viajes.com” (travel.com). I immediately placed a bid and began the process to determine the maximum amount I could afford for such a jewel of a name. My head spinning with plans…

This afternoon, I receive an email from SnapNames:

Notice the “To” field. Yes, it contains the emails of EVERYONE who participated in the auction. My personal email, without consent, accessible to everyone who participated in the auction.

Sahar Sarid is one of the most active voices in the Domain industry and a leading domain investor. Recently, he launched a contest to determine the best features needed for domainers, to be incorporated in the recently launched DNZoom service. As a domain investor, I’d like to jump in with a few suggestions of what I believe is needed to improve the domain investment market:

These suggestions are in no particular order:

1. Have active offers with expiration dates or without expiring. I have seen way too often in the domain forums how sellers of the domain claim that they once received a “$x,xxx” offer for the domain once. Well, make this process transparent. I want to buy xyz.com, I give them a $xx,xxx offer that will expire in 2 months. I give them a $xx,xxx minus $x,xxx offer that will never expire. This offer is visible – it is active. Other buyers can see the active offers on the domain. The seller can choose to execute the sale based on these active offers any time they want.

This adds value to the market by establishing floors on demand for domains. This further increases the amount of data available for calculating the value of comparable domains. Active offers by reputable buyers could even serve as collateral for the owner of the domain to take out a loan.

2. Expiration dates for domains should be active. By this, I mean that there should be buttons for me to click on and have it add the date to my calendar. Palm, Google, Outlook. This way, as I search for domain names, I can click on this active link and instantly integrate it into my calendar system which will remind me when that domain is going to expire.

Furthermore, you could have a paid service of receiving an SMS alert when a domain is close to or has expired.

3. Group data on an industry and provide a perspective to domainers on how well they are performing on their monetization. (OK this is a bit hard to do) But imagine if I was in the  “travel” industry. How are my travel domains performing relative to the entire pool of travel related domain names? Which parking service is performing best for that industry. Perhaps lead generation by xyz parking company is proving to be more lucrative in this industry. Perhaps it is Cost Per Click by abc company.

4. On that same note, let domain holders know when specific industry domains are being sold. If I have a strong portfolio on “car” domains, it is more likely that I will pay a premium for a domain related to “cars”, because among other reasons, I have a multiplier effect in income when I hold many domains from one industry. So, identify or ask domain holders which industries they are interested in, and notify them when a domain has been put on sale or expiring auction.

5. Transparency on traffic and revenues! Offer the option to share certified income reports and/or traffic with prospective buyers, or simply to share it in a public space. If publicly shared, then integrate it into the whole search experience. This way, people can search the whois and see the field for traffic and revenue of that domain. Or search by traffic and/or revenue. Buyers can then make their offers in the style of Suggestion #1.

6. Open is the new black! Once you have gathered enough data, put it out to the world in the form of APIs. This will make the industry stronger, unleashing valuable data for bright minds that want to build applications we haven’t even imagined.

I hope many of you choose to participate in this contest and make this industry better.

As reported by ReadWriteWeb:

 The most impressive thing about the new search engine Delver is that it knows who you are and who your friends are even if you don’t import you address book or add your social networking profiles.

Hooray! Am I supposed to be happy that you know who I am, before I choose to tell you?

Instead, Delver leverages the social graph to map out a user’s social connections. Since everyone’s social graph is unique, like a fingerprint, the same query will yield vastly different results for each user.

Great! Now we can fingerprint anyone -not just criminals.

The results are more personal and meaningful to users than a generic search using “normal” search engine.

In other words, now we can show you Viagra and Cialis ads only if you fit the “social profile”.

There were no comments from Big Brother.

Ya sea que está haciendo negocios en la Internet, o solamente es un usuario navegando, el fraude en la Internet es un área que hay que entender y saber distinguir. Dado a la facilidad con la que cualquier persona se puede conectar y permanecer anónima, el fraude por Internet se ha convertido en un sistema muy lucrativo. Para evitar momentos desagradables y pérdidas económicas, conocer los tipos de fraude más populares en la Internet los ayudará a sacarle mayor provecho al Internet.
Tipos de Fraude Común por el Internet:

1. Compradores pidiendo formas de pago inusuales. En mi tiempo operando una tienda virtual, recibía esporádicamente correos electrónicos de personas en países lejanos, como Nigeria, que deseaban hacer una compra de mis productos. Por lo general, necesitaban la dirección porque solo podían pagar con un cheque, o con un giro postal. Usted recibe el dinero y lo deposita en su banco. Varios días o semanas luego, el banco le informa que el pago se identificó fraudulento y le remueven el depósito de su cuenta, posiblemente enfrentando otros dolores de cabeza. Ya para ese tiempo, usted habrá enviado la mercancía y ni espere recuperarla. Otro sistema popular es ofrecerle un giro por una cantidad mayor del precio que usted pide. Luego le piden que le envíe la diferencia.
2. Pescadores de data personal “Phishing”. La forma más común de phishing es por medio del correo electrónico. La persona envía un mensaje en la forma de una advertencia que requiere usted visite una página para verificar sus datos. Sin embargo, estas páginas son copias fatulas diseñadas para confundir al usuario en pensar que está en la página oficial y entrar los datos personales, como seguro social, número de cuenta bancaria, y otra información personal que le permite al criminal tomar su identidad y robarle su dinero.

