Domain Industry Intrigue; Gets Hosed

The domain name industry is all abuzz today (or will be soon) with the launch of a new service called NameJet. The service will compete in the $75 million/year “deleting domain name” business – when someone doesn’t renew a domain name it goes through a lengthy expiration process and is eventually spit back out to the market. 25,000 domains delete daily on average, and a lot of those (about 8%, to be exact) are immediately re-registered by domain speculators.

A number of companies compete to get those domains and then resell them via auctions. The most successful was a Portland startup called SnapNames, which won largely because they locked up agreements with the big registrars to get exclusive access to deleting domains. SnapNames and its competitors would then auction off deleting domains, generating an average of $100 per domain (with some going for $100k or more).

SnapNames was recently acquired by for $35 million, based on yearly revenues of around $40 million and profits of $3 million or so. About half of that revenue, and all of the profit, came from a single exclusive Snapnames’ registrar partner – NSI. A small portion of the purchase price was held back in escrow based on the company meeting revenue projections of $70 million/year.

That acquisition looks a little dumb right now, and those revenue projections of $70 million/year aren’t going to happen. NSI, exercising a change in control termination clause, notified Snapnames/Oversee today that they were terminating their agreement and simultaneously launched Namejet with a rival registrar eNom (eNom is owned by Demand Media).

Congratulations to the SnapNames shareholders, who sold at exactly the right time and left holding a now unprofitable business.

Disclosure: I once ran a company in this space called, and later briefly consulted for SnapNames.