Virtual real estate booming
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KAI RYSSDAL: The heart of the Internet's in India for a meeting this week. It sounds geeky, but the Internet Corporation for Assigned Names and Numbers makes an essential part of the Web possible. ICANN, as it's known, is the independent group responsible for domain names like "Marketplace.org." Back in the early days of the Web, there were what you might call "speculators" in domain names, people who bought Internet addresses, hoping to flip them later for big money. A lot of those Internet addresses ended up as empty lots, but now the developers are moving in.
Marketplace's Lisa Napoli surveys the landscape.
LISA NAPOLI: Digital fixer-uppers have made Mike Zapolin a wealthy man. He got started in the early days of the Web, when he bought the domain "Beer.com" for $80,000 from a college kid. Zapolin took down the frat party pictures and spiffed things up.
MARK ZAPOLIN: We took the site. We redeveloped it as sort of a lifestyle community site for beer enthusiasts: how to brew beer, rate your favorite beer, get a free @Beer.com e-mail.
Three months later, a major international brewer summoned Zapolin to its headquarters and offered him a deal.
ZAPOLIN: We wound up selling it to them for $7 million cash.
Zapolin's not the only guy who's looking for gold in domain names. Private-equity firms have been injecting cash into domain-name companies. One company in Massachusetts has filed papers to raise $175 million in an IPO. Generic domain names like "Bored.com" are commanding millions of dollars.
JEREMIAH JOHNSON: So the most valuable domains are the generic, descriptive, dictionary words that are open to a lot of potential uses specific to industries and classes of goods and services.
Jeremiah Johnson's company, Sedo.com, brokers domain names. Sales at the company doubled last year to $70 million, largely based on a single premise.
JOHNSON: Believe it or not a lot of people use domains as their primary navigation device for the Web. Instead of going to a search engine they'll just type a domain into the browser, assuming that they're going to find content there that is relative to what they're looking for.
Speculating in domain names is like buying undeveloped beachfront property and waiting for someone to make you an offer. The difference is, with virtual real estate, you can generate income until you sell. Adam Strong owns 10,000 generic domain names, like "Racing.com."
ADAM STRONG: I've got a space on the Internet. People happen to drive by, by typing in the domain name, and then I show them advertising.
And in return for offering advertisers the traffic, Strong gets some cash. Not everybody's so sure domain names are a solid investment. Ken Wilbur is a marketing professor at the University of Southern California's Marshall School of Business.
KEN WILBUR: If Internet users become a little more sophisticated and start using search engines in place of just typing the facts that they're looking for into their browser, you really could be looking at significant losses in value.
Digital domain renovator Mike Zapolin isn't worried. He believes domains are bound to become more valuable as online advertising continues to grow.
MIKE ZAPOLIN: Every one percentage point that it goes up is $7 billion. That's $50 billion more advertising money looking for a home on the Internet.
Which is why he's staking his future on that old real estate saw -- location, location, location.
In Los Angeles, I'm Lisa Napoli for Marketplace.