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I found this story on digg yesterday. It’s titled Blogging for Money - A Passive Income, and it’s written by Darren Rowse, a somewhat well know professional blogger. I imagine most people know what passive income is, but in case you don’t, see this “passive income” definition on Wikipedia.

In short, Darren claims that blogs are not a great source of passive income. Despite what Darren has to say, that doesn’t stop many people from believing otherwise. I find something about that a little disturbing. Bloggers are starting to talk and act a lot like multi-level marketers.

What is Multi-Level Marketing?

What is multi-level marketing (MLM)? Think legal pyramid schemes. It’s the stuff you see advertised on late night infomercials as get rich quick schemes.

Essentially, a company that employs MLM is a company that sells products or services through multiple levels of intermediate marketers. A lot of effort is put into recruitment. You recruit Joe who recruits Sally, each of them signing up 10 or so customers. You get a percentage of every sale made under you in the tree.

Passive income is a popular selling point for MLM schemes. It’s also referred to as “residual income.” The thinking is that if I recruit just a few people, I’ll make a passive income off of all the future recruitment and sales that my recruits do.

What Harm Does MLM Do?

MLM recruitment in the US typically preys on innocent, gullible middle-Americans. They get lured in by grand stories of riches and the vast potential of such a business. They see potential for a passive stream of money flowing forever with just a little work today.

For a couple people in the scheme such visions may be true. However, the vast majority of these people end up trying to sell knock-off toothpaste to their grandmother, turning relationships with friends and family into business relationships.

Selling and recruiting friends and family is encouraged in MLM, and while it works and it certainly sells products, most people find it doesn’t make them nearly as much money as they thought it would. Usually they are just left with the dirty feeling that they just tried to hawk worthless vitamin pills to their elderly neighbor.

The debate for and against MLM and pyramid schemes has been going on as far as I can remember, and we could sit here all day arguing whether or not it is bad or good. Regardless, there is a lot of taboo surrounding MLM and that taboo isn’t there for no reason. The bottom line is that many people have low or mixed opinions on MLM, and I don’t want to see bloggers slip into that world.

How are Bloggers Headed Down the MLM Path?

In MLM, there are the people who make the products, the middle-men who sell the products, and the customers who buy them. That’s all pretty normal, and that’s how economics works. The thing that makes MLM odd is that they encourage just about every customer to also become a middle-man. Imagine going to the grocery store and not only buying soap, but then going home and calling all of your friends and telling them to buy the same soap.

This sort of behavior is starting to percolate into the blogosphere. We’ve all noticed the symptoms. Suddenly every blog wants to sell you something. The whole Web 2.0 and blog craze is starting to feel a lot more like MLM 2.0. It seems that every blogger has dreams of passive income. What’s causing this?

Just like MLM, blogging has a low barrier to entry and a high availability of products and services for promotion, thanks to companies like Google and Amazon. Therefore, it’s no surprise that bloggers are starting to think and promote like multi-level marketers.

Causes for Concern in the Immediate Future

Up until now, MLM has had a deep recruitment tree and blogging has been pretty flat. Bloggers go direct to the affiliate programs rather than being recruited by Joe who was recruited by Sally who was recruited by… you get the idea.

This is now changing, and that’s what scares me. Services are popping up that act as middle-men between the blogger and the affiliate program, effectively making for a deeper tree indicative of MLM. Take a service like Zoundry. They make it easier for you, the blogger, to tag your posts with product links. 

Pretty soon the MLMers are going to really catch on, and then blogging as we know it will turn into a cesspool for what we’ll call MLM 2.0. Selling knock-off toothpaste and worthless vitamin pills will become the norm. Innocent middle-Americans will get suckered into grand blogging schemes promising “passive income.” Such a thing isn’t all that hard to imagine. In the end, most people pulled into the scheme will be disappointed and blogging will be left culturally destitute.

