September 1, 2017

Domains 1: The .com King

by StartUp

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The Story

 StartUp is back for a brand new season, and we're kicking things off with a story about the competitive world of domains. Reporter Amy Standen brings us the story of Rick Schwartz, who earned the title “Domain King” by building a portfolio of dot com web addresses worth millions. But why is a “.com” address worth so much in the first place? And why doesn’t Gimlet own “gimlet.com”? And coming up this season, we'll hear from startups in unexpected places. We'll go to the Mojave Desert for a self-driving car race, we'll take you on a cross-country bus ride for a hackathon on wheels, and we'll head to China to track their growing pop music scene. 


The Facts

Mark Phillips wrote and performed our theme song. Build Buildings wrote and performed our special ad music. Additional music by Bobby Lord, Takstar, Bienart, and the band Hot Moms Dot Gov. David Herman and Ian Scott mixed this episode.

Where to Listen

Transcript

LISA CHOW: From Gimlet Media, I'm Lisa Chow. This is StartUp. We are back with a new season—and can you believe it? It’s Season 6.

And we’re going to start with a story about an address we’re all very familiar with: the dot com. Every year they’re bought and sold for millions of dollars. Freedom.com sold for $2 million this year. PrivateJet.com? That sold for $30 million a few years back.

Why are people paying so much for dot com addresses, when there are plenty of other options out there? Like dot biz, dot io, or even dot pizza. What does that say about us and about how we use the internet?

A quick warning: there’s some graphic language in this episode. If you have young kids, you might want to put on some headphones.

We begin with the story of one man who’s built his empire on the dot com. Reporter Amy Standen takes it from here.




AMY STANDEN: Rick Schwartz is in his mid-60s. He was born in New Jersey, he has gray, slicked back hair, and a large house in Florida.


RICK SCHWARTZ: I have 140 feet of direct intracoastal frontage. My backyard consist of a large pool with a marble patio and outdoor kitchen and a boat dock and a boat lift for a 60-thousand-pound boat with no boat on it right now. Ha ha. It’s gone. Ha ha. The first divorce.


AMY: This is his place in Boca Raton. It’s one of five houses that he owns.


RICK: Watch your step here...


AMY: He lives here with his girlfriend.


RICK: New people, new people…


AMY: And a 10-year-old schnauzer named Freddy.


RICK: He looks like a pup doesn't he? He was supposed to go to the beauty parlor this morning, but the rain prevented it. So we have to go tomorrow.


AMY: Rick wasn’t born rich. When he was younger, he worked at Taco Bell, and then he sliced meat at a deli. He began building his fortune pretty late, actually, in his 40s. And at first, it was a fortune built on phone numbers.


RICK: What happened was, in May of 1993, you were allowed to for the first time call up AT&T and apply for your own 800 number. So I could call them up and say, “I want 800 such and such.”


AMY: These were called vanity numbers. And Rick liked these numbers. They stuck in his head. He found that when he traveled for business, he was more likely to call a hotel that had a 1-800 number—1-800-HOLIDAY, for Holiday Inn, say, than one that didn’t.


Rick figured: if a hotel had the resources to get a vanity 800 number, it was probably a pretty good hotel. That 1-800 number was a kind of brand. It made a company sound legitimate.


RICK: I would remember the number because of the vanity number. If they had just numbers they didn’t even have a chance to get my business.


AMY: At the time, he had a business selling lighting fixtures. Rick registered some vanity numbers for it. And it worked. Whenever he put a vanity number out there, people called it.

Rick didn’t realize it at the time, but he was onto something—an idea that would have implications far beyond 1-800 numbers: and that’s that a good phone number was like a good address. A piece of virtual real estate. And just owning that real estate could be profitable. Even if all you did was rent it out to someone else.

While Rick was collecting 800 numbers for his own business, he got intrigued by a whole different kind of 800 number. The adult chat line. He saw them advertised in the backs of newspapers. And they struck him as a business opportunity. So he got one: 1-800-MAKEOUT.


AMY: What happens if I call 1-800-MAKEOUT?


RICK: There’ll be a recording and a girl asking for 50 cents a minute or a dollar a minute or whatever the hell she's going to ask you for.


AUTOMATED RECORDING: This service is exclusively for men and women looking to meet other sexy singles in your local area.