   Hay muchas formas de protegerse de un ataque de phishing. Siempre tenga sospechas cuando reciba un mensaje que le requiera confirmar sus datos personales y llame a la compañía para confirmar que en realidad la comunicación es de ellos. Por lo general, las comunicaciones oficiales de su compañía van a venir con su nombre completo. Muchos de los correos fraudulentos no se refieren a usted por su nombre completo, sino que está escrito en un lenguaje genérico sin proveer ningún dato suyo. No obstante, debe de también sospechar hasta de aquellos mensajes que vengan dirigidos a usted con su nombre completo y llamar a su compañía.

3. Sistemas de dinero rápido (HYIPs). Estos sistemas han existido desde mucho antes del Internet, pero han tomado una popularidad grandísima con la llegada del Internet por la facilidad con la que es llegar a las víctimas. De la forma que funciona, es que crean un sistema de pagos acelerados, que promete unas ganancias muy atractivas. Suelen prometer que su dinero se va a multiplicar varias veces en muy poco tiempo. Comienzan pagando bien para que se riegue la voz y usted siga enviando más dinero, hasta que llega la masa de personas a “invertir”. Cuando esa masa entra, ellos suspenden los pagos y desaparecen. Conozco personas que han perdido decenas de miles de dólares, y más importante aun, han perdido amistades por haberlas referido. Sea racional con sus inversiones y no caiga en esta trampa.
4. Vendedores de súper gangas. Seguro que a todos nos gusta una buena ganga, pero en el Internet hay que tener mucho cuidado con las ofertas demasiado de buenas. Afortunadamente, en el Internet hay muchísimos recursos para confirmar con bastante probabilidad la veracidad del vendedor. En lugares de venta como eBay y Amazon, los más populares medios de compra y venta en línea, existen sistemas de reputación que indican cuan responsable es esa persona o comercio vendiendo y comprando. Muchas veces los vendedores de súper gangas tienen un historial de ventas bajísimo, inclusive hasta en cero. Cuando vea un anuncio de venta por una persona o comercio con una reputación de cero, déjele esa ganga a otro loco y no lo piense dos veces.

   Otra forma de gangas se da mucho en productos electrónicos como las cámaras. Los comerciantes inescrupulosos ofrecen el producto a un precio muy por debajo para lograr la venta y luego le incluyen muchos accesorios a precios altísimos. Si usted se rehúsa a comprar los accesorios, prepárese a una pesadilla de inconvenientes que el comerciante le tiene guardada. Es muy fácil corroborar las prácticas de los comercios haciendo una breve búsqueda en los sistemas de búsqueda cómo Google y Yahoo.

5. Ayuda a un extranjero con su fortuna. Termino con mi favorito y el que más personas se creen. La historia comienza con que necesitan su ayuda. Hay un rey o un ex presidente, alguien de mucha importancia y muchas riquezas que te ha identificado como la persona que le va a liberar los millones de dólares que tiene en un banco. A cambio, el muy generoso le va a dar parte de esos millones a usted, cuando logre sacar todos los fondos. Por favor, cierre ese mensaje tan pronto lea la primera oración. No existe tal rey. El criminal utiliza eso como una forma de entrada para sacarle sus datos personales y/o robarle dinero de su cuenta bancaria.

This is a debatable subject. The specific question I want to consider is: When a company accomplishes a dominant leadership position in an industry, how will the generic domain most descriptive of that industry be affected in its value?

Here are three examples to consider:

Books.com – This is a powerful generic domain. Yet, it would be interesting to learn how many actual type-in visitors it generates for Barnes and Nobles. The reason – Amazon.com. Amazon has become synonymous to books for most Americans. So, when people buy books, how much type-in traffic has Amazon taken from Books.com due to a powerful brand?

Auctions.com – You probably said it in your mind before actually reading it – eBay.com. Perhaps their success was greatly influenced by fate/luck, when they tried to register echobay.com as their website’s domain name and it had already been registered. This is why they had to shrink it into the catchy four letter word. Again, when you want to buy or sell in auction format, how likely would it be for you to type-in Auctions.com, rather than eBay.com.

Search.com – Some lawyers are even trying to stop reporters from using the term “googling”, as search giant Google overshadows even the phrase “to search” with the increasingly popular phrase “to google”. How would you think this change has had an impact on the value of Search.com?

If in these three cases you agree that the word actually lost value, rather than appreciated in value as a company grew into a leadership position of the industry, and you own a premium generic name for an industry in which a new company is growing to become a leader of that industry; then you should try to sell the domain name before the company establishes itself as the leader. Or at least for accounting/tax purposes, you should be able to begin a trend of depreciation from your asset as the company’s leadership position solidifies.