Description
Marketing communications are messages and related media used to communicate with a market.
Företagsekonomi D, VT07 Hakan Andersson
Assignment: Enskilt Arbete Spring, 2007
D-THESIS
CAN YOU TRUST MARKETING MESSAGES? CHALLENGING A CLAIM IN THE DOMAIN MARKET?
DEPARTMENT OF BUSINESS ADMINISTRATION D-PROGRAM SPRING 2007 HÅKAN ANDERSSON SUPERVISOR: MARGARETA GÄLLSTEDT
Abstract
Today, millions of purchased domain sites names are sitting unused with no real web designs or concrete purpose coupled with them. Why would not owners engage a web-hosting domain-parking hotel so they can earn money through eyeballs advertising or click revenue while their sites sits unused? Parking hotels claim access to passive domain monetization through advertising programs tailored to generate revenue via automatic web page generations containing tailored advertisement. When visitors access these web sites, revenue is generated for domain owners. This study sought to investigate if parking hotels’ advertising claim, that you can make money through them, carries substance. Hence, is it possible to generate sufficient revenue using a parking hotel’s advertising revenue model to pay for the cost of domain ownership and, if possible, generate excess revenue? The study’s epistemological approach,
trying to distinguish the truth about the hotels’ claims, stems from a ontological discussion around web hosting hotels’ advertising vehicle existence and its ability to generates revenue. The study challenged a parking hotel’s claim
through an inductive quantitative approach by watching advertising revenue for 59 domain names over 105 days. statistical approach, that there Quantitative data concluded, through a were insufficient advertising income,
approximately a nickel, to cover the annual cost of approximately $6 USD. Therefore, the study concluded that the advertising claims were misleading and recommends that sites are not purchased, or renew, for the purpose of making money through web hotels’ advertising models.
Key Words: Domain Parking
TABLE OF CONTENT
Table of Content
1. INTRODUCTION ....................................................................................................................... 1 BACKGROUND ..................................................................................................................................... 1 Domain Names – Truly Revolutionary ............................................................................................ 1 PROBLEM FORMULATION AND PURPOSE ............................................................................................. 2 PREVIOUS STUDIES .............................................................................................................................. 4 RESEARCH QUESTIONS ......................................................................................................................... 5 PURPOSE.............................................................................................................................................. 5 POSITIONING OF STUDY ....................................................................................................................... 6 LIMITATION ......................................................................................................................................... 8 2. THEORY ..................................................................................................................................... 10 DOMAIN SERVICES AND PARKING HOTELS........................................................................................ 12 Domain Name Market ................................................................................................................... 14 Domain Name Value ..................................................................................................................... 14 Domain Name Money Flow........................................................................................................... 16 ADVERTISING REVENUE .................................................................................................................... 16 Promotion ..................................................................................................................................... 18 Advertising Revenue Generation ................................................................................................... 21 IMPRESSION REVENUE ....................................................................................................................... 25 THEORY SUMMARY............................................................................................................................ 26 3. METHODS ................................................................................................................................. 27 RESEARCH APPROACH AND STRATEGY ............................................................................................. 27 Subject selection ............................................................................................................................ 27 Foundation.................................................................................................................................... 27 Study Approach ............................................................................................................................ 28 Theoretical Approach ..................................................................................................................... 30 Practical Approach ........................................................................................................................ 31 Purchase of web sites ..................................................................................................................... 33 Selection of web hotel ..................................................................................................................... 33 Advertising Optimization ............................................................................................................. 34 Monitoring ................................................................................................................................... 36 RESOURCES AND INFORMATION ........................................................................................................ 36 VALIDITY, RELIABILITY, AND REPRODUCIBILITY ................................................................................ 36 Statistics ....................................................................................................................................... 40 Collection of Data .......................................................................................................................... 41 4. EMPIRICAL STUDIES ............................................................................................................. 42 MONITORING AND RESULT COMPILATION ......................................................................................... 42 Visitors (RPM).............................................................................................................................. 43 Click-Through (CTR) .................................................................................................................... 43 Earnings-Per-Click (EPC) ............................................................................................................. 43 Statistical data .............................................................................................................................. 48 5. STUDY FINDING AND CONCLUSION ............................................................................... 51 Post script ..................................................................................................................................... 57