AMY: The important thing to point out here is that Rick does not run the adult chat line. He just owns the number. The number is his business. Whenever someone calls it, Rick forwards it to the chat service. If there’s a sale, he takes a cut. Going back to the idea that the phone number is a piece of real estate—Rick is the landlord.


RICK: I never met the girls, never used the service. But I get the checks, and the checks started to change my life.


AMY: How much does it cost to run 1-800-MAKEOUT?


RICK: A dollar a month. A dollar a month, maybe.


AMY: That was your expense. A dollar a month.


RICK: Yeah. Yeah. There was no expense, really. I had 150 or 200 telephone numbers. I don't even think it was a dollar a month, if I spread them out across them all.


AMY: Those 800 numbers were covering Rick’s car payments. Pretty soon, he didn’t need to make payments at all. The day he got his first really big check -- it was for $7,700—he went out and bought himself a gold Rolex.

This was the mid-90s. 1-800 vanity numbers were the Park Avenue of phone numbers. Everyone wanted them, and there weren’t enough to go around. Phone number entrepreneurs were collecting 800 numbers and flipping them at a profit.

But all of this was about to change. This whole 1-800 number craze was about to be taken over by something else. The internet.

Rick saw this. He was one of the few people who did. And this head start, this crucial bit of foresight, would change the course of his life.

Rick’s big aha moment came when he learned about the domain name, specifically the dot com.


RICK: I said, well wait a second. This is exactly an exact parallel to what I’m doing already, which is getting 800 vanity numbers. Except instead of an 800 in front of it, it’s “www” and you can do a whole lot more things with it.


AMY: On December 26th, 1995, Rick got his first domain.


RICK: The first domain I bought was LipService.com.


AMY: He made a really simple, all text website. The plan was to use it to advertise his 1-800 numbers. And Rick says it worked. More calls came in. He was making even more money, and doing very little.


RICK: I said “Oh my goodness. I've got something here.”


AMY: But there was a problem. Rick still didn’t know how to register a domain name. He had to ask his brother to do it for him.


RICK: I started to pester him. I would say you know can you go register me this domain. And then the next day can you go register me this domain. And then after about two weeks of it he got disgusted with it. He sent me the link. He said this is where you can do it. And that changed my life.

I got an email one night from a guy, and he knew that I was playing around with domains, and he says, “Rick there's this domain that's going to be available tonight.” I didn't even know how he knew. And he says, “There's a domain called dick.com. You may want to get it.” So that night I looked and dick.com was available. And so I got it.


AMY: Rick paid $100 for dick.com. He thought he could sell ads on it: ads to other porn sites. He’d get paid whenever someone clicked on one of the links.


RICK: The very first night I made $200 for that one domain name. One night. For an asset that I paid $100 for.


AMY: To Rick—this moment of discovery about how lucrative simply owning a domain name can be—is one of the great opportunities in the history of American business. It’s like discovering gold in California, or buying land in Manhattan a hundred years ago.


RICK: I really believe everything I experienced in my entire life was so that I would recognize this moment when it happened. This is a unique opportunity in time that my father didn’t have, my grandfather didn’t have, and his father before him didn’t have.


AMY: But unlike mining for gold, or building buildings, all Rick had to do was register a domain name and then sell ads on it. And the 90s was a great time to be doing this, because online porn was taking off. And all those porn sites wanted traffic. So Rick registered every dirty word he could think of. Which was...a lot of them. And it’s not a classy list.


RICK: I got “ass” and I got “bitch” and I got “whore” and “whores.” And I got “orgy” and “orgies” and I got a whole bunch of domains like that.


AMY: At this point, it’s around 1995. And Rick isn’t the only one racing to register domains.


RICK: Before I was buying a few domains here and there. I’d think of them, I’d get up in the middle of the night, I'd register a few. But now I have a sense of urgency. When I would look a domain up, I would see certain names come up over and over and over again. Some domains I would try to register, I'd literally missed by a second.


AMY: When he started, Rick had been able to register his dot coms directly from what was then called Network Solutions—this is the company that had the government contract to assign dot com domain names.

But now, a secondary market had started to take shape—just like it had with phone numbers—where domain collectors like Rick were buying and selling domains from one another.

Rick saw this happening, and he pounced. This first big purchase of Rick’s career is the one that would put him on the map.


RICK: The night I bought porno.com for $42,000—my phone started ringing off the hook. The people that I was working with, they really thought I lost my mind.


