Domain Industry Rocked By Shill Auction Bidding Admission

Anyone who doesn’t know how dirty the domain name business is just doesn’t know the domain name business. People pay exorbitant sums to acquire domain names, put Google or Yahoo ads on the parked pages, and collect the advertising fees. They often buy and sell individual domains and portfolios with other domain squatters. But the real feeding frenzy is around deleting domains – the domain names that people let expire and that go back into general inventory.

The process for expired domains to get back into the system is complicated, but every day 20,000 or more previously owned domain names become available. Domain squatters know the list in advance, and spend time looking at Alexa/Compete rankings and lots of other data sources to try to figure out which ones are valuable. If they can just eek out $10 or so per year on a domain via ads, it’s profitable. And at scale, large amounts of money is made.

There are a variety of companies that grab as many of the domains every day that they can and then auction them off to the highest bidder. I once ran a Canadian-based company called that invented the practice of auctioning expired domain names, and our company was making over $1 million in profit every month from these auctions – there’s lots of money in this business.

Today the largest company conducting these auctions is SnapNames, which was acquired by in 2007 for $25 million or more.

Today SnapNames admitted that one of its executives was shill bidding on auctions. 5% of auctions from 2005 – 2007 were affected, the company says, and a lesser number since then.

The employee was shill bidding on auctions to pump the price up. When he won, he’d arrange for a partial refund from the company.

SnapNames is saying they’ll reimburse the difference between what an auction should have closed at and what it actually closed at, plus interest.

This is a company that I know well – after leaving I consulted briefly for them in 2004. It’s inexcusable that they let this happen, and didn’t catch it for years.