TABLE OF CONTENT
6. FUTURE RESEARCH AND RECOMMENDATION ............................................................ 58
References………………………………………………………………………………………………………………………64
Attachment A: Domain Name Industry Attachment B: Statistical Calculations Attachment C: Domain Names Purchased and Advertising Key-Words Names Attachment D: Sample Web Layout Attachment E: 1and1 Purchase Orders for Domain Names Attachment F: Accumulative Visitor per Site Attachment G: 1and1 Search Engine Submission
Figures
Figure 1, Domain revenue creation. Based upon Shen (2001, p. 60) Internet Measurement and Pricing Model. ...................................................................................................................................... 11 Figure 2, Author's interpretation of Parking Hotels' service model. ................................................ 13 Figure 3, Domain Sales (Dnjournal) ................................................................................................... 15 Figure 4, Unused Domains percentage per Verisign (2006, p.5)....................................................... 16 Figure 5, Authors collaboration of Bagozzi's (1986, p.12) four Ps and Lauterborn’s four Cs (Yudelson (1999, p.62) ......................................................................................................................... 17 Figure 6, Media Channels per Nilsson (2006, p.8) ............................................................................. 19 Figure 7, Authors Theses Approach from Bagozzi (1986, p.12) and Lauterborn Yudelson (1999, p.62) ...................................................................................................................................................... 20 Figure 8, Adwiz Model by Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, page.1264 ....... 21 Figure 9, Sample of advertising links. Screen picture from www.Ativera.com one of the sites used in this report. ............................................................................................................................... 23 Figure 10, Author's illustration of the study approach. .................................................................... 30 Figure 11, Timeline. ............................................................................................................................. 32 Figure 12, Bell Curve. .......................................................................................................................... 40 Figure 13, Visitor and Revenue. The figure shows around 650 visitors creating around $0.75 in revenue. ................................................................................................................................................ 44 Figure 14, Visitors per site and regression. The figure shows mean visitors of approximately 10 visitors per site for the duration of the 105 day test period. ............................................................. 45 Figure 15, Normalization curve for Visit per Site. Most sites had around 10 visits per site. ......... 48 Figure 16, Dotplot of Visits per site. Most sites had 11 visits per site. ............................................ 49 Figure 17, Normalization curve for Revenue per Site. Most sites had no revenue during the study. .................................................................................................................................................... 50 Figure 18, Dotplot of Revenue per Site. Most sites had no revnue. ................................................. 50 Figure 19, Empirical revenue data superimposed on the theoretical revenue model. .................... 52 Figure 20, Conclusion articulation. The picture illustrates that domain cost is larger than annual revenue for a domain. ......................................................................................................................... 56 Figure 21, New Registration growth per Verisign (2006, p.3). .......................................................... 68 Figure 22, Renewal rates per Verisign (2006, p.5). ............................................................................. 69 Figure 23, Statistical calculations (www.jambala.com/sedo stats.xls) .............................................. 70 Figure 24, Domains used in study, 1 of 3 ........................................................................................... 71 Figure 25, Domains used in study, 2 of 3 ........................................................................................... 72 Figure 26, Domains used in study, 3 of 3 ........................................................................................... 72 Figure 27, Sedo’s Web layout after the study had entered its associated key-words. From www.ativera.com. ............................................................................................................................... 74
TABLE OF CONTENT
Figure 28, 1&1 purchase order, 1 of 6 ................................................................................................. 75 Figure 29, 1&1 purchase order, 2 of 6 ................................................................................................. 76 Figure 30, 1&1 purchase order, 3 of 6 ................................................................................................. 77 Figure 31, 1&1 purchase order, 4 of 6 ................................................................................................. 78 Figure 32, 1&1 purchase order, 5 of 6 ................................................................................................. 79 Figure 33, 1&1 purchase order, 6 of 6 ................................................................................................. 80 Figure 34, Visits per site (Accumulated) ............................................................................................ 81 Figure 35, Accumulated revenue generated over the test period. .................................................... 82 Figure 36, Revenue per site (accumulated) ........................................................................................ 82 Figure 37, Number of Click through per site (accumulated) ............................................................ 83 Figure 38, 1&1 search engine submission, 1 of 4 ............................................................................... 84 Figure 39, 1&1 search engine submission, 2 of 4 ............................................................................... 85 Figure 40, 1&1 search engine submission, 3 of 4 ............................................................................... 86 Figure 41, 1&1 search engine submission, 4 of 4 ............................................................................... 87
INTRODUCTION
1. Introduction
This section introduces the reader to the purpose and goal of the research. It provides background to problem articulation and presents theories relevant to the objectives. It further set forth the limitations of the study.
