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Ye was one of the first to recognize the value of owning large numbers of domain names. He specialized in identifying sites with potential to attract high traffic and websites that owners forgot to renew -- practices that earned him a host of followers and enemies. "There are more tales and myths about Yun Ye than one can shake a stick at," says John Berryhill, an intellectual-property attorney who once represented Ye in a trademark dispute. What's certain is that Ye's portfolio of 100,000 addresses made him an estimated $19 million each year (all figures US) before he sold it in November 2004 to the publicly traded Seattle-based company Marchex Inc., for $164 million.

His is a whole new way of making money on the Web. In the mid '90s, the burgeoning domain market was all about speculation -- buying desirable Web addresses, such as sex.com, in the hopes that one day a company would buy it for a huge sum. But people like Ye soon discovered that almost any domain name (even ones with typos or random words) could be nurtured like a real-estate investment. It all rests on delivering eyeballs -- the more the better -- to the multi-billion-dollar online advertising market controlled by Internet giants Google and Yahoo.

Ye's model, and the one now practised by thousands of others, relies largely on the estimated 15 per cent of Internet users who don't use search engines but instead blindly type in addresses for things they're searching for (something the industry calls "direct navigation"). For example, a prospective student might type universityoftoronto.com in his browser's window instead of searching Google for the correct address. A domainer would register a website such as this with one of a dozen or so companies who act as middlemen. These companies, called aggregators, design the websites and fill them with advertisers' links provided by Google or Yahoo -- who are in turn paid a fee by advertisers each time searchers click on a link. In industry parlance it's "pay-per-click advertising," and it's now the dominant form of advertising on the Internet. Every click sets off a transaction whereby the advertiser pays Google, who pays a portion to the aggregator, who pays a portion to the owner (usually about 25 per cent). On a popular site, these tiny transactions -- worth as little as a few cents each -- can add up to thousands of dollars a year for the owner, who has done nothing more than register the site for about $7 a year.

"There is no better investment on this earth. There is nothing like this -- there has never been anything like this," says Dan Cera, a Vancouver businessman who started buying domain names in the late 1990s, shortly after he got his first computer as a birthday present. "I didn't know what MS Word was, let alone how to use it," says the 45-year-old former Revenue Canada employee. Nevertheless, he seized on what he saw as an opportunity. The first name he tried to register, he found, was owned by Yun Ye, as was the second, and the one after that, and the next 20 or 30 after that, he says. "For three years I didn't sleep. I was up all night researching domain names." Now Cera owns an impressive portfolio of websites (including thousands, such as visittoronto.com, mostly related to tourism and city names). Six months after Ye sold his portfolio, Marchex offered to buy Cera's names, but he decided the timing wasn't quite right. "It's an amazing feat," says Cera about the portfolio he's amassed. "Something that could never be done again and will outlive me for many, many years."

But proof that the industry has truly arrived lies in the way venture capitalists and large companies are pouring in. Last year, for example, the Lexington, Mass.-based venture capital company Highland Capital Partners Inc. invested in BuyDomains Holdings Inc., a company that owns 500,000 domain names. There is no sign of business slowing. "Advertisers are catching on to the fact that appropriate Internet advertising is just a tremendously valuable thing," says Berryhill, the attorney. Advertising through Google is now found not only on domainers' sites but just about everywhere, including blogs. "There is a network of literally hundreds of thousands of other websites with Google ads -- you can't throw a dead cat without running into Google ads," says Berryhill. Domainers' sites, of course, contain nothing but links. They are also uniformly and intentionally ugly. (Studies show people will click through a site faster if it's displeasing to the eye, and more clicks equals more money.)

The business has dramatically driven up the prices of domain names (which are traded through brokers or sold on auctions). In July 2005, the domain name website.com sold for $750,000. The name antispyware.com was being offered for $900,000, while NHLCup.com was on the block for $1,000 -- a paltry sum considering fish.com sold last year for an astounding $1million.

The industry has also inevitably developed an unsavoury underbelly, including things like "typosquatting," where domainers buy up names with misspellings to lure viewers from legitimate sites. For example, anyone searching for this magazine who forgets an "a" and types mcleans.ca, will land on a site run by the company 10 Dollar Domain Names Inc. The site is thinly disguised to look like macleans.ca, but filled with advertising links. Registering trademarks as domain names -- "cybersquatting" -- is also common and has led to thousands of disputes between some companies and domainers (almost 1,500 cases last year according to the World Intellectual Property Organization). Many criticize Google and Yahoo for willingly profiting from this duplicitous side of the business.

As these websites proliferate, the battle for traffic will only increase, says Cera. Unlike many domainers, he purposely steered clear of cybersquatting and picking up domain names that people mistakenly let expire, practices he considers unethical. Now he has ambitious plans to develop his collection of city-named websites into tourism portals that both promote cities and attract advertisers directly, going around Google -- something that takes considerably more work than simply "parking" a website with an aggregator. "There's a wide range of people involved in this," he says. "Like anything else, there are the good and the bad."

News Source: http://www.macleans.ca/topstories/business/article.jsp?content=20060306_122704_122704