Call to Action

Blog because you have something original to say or offer, not because you want to make a couple bucks selling diet pills. Don’t let the blogosphere turn into a massive pyramid scheme. Don’t fall prey to promises of riches. I guarantee that’s all you’ll hear once the MLM folks catch on to blogs. Trust me, if it’s money that you’re after, you’ll make a better living and gain more joy out of doing just about anything else.

I’ve already described the domain name business, some of the history, and a strategy involving expiring domain names to build your portfolio (with background on how a domain name expires). Now let’s go over methods for obtaining expiring domains.

Note: This is also relevant if you are not a domainer, but you are trying to obtain a great domain name for your business.

In my searching on the net, I found two articles which nicely sum up the methods required. The first and perhaps most informative article I found was by Mike Davidson. In his article entitled How to Snatch an Expiring Domain, Mike goes over the method he used to acquire the domain for his news site, Newsvine.

The second article I found was a guide to tools and services for grabbing expired domains. This guide was contained within an overall guide to expired domain names.

I hope these two articles help you develop a robust plan for snagging the domain names you desire.

There is still one more piece to this puzzle that I have yet to cover. How do we find great domain names? That’ll be the topic of my next (and perhaps final) post on the subject of domainers and domain names as a business.

Tags for this post: Domainers, Domain Name Business, Expiring Domain Names

I’ve already explored the possibilities of the domain name business, it is now time to examine methods and strategies for getting there. This will be a series spanned over several posts, and I will try and keep the content density high to avoid wasting time. Hopefully this will help prospective domainers.

In my previous post, I briefly mentioned the possibility of catching domain names as they expire. This is a popular strategy for nabbing valuable domain names. It is the strategy Yun Ye used in the late ’90s, and while it won’t be as lucrative now, it is still viable. Here are some convincing reasons for employing this strategy:

• Expiring domain names may have once contained a functioning web site with visitors and search engines may have indexed the web site. This potentially means more traffic.
• The domain is more likely to have a traffic statistics which can be discovered through several methods. I will go into this in a later post.

How Domains Expire

Domains are not released back to the public right at their expiration date. There are several stages a domain name goes through before getting their. I will outline those stages from active, normal registration right up to deletion.

Active

While the domain is live and within it’s registration dates, it will be referred to as being active. The domain name is working as you would normally expect it to.

On-Hold

Let’s say you have a domain registered. The expiration date is approaching. If you fail to renew when the expiration date hits, the domain will enter the hold status. Domains on hold will stop functioning as normal (i.e. they won’t point to your web site anymore). However, you may still renew the domain for the registrar’s regular price during this period. Other parties are blocked from registering the domain. This period varies by registrar and is usually between 30-45 days. A whois query on the domain will list this as ON-HOLD.

Redemption

This is your second chance to renew the domain. You still have exclusive access to renew, but usually at a higher price. I’ve seen numbers from $100 to $150. Once started, redemption lasts 30 days. The redemption period is a new process. Unlike the holding period which is controlled at the registrar, this a Registry imposed period which must happen.

Deletion

This stage can last up to 5 days. At the end of this period, the domain name is released back to the public. You may not renew while deletion is happening.

This covers the domain cycle from active registration to deletion. For a visual representation of this, view this Life Cycle diagram on DomainsBot.

Obtaining an Expiring Domain

Domain names can be back ordered, and there are many services that will do this for you. There is no guarantee that you will actually get the domain name. Thus, these services usually work on a bidding system. The more you are willing to pay, the better your chances. Since you don’t always know how many people you are competing with on a given service, let alone across all services, it is difficult to determine your odds to a high degree of certainty. However, you can increase your odds by utilizing several services at once.

Obtaining an expiring domain will be the topic of my next post. I will detail several services available to you and provide further insight into strategies. After that post, I will probably discuss methods for valuing domains.

Happy hunting, domainers!

Sources

• ICANN - Redemption Grace Period
• DomainsBot - The Life Cycle of a Domain
• How Domains Expire by Eric Lester

I must admit, every day I kick myself for missing out on this. I knew domain names were important, but I was just a youngling when this was the rage, what did I really know?