Background
Domain Names – Truly Revolutionary
A staggering 105 million sites have registered on the worldwide web today according to Verisign (2006, p.2), the global register operator for .com and .net. Though there seems like there is a site for everything on the web, many of these sites are non-active, meaning they do not provide an active web page if you surf to the web address. Verisign (2006, p.5), estimates that there are between 7.5% and 14% of non-active sites on the web today. Extrapolated, nearly 8 to 15 million sites sits idle without a “direct” purpose at any given time on the web. Although, corporations and individuals buy many sites to protect existing and future products names, misspellings of product or company names, speculation for selling, or otherwise, many sites just sitting there doing nothing other than costing the owners money. Each site comes with a yearly fee for ownership. One way out of this cost dilemma could be to place inactive sites with domainhosting hotels. These “soup to nuts hotels” supposedly provides services that give owners advertising revenue service – many hotels like Sedo, claims to have a 1.5 million domain names in under their management.
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INTRODUCTION
Problem Formulation and Purpose
On one of the parking hotel’s web site, we can find advertising that reads “Earn Money while you Sleep” and “You can make money without even lifting a finger” (Sedo 2006). So would it not be smart to generate some ancillary revenue for unutilized sites? One logical question could be, why not? It is free, right? Even better, would it not be nice if one could make this into a money making machine by generating more revenue than the site’s annual ownership cost. A true money machine is created? Here is the concept, just buy domain names, place them at a domain hotel, lean back and collect the advertising money! Of course, and without argument, this money machine must create excess profit [from advertising revenue] to cover the ownership cost otherwise it logically would be a losing proposition. In other words, it must be profitable.
So why are domain names so important? The purpose of using domain names instead of addresses based upon numbers is to assist humans to remember a domains address. It is obviously easier to remember a name than an 11-digit number, at least for most of us. When a domain name is entered, the address is translated into a universal resources locator (URL) number. This translation relieves the users from remembering numbers and keeping up with IP changes, should they occur, as they only need to remember the web name. It also
introduces the ability to guess what a web name could be. One example of this is the daily newspaper in Sweden, Dagens Nyheter. It’s URL are
www.dagensnyheter.se or www.dn.se.
Without common knowledge, both
names are translated into IP address or 62.119.189.4 by the URL translator on the web. This translation is done at the Internet Corporation for Assigned Names and Numbers (ICANN). This translation and linkage with the world wide web’s 2
INTRODUCTION
URLs carriers a translation cost. This fee is for a site is a cost that without income is a losing owner proposition. Understandable, some of these domain names can, and most likely does, have legitimate purposes long-term. The research asks, though, what if a domain could generate more revenue that its cost? A little deeper description of the revenue model yields that one must transfer one’s domain to a domain hosting hotel in order for it to be managed. A simple redirection of its unique web address (URL). Hotel then takes over and
generates advertising, monitor site statistics such as visitors and their activity, and reconciliation. After deducting their advertising commission, they return advertising revenue to the site owner. There is no cost for placing a site with them other than a commitment to pay commission. As the study will point out, owners’ involvement is to provide key words linking advertising content to the site name. These key words are then what the hosting hotel use to automatically tailor/link appropriate advertising content to the domain site. The study will point out there is a belief that there is a propensity to visit a site based upon its name (See domain name Value below). It is therefore important to try to link domain names to specific key words. For example, if a site is named www.ITAKE-AWAY-DUST.com thinking that it is a cleaning company, one could link key-words such as cleaning or dust – to increase traffic to the site. Alternative to the hosting hotels, although more laborious, is to create one’s own web s ite layout. This path requires agreements with advertisers, monitoring of site traffic, and collecting of advertising revenue. The benefits would be less intermediary commissions since one bypasses the hosting hotel.
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INTRODUCTION
Previous Studies
This study has similarities with advertising studies made by Chatterjee, Hofman, and Novak (2003) dissertation research; Modeling the Click-stream: Implications for Web-Based Advertising Efforts Marketing Science. In their research, they studied visitors’ propensity to click on banner advertising based upon exposure, timing, and prior exposure. Although, their research sought to measure
consumer propensity to click on banner ads while navigating web sites it did not relate back to revenue generation and domain cost.
