Search-Optimized Domain Portfolio Sells for $164 Million

Internet marketing firm Marchex Inc. has finalized a deal to pay a whopping $164.2 million for Name Development Ltd., which displays keyword advertising across a portfolio of more than 100,000 domains. The deal, along with the recent sale of a misspelled domain name for $112,000, offers evidence that mistyped URLs and other "accidental traffic" have become big business.

The pricetag on the sale of Name Development is more than the $155 million paid by SAVVIS Communications to acquire Cable & Wireless America, and nearly as much as the $176 million Freenet paid for the hosting operations of Germany's Tect AG. SAVVIS gained about 350K hostnames in the C&W deal, while Freenet acquired 2.2 million hostnames from Tect.

Given those valuations, why would Marchex pay $164 million for an obscure company that owns 100,000 domains? The deal was driven by the growth of Internet keyword advertising, which has enhanced the value of domains that can attract traffic without any original content, allowing speculators to turn typos and search-optimized advertising sites into dollars.

Marchex estimates that the Name Development portfolio had more than 17 million unique visitors in November. The traffic comes primarily from Internet information seekers who type a topical domain name into their browser, hoping to find a useful site. For example, a job seeker typing careerinfo.com would reach a Name Development page populated with job-related keyword advertising from Overture. Other domains in Marchex' new portfolio include debts.com, rentguide.com and hardware-update.com, which at one time was owned by Microsoft and linked from error messages in the Windows 2000 operating system. Name Development, also known as UltSearch, snapped up the name in 2003 when Microsoft let its registration lapse.

The value of the portfolio would likely be unaffected by possible changes at Google regarding domain resales, since traffic at the Marchex domains is driven by "direct navigation" - accessing a site via a bookmark or typing the URL into the browser, as opposed to a link or search engine listing.

The closing of the Marchex deal comes several weeks after the domain voyuer.com was auctioned for $112,100 at Snapnames, the highest sale price ever for a misspelled domain name, according to Domain Name Journal, and among the top 100 domain resales of all time.

The boom in the domain resale market come as first-time domain sales by registrars are getting cheaper amid a price war by hosting companies. New domains are available for as little as $4.95 a year.