AMY: This purchase earned him a nickname he still goes by: The Domain King. This was in 1997. Just a week earlier, a college student had bought porno.com from someone else for $5,000. So Rick gave the college student a call.


RICK: And I offered him 10 grand. He said no. I offered him 15 grand. He said no. I offered to buy him a brand new Firebird. He said no.


AMY: Finally, Rick offered him $42,000. That worked. The kid walked away with 37 thousand in profit after doing no work for a few weeks, and Schwartz walked away with one of the most valuable domain addresses in the history of the internet.


RICK: So 30 to 40 thousand people a day would type in porno.com to see what was there. Well, if someone types in something that they're looking for and they find what they're looking for, guess what: you probably have a really good chance of making a sale.


AMY: Whenever someone typed porno.com into their browser, and then clicked through to one of the porn sites, Rick got anywhere from a tenth of a penny to 25 cents.


RICK: And most of the time porno.com had one link in the middle of the page, and you know what it said?


AMY: What?


RICK: Enter here.

That was it. That was the entire site. I can't tell you how many years all I had was "enter here." If you have something pure, why would you want to like make them go through a maze of nonsense to get to where they want to go?


AMY: What happened when you clicked here?


RICK: They would go to whichever adult site would want to pay me the most. In 1998, I hooked up a guy from Australia. He bought that link exclusively for the next five years for $30,000 a week.


AMY: $30,000 a week. Over the years of owning porno.com, Rick guesses he earned about $20 million in ad revenue.

Then, a couple years ago, he sold the domain for almost $9 million. So all together: Rick made somewhere in the neighborhood of $30 million. On an investment that cost him $42,000.

Which is an insane amount of money to make on a two-word phrase. But this kind of thing made sense back in the 90s. Most people were just starting to use the internet, and search engines were still pretty basic.

So If you wanted to find online porn? Yeah, there’s a good chance you would manually type the word “porno” into your navigation bar.

But what about now? Why are they still so valuable? Think about it, If you want to buy a pair of shoes, you probably don’t type shoes.com into your navigation bar, just to see what’s there. You go to Amazon or Zappos.

And meanwhile, the dot com has a lot of competition. There are more than a thousand other what are called top-level domains, or TLDs. You could have shoes.biz, shoes.pizza. Shoes.pw—that’s the TLD for the nation of Palau.

Functionally, all TLDs work exactly the same way. They’re addresses. They take you to a place on the internet. And once you get there, whether it’s a dot com or a dot pizza, has no effect on what that website is able to do.

And yet, the dot com is still king. Shoes.com sold for $9 million earlier this year. Shoes.pw? It can be yours for $500.

Rick thinks this gap in value between dot coms and dot-everything-else will always exist. He’s betting big on it. Today, he owns about 7000 dot com domains.


RICK: My gift is recognizing a great domain name. I'm a connoisseur and a collector and an entrepreneur. My goal is to put the greatest portfolio on earth together. I look at it as a generational business. This is a business that will outlast my lifetime and possibly others’ lifetimes.


AMY: There are a couple of reasons Rick believes that dot coms are a great long-term investment.

One—and this surprised me—is that people do still type in words for things they want, followed by a dot com. Not a lot of people, but with Internet use growing every year, it adds up.

For instance: every day 1000 people type in ass.com, and each time they do, Rick makes a few cents. If you do the quick math: that's $10,000 a year. And remember: he owns thousands of dot coms. And these days, it’s not just porn domains.


RICK: ServiceDepartment.com, HotProducts.com, I had numbers like 750.com, 1620.com for the pilgrims.


AMY: The second reason, the bigger reason, that Rick hangs onto these addresses is the same reason that he loved those 800 numbers: he thinks the dot com adds credibility.

Which means that businesses will always want the dot com version of their name, even far off into the future. And when a new company decides it's worth the investment, they'll have to go through Rick. Take candy.com, which Rick sold for $3 million in 2009.


RICK: I don't know jack-anything about the candy industry, right. But the minute I get a domain name like candy.com, I get a seat at the candy table whether they want me there or not.


AMY: Having that dot com after your name, in other words, it makes you sound legitimate. And it makes you sound legitimate because it’s familiar. We’re just used to it.

There’s a term for this: path dependency. I learned this from Thies Lindenthal. He’s a professor at Cambridge who studies real estate, both physical and virtual. And he says, there’s nothing really all that special about the dot com.


