‘.Money’: New Website Names Open a Door of Opportunity

Verisign looks like the most straightforward beneficiary, but a few other players look tempting

   

Investors might not have noticed at all, but the end of the era of a limited number of website names is officially here — and the industry’s gatekeepers might be sitting pretty.

On March 23, website address will no longer necessarily end in “.com,” “.org,” “.net,” or any of the other lesser-known ends to website titles. Beginning then, website owners will be able to custom-build their URLs (or Uniform Resource Locator) to better match who they are and what they do by using a descriptive top-level domain, or TLD.

For instance, some new websites — or at least web addresses — may end in “.pizza,” “.shop,” or “.dog.” Needless to say, those web address suffixes open up a lot of choices for pizzerias, e-tailers and pet-oriented stores. With 1,900 new website suffixes in the lineup, though, this seemingly insignificant twist could end up changing the way the whole Internet works.

But is there any money in it? And if so … who’s going to make it?

Leader of the Pack

There’s little doubt as to who’s at the top of the food chain here — it’s Verisign (NASDAQ:VRSN).

Verisign is currently the near-final authority on domain names that end in .com or .net; anyone who has a website ending in those letters ultimately has to go through Verisign, since that’s the company that connects Internet users to website hosts of “.com” or “.net” sites.

Now with all sorts of new top-level domains in the works, if Verisign gets the nod from the Internet Corporation for Assigned Names and Numbers (ICANN), the company could become the gatekeeper for as many top-level domains as it can afford.

For instance: If Verisign wins the right to operate the “.pizza” domain, all the world’s pizzerias looking for that specialized web address would need Verisign to facilitate it.

Don’t think it’s a slam dunk for Verisign, though. While ICANN is requiring a $185,000 fee just to apply for the right to operate each new TLDs — eliminating the bulk of Verisign’s would-be competition — ICANN is examining each individual request and awarding new top-level domains on a merit basis. On the other hand, given the fact that VRSN has adequately managed its “.com” and “.net” domains, it’s safe to say the corporation has the inside track to becoming the gatekeeper to several more domain suffixes.

While the size of the opportunity depends on how many new TLDs the company is awarded, it’s likely that these addresses eventually could mean hundreds of millions of dollars in revenue for Verisign.

Other Winners

Verisign is the obvious name in the mix, but other companies are well-positioned to capitalize on the new top-Level domain explosion, too.

  • Web content company Demand Media (NYSE:DMD) isn’t a name you think of when looking for domain registry names, but alone — and with its partner Donuts Inc. — it has been reported that Demand Media has applied for more than 100 of the new TLDs. Privately owned Donuts Inc. also has applied for at least a couple hundred more TLDs on its own. That matters, because Demand Media also will provide back-end support for any of the new domains Donuts is awarded.
  • Top Level Domain Holdings is a more direct play on the brewing overhaul of the way websites are named. Top Level Domain has asked for several new domain suffixes, and so far, 16 of those are not being sought by any other organization. The challenge here is that the company isn’t publicly traded in the United States (it trades in London as TLDH); investors will need an international trading account to own it.
  • And last but not least, Google (NASDAQ:GOOG) might see some upside from the rollout of the new URL scheme, even if only because Google dominates the search engine space now by fielding about two-thirds of the world’s web searches. Functionally, for Internet users, a whole new batch of URL types won’t change anything about which sites an individual visits, or how those sites are displayed in a browser. However, by virtue of more descriptive and relevant top-level domain suffixes, Google’s banner ads should become even more relevant to web surfers performing a search. (Google considers which links an Internet user clicks on when displaying ads the next time that same search query is made.) Since more relevance = more clicks = more money, Google just needs to rework its search algorithm to include these new domain names, and it can milk this foray into detailed TLDs.

Bottom Line

The dust is still settling on the news, and there’s more that we don’t know than we do know. So, don’t jump to conclusions … but this overhaul could eventually mean hundreds of millions of dollars in accretive revenue for the middlemen like Verisign or Demand Media that are making it happen.

However, it’s the TLD enterprises that have yet to go public yet that could end up being the most compelling.

Take Donuts Inc., for instance. Investing in DMD is a very indirect way of capitalizing on the establishment of new web addresses ending with names like “.beer” or “.horse,” while Donuts would be the direct play. Problem: Donuts Inc. isn’t publicly traded.

At the same time, there are several privately held organizations — syndicates, really — that have amassed pools of money specifically to win rights to run a particular top-level domain. WebVision Inc., United Domains, Ireland’s Blacknight and SCP Private Equity Partners are just some of the names that have a hand in the about-to-be industry that could become public at some point in the foreseeable future. More will surely pop up.

In the meantime, Verisign remains the most straightforward accessible play.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/01/money-new-website-names-open-a-door-of-opportunity/.

©2014 InvestorPlace Media, LLC

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