Domain Parking Industry Faces A Shakeout

The business of advertising on parked domains is facing a shakeout that could dampen speculation in the domain name market. The domain advertising business, which is based on pay-per-click advertising from Google and Yahoo, has seen explosive growth this year. This week one of the industry's largest players, DomainSponsor, announced that it was shifting its payment model to combine pay-per-click and pay-per-sale ads.

The shift is driven by advertiser concerns about low conversion rates on click-throughs from parked domains. While the new model offers higher payouts for domains that generate sales, it will also mean smaller checks for domains that produce click-throughs but no sales. It also reduces the incentive for click fraud, which is believed to inflate the cost of campaigns in some advertising niches.

Industry observers say other domain parking services may soon follow DomainSponsor's lead. "Is this a sign of things to come? Probably," notes Leonard Holmes of Domain Parking News. "Some of the other major players have beta projects that seem to offer the same promise - a bonus for higher 'traffic quality.' "

"We believe there is a clear shift occurring in the marketplace," DomainSponsor says in its announcement. "In order to better respond to these market forces, DomainSponsor has begun transitioning into more of a pure performance-based model for traffic that ties publisher payouts to conversions for advertisers. CPC (cost per click) is not going away, but advertisers know that clicks on the same keyword from different domains do not convert the same."

Early feedback from domain owners has been mixed. A poll on the DomainState forum found a minority of DomainSponsor publishers reporting increased revenue. Of the remainder, many said their revenue had declined 50 percent or more.

Some domain portfolio owners said they would switch from DomainSponsor to other services. A key question is whether the trend is being driven by policy changes at Google and Yahoo rather than individual parking services. Google's emphasis on ad quality is clearly seen in this week's blockbuster earnings report, as improved targeting led to higher prices on many keywords. "We make quality improvements to our advertising network,'' Google CEO Eric Schmidt told Bloomberg News. "When you improve the quality, that ad is worth more money."

One possibility is that domain parking will evolve into a two-tier industry, with services specializing in either pay-per-click or a per sale model, known in the industry as pay-per-action. DomainSponsor is being merged with, a related pay-per-action affiliate network. Two other large traffic monetization services, Fabulous and Sedo, are also owned by companies that operate pay-per-action affiliate networks.

A wholesale shift to pay-per-action could have broad ramifications for the domain advertising industry, which has had huge growth due to speculative domain buying and moves by registrars and web hosts to display pay-per-click advertising instead of house ads. It could also affect pricing in the secondary domain market, where prices are often supported by a name's potential to generate pay-per-click revenue.