THIES LINDENTHAL: It’s simply that they were first and that they are the biggest and that everybody knows them and everybody is really used to just saying, “Oh yeah ,it's a domain name, so it must end in dot com.” And everybody who’s using something else that’s different from a dot com has to then put in a bit more effort, to tell everybody “hey no, I’m not in dot com. I’m in dot de or dot nl. And that’s path dependence.


AMY: What all this adds up to, is that if you want to start something, a business or whatever, you basically have three options. One: blow a bunch of money on the dot com version of your name.

Two: Come up with some other name—even if it’s weird or unpronounceable—that maybe you’ll be able to afford the dot com version of.

And three? Like Thies says, you can put in a little more effort. Do something risky: challenge path dependency. Pick one of the thousand-plus other TLDs out there. Be dot baby or dot book or dot ninja.

And—when I think about that third option—I like it. Because if we all became a little less accustomed to the dot com, the internet might become a more democratic place, not just for people starting businesses, but for anyone who wants to start something new online. And on that more democratic internet, what would matter is how good your product is, not how much you spent on your domain name. The barrier to entry would be lower.

Coming up, after the break, the rubber hits the virtual road. We, Gimlet Media, consider our own domain, which is not gimlet.com. How much do we care? How much is gimlet.com worth to us? That’s coming up.


<<BREAK>>


AMY: A few months into reporting this story, a funny thing happened: an email came into the contact@gimletmedia.com address. Lisa Chow read it first.


LISA: And he says, “Hello. I'm a huge fan of some of the Gimlet shows—Reply All, Startup, and now Mogul—and went to gimlet.com the other day and realized it's not your domain. Have you guys considered picking it up? The acquisition process might make a good episode of StartUp, too.”


AMY: This email came from a guy named Tim Bourquin. I called him up.


TIM BOURQUIN: Hello.


AMY: Hey, Tim. Hi.


AMY: Tim is a reserve police officer and entrepreneur in Southern California. He listens to podcasts on his commute.

And eventually Tim did find our actual website, which is gimletmedia.com. But that little delay in finding it—he’d kinda gotten snagged on it. It struck him as strange.


TIM: I think most people if they don’t find you there, probably keep looking and they do find you. They go to Google and they do find you. It's not like someone goes, “Oh, it's not there! I'm done!" At the same time, most of the time, the host doesn’t say the full "gimletmedia" right? They say Gimlet. So I think it probably would be valuable for you to have it.


AMY: Tim owns a few domains himself. And he had a proposal for us—maybe he could help us get gimlet.com. Maybe we’d get a good price if the offer came from an intermediary—in other words, not directly from someone at a company called Gimlet. Of course, we had been down this road before.


MATT LIEBER: Well, we tried to buy gimlet.com in the early days, when we first started. When we first named the company Gimlet.


AMY: Matt Lieber is one of Gimlet’s founders. And in 2014, he’d reached out to the owner of gimlet.com—a company called Uniregistry.


MATT: The person we tried to buy it from wanted $45,000. I think I tried to negotiate a deal.


AMY: Matt offered the seller $5,000. No dice. So he settled on a new, less good but perfectly acceptable dot com: gimletmedia. It cost ten bucks.

This was a trade off. Matt knew that if we didn’t have gimlet.com there would always be people like Tim out there, people who looked for us and probably found us eventually, but were left with this nagging question: what is up with Gimlet not owning gimlet.com? And maybe that made us seem like a less real, less credible company, somehow.

On the other hand, $45,000 was a lot for a brand new company, especially one that most people reach through a mobile app, not through a website. The Tim Problem seemed like something we could live with. Which is why—three years later—faced with another opportunity to buy gimlet.com—Matt’s position hadn’t changed.


AMY: Are you still basically at the “we would pay $5,000 level?” That feels about right to you?


MATT: Oh yeah, definitely. I think five. And that’s not my negotiating position, and then, like, if they say thirty, we’re going to do positional bargaining and then come out somewhere in the middle. That’s not what I’m saying. I’m saying five is truly the number.


AMY: But meanwhile, the price had gone up. When Tim reached out to the seller, Uniregistry, the quote he got was $76,000. I told him Matt was only offering five. Tim wasn’t optimistic, but he offered to give it a shot. A week later, I called him.


AMY: So how did it go?