Despite my frustration, my curiosity has been peeked. Where did the figures John provided come from (see my previous post)? If you had the forsight, just how good could you really be doing? Is there anything left? What can be learned from the examples of this business?

My investigation led me to an article authored by Paul Sloan. Featured on CNN, it’s entitled Masters of their Domains, published in late 2005. It has many of the same statements John provided. I’m inclined to believe this is where he obtained most of his facts (though I didn’t see any citation - tisk tisk).

Before I go further, I provide one quote to shock you:

“I don’t like to work,” Schwartz says, almost yelling as if to convince everyone within earshot that they’re fools if they do. “I figure any moron in the world can generate work for themselves and tie up their time. I have one laptop, no employees, and no product whatsoever–none! This is magic.” Magic, he claims, that’s earning him $2 million a year.

Schwartz is a domainer, and as you can see, he’s made a fortune in the business. Initially I had trouble believing these sorts of figures mentioned in John Chow’s blog post, but this CNN piece seems to confirm it. Another confirmed figure comes from a Yahoo rep. “One Yahoo official estimates that type-ins could make up 15 percent of its search business.” Well there you have it. John wasn’t bullshitting.

John also brought up the case of Yun Ye, on which the CNN article provides much more information. Here it is in the CNN piece:

Domainers have their heroes, and one of the most mysterious is a man named Yun Ye, a Chinese citizen living in Vancouver, British Columbia. He is credited with boosting the entire market when he sold his portfolio of more than 100,000 domains to Marchex. His names were bringing in more than $20 million a year in revenues–and $19 million in profits–when Marchex paid the equivalent of 8.6 times annual earnings, based on figures provided in SEC documents.

Marchex did in fact shell out $164 million for his portfolio. Yikes.

Paul also covers the future of this business in his piece. From what I can gather, the future is consolidation. Large entities are taking notice. It’s likened to the “billboard industry a decade ago, before Clear Channel and Viacom bought up the small operators.”

For instance, take three men, Rabin, Bob Martin, and Marc Ostrofsky, who run the company Internet REIT. They are spending $250 million buying out domain owners. Rabin states, “We’ve only just begun the roll-up phase. This market will likely be in the billions.”

Is there still room for small fish? I know I don’t have $250 million. Perhaps. Right now .com addresses are prevailing, but who knows, maybe given enough time it saturates and things like .biz become more viable. The older generations grew up with nothing but .com, it’s all they know, that’s where the money is. But think of the younger generations, a little more aware of the dearth of top level domains. Perhaps one day a type-in of cellphone.biz will be just as likely as that of cellphone.com. Then again maybe not.

It almost feels like buying property just past the major suburbs of a metropolitan area. Chances are the city will grow and cause growth to spill over into those unsettle areas. However, disasters do happen, so how can you really be sure?

Another option is to snag expiring domains. These domains have a history on the web. Some have been heavily indexed by search engines. As a result, they are more likely to draw hits.

The only conclusion I can draw at this point is that you have three options.

1. Assemble capital and throw down thousands or millions of dollars of cash to buy proven names and reap the rewards.
2. Speculate on something much more long term, like new top level domains such as .biz or .mobi.
3. Snatch expiring domains using a clever method.

I found this blog post by John Chow on something referred to as “domainers,” people who make money from domain name speculation and ad parking.

It is an interesting read for anyone with entrepreneurial curiosity of the online sort, though I have trouble believing some of his figures. Regardless, you don’t have to accept his numbers in order to believe that domain name speculation is, or should I say was, a lucrative business. If you had spent the early ’90s grabbing any and every short and sweet domain name and you actually had the foresight to hold on, there is no doubt you would be rolling in money, but that bang is over.

So where do new comers stand? I liken it to the phase after a big name, highly successful IPO (like Google). Getting in on the ground floor is over, now all that is left is buying and selling just like you would with any entrenched equity. This is hard work, and usually requires a large amount of capital and research. Most likely you only stand to make several percent on your investment, and what good does 3% on $5 do you? Even if you did have the sort of capital necessary, you could probably do better elsewhere. If someone can prove me wrong on this, please share.