TIM: So, I wasn’t sure I’d get a response at all, so I just said how about $5,000? Is there any way to make that work? And I expected it just to be radio silence. Because it felt a little bit like you walk into an open house for $100,000 and you’re like how about ten? Ha ha. So, like four or five days later he did respond. And he said: they won’t do it for five, but how about five down and a thousand dollars a month for 48 months.


AMY: $53,000. After I got off the phone with Tim, I told Matt Lieber. He sent back one of those emojis of someone laughing so hard they’re crying. I took that as a no.


It seemed we were at an impasse. But there was one more person to talk to.


FRANK SCHILLING: Hello?


AMY: Hi, Frank!


FRANK: Can you hear me ok?


AMY: This was over Skype. Frank Schilling is the founder of Uniregistry, the company that owns gimlet.com and over 300,000 other domains. He lives in the Cayman Islands. And he’d never even heard of gimlet.com.


AMY: Did you know you own that?


FRANK: No, I did not, actually.


AMY: But now that I mentioned it, he was glad he did.


FRANK: It's a great name for a bar. It's a great name for a restaurant. It's short it's catchy it looks good as an e-mail address. You know frank@gimlet.com. It sounds easy to say. Easy to remember. It's just, cool names are hard to find. Cool, catchy, memorable names are difficult to find.


AMY: Frank doesn’t get involved in his company’s individual domain sales. He has salesmen doing that. But just off the top of his head, he thought a name like that would probably go for $50,000 or so.


FRANK: Whatever it is, it won’t be cheap, you know. You know, the idea that a name like that would go for, you know, hundreds or low thousands of dollars is preposterous. It just wouldn't happen.


AMY: I obviously don't get to make these decisions for my company but I'll tell you that my my boss offered $5000.


FRANK: Yeah. And then I'm sure he thinks that's a respectable number. And it is, and I don't mean to be disrespectful. You know, $5000 is a lot of money for certain things, but for a great domain name, I'd rather have gimlet.com than have his $5000.


AMY: A while back, I’d asked Rick Schwartz—the domain king of south Florida—what he thought of Frank Schilling. He said, “Oh, Frank’s a great guy. But there is this one place we part ways. It has to do with the dot com.” For Rick, the dot com is his religion. If the dot com loses value, so does his portfolio.

But Frank Schilling has diversified his business. These days, dot coms are just one part of it. Dot link. Dot biz. Dot email. To go back to the real estate metaphor, Frank’s not just buying property in New York anymore. Because even cities come and go.


FRANK: I think in 20, 30 years, it’ll be like a New York City today compared to New York City in 1900. 1900 New York City was one of only a few cities like it on Earth. Flash forward to today. There are many, many great cities that rival New York, you know? So New York is still a great great city, and, if you're a New Yorker, you'll proudly proclaim it's the best. But eeeh, there's more. It's a bigger world out there, you know?


AMY: While I was on the phone, Frank started poking around his site, to see what else might be out there for a podcast company called Gimlet.


FRANK: I just visited uniregistry.com, and when I type in Gimlet, uh...let me just double check. I think gimlet.audio is still available. And it is…let’s see. Is it? No, it’s actually registered. Did you guys register this one?


AMY: We did. We bought it three years ago, from Frank himself.

Gimlet.media? We own that one too. Gimlet.fm, same.

Frank seemed to think we were doing just fine.


LISA CHOW: Amy Standen is a reporter for StartUp.

Coming up on StartUp, we hear about the epic lawsuit that gave birth to the entire domain market. And we meet the man who is still chasing what he’s owed, more than a decade after he won the case…


GARY KREMEN: Hey, if anyone finds any of his money I’ll give you a reward! 20% of what I recover! $70 million, that wouldn’t suck. Come and get it!


LISA: Be sure to listen next week.

StartUp is hosted by me, Lisa Chow. Our show is produced by Bruce Wallace, Luke Malone, Simone Polanen, Emanuele Berry, and Amy Standen. Our senior producer is Molly Messick. We are edited by Pat Walters and Annie-Rose Strasser. Production assistance and fact checking by Max Gibson.

Mark Phillips wrote and performed our theme song. Build Buildings wrote and performed our special ad music. For full music credits, visit our website.

David Herman and Ian Scott mixed the episode.

Special thanks to Jon Kimball, Rob Barbour and Tim Bourquin.


To subscribe to StartUp, go to Apple Podcasts, or whichever app you like to use. Or check out the Gimlet Media website: GimletMedia.com. You can follow us on Twitter @podcaststartup.


Thanks for listening. We’ll see you next week.


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