Further, promotion research by Hofacker and Murphy (2000, p.57) argue that, inconclusively, too many banners can eventually reduce revenue generated from links and the host site. Although the Hofacker and Murphy argue that their conclusions are inclusive, it shows that researchers are investigating propensities for click-through. Similar research was done by Lohtia, Naveen, and
Hershberger (2003, p.410-418) where they in their research investigated content and design on click through rates between consumer and business.
One of the closest matches of previous research was Nilsson’s doctorate study; Attention to advertising based upon web site complexity (Nilsson, 2006). Nilsson’s discussion around promotion and how web site complexity affects attention to advertising, lend itself to this study in that the web site advertising complexity affects the propensity for site revenue. Though the study’s
limitation, distracts from personalized web design, it could certainly affect the outcome of the results.
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INTRODUCTION
Interestingly and surprisingly, the study could not find similarly research related to this specific revenue cost articulation. One suspicion, and possible reason, could be that domain name hosting hotels has no reason to support or release such tests- and advertise-findings since it could potentially prove a negative business proposition. Why would you tell domain owners of a losing
proposition? Studies on click through rates, eyeballs, and advertising in general are easily found and are in abundance. With the vast number of unused sites
floating in cyberspace, the lure of shaky site sellers and their spam, and people’s search for easy money, researching the economics around web sites ownership is more imperative now than ever. Is there an easy way to make money through web site ownership?
So is it worth to buy, place, or hold/keep, domain names with the intension of making passive advertising money to covering the annual ownership cost?
Research questions
What affect can marketing message interpretations have on sellers and buyers, and under what circumstances can their facts and promises be accepted.
Purpose
The purpose of this study, to create knowledge around advertising message truthfulness, is done by challenging a "revenue generation" message through an empirical test.
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INTRODUCTION
Positioning of Study
The study’s dependencies is based upon one of the classical marketing mix (Bagozzi, 1986, p. 12-14) – the four Ps; (Price, Place, Promotion, and Product) namely Promotion. The study will, vertically within this Promotional branch, branch out into Advertising – a subcategory found under the promotional umbrella. Advertising could be seen as, “the various activities that a company undertakes to communicate the product’s merits and persuade target customers to buy them.” according to Kotler (Quoted by Hakansson, Harrison, and Waluszewski, 2005, p.258) and since the purpose of a domain hotel is to “advertise” links on ones domain web sites, it was felt that this would become a limitation of the study. This study’s objectives is to investigate if a web hotel advertising engine is sufficient in generating revenue in excess of domain ownership cost. Since the owner is not able to try different advertising layouts this limitation is needed. Even though one could easily argue that, more web design features could potentially improve revenue generation (pop-up, pop-under, flash, video, or music) they are deliberately excluded in this study. The study would like to acknowledge that this limitation – the ability to affect web complexity - could affect the outcome of the success as indicated by Nilsson (2006, abstract page). Nilsson states, “Reduced complexity, on the other hand, releases cognitive resources that can be spent elsewhere. Thus, a higher attention level to the advertising stimulus was recorded”. One could therefore argue that different web layouts could affect the advertising effectiveness. Furthermore, this study does not intend to prove or argue if domain hotels are “good or could be better” advertisers by trying competing advertising layouts, but rather if they are worth using. Consequently, this study does not offer arguments or comment on the web hotel’s advertising strategy but rather on its effectiveness with associated valuation of service 6
INTRODUCTION
offering. Such study would require a dualistic approach, with dual sites (a study owned design and the domain hotel’s design) to compare. This will not be covered in this study.
One should further state that the study did not influence the optimization of search engine indexing as the study were trying to be a passive owner. In other words, during the study, no sites were submitted to any search engines other than if such submission were done by the domain name hosting hotel. The only active part, as will be outlined below, were the direction of advertising association related to the domain name – the provisioning of key-words. Further, it is understood that no cookie technology 1 was used by the hosting hotels to identify returning visitors nor were the sites considering browser or operating systems (PC or MAC). The lack of cookie technology limits the
tailoring of advertising based upon returning visitors. The study did not argue what advertising were delivered to a visitor by the hosting hotel. Since the research did not control the web hotels statistical information it took it for granted. Lastly, a short note on delivery of advertising and delivery. Even though there are difference between when an advertisement is served and fully downloaded the study follows the measurement methodology used by the services of the selected web hotel (Stanley and Witter, 2000, p. 23). The study did
1
Cookie Technology is a unique identification text file that is placed on the hard drive of a visitor by the visiting Web Page’s server. The purpose of a cookie is to know when a visitor has returned to the web site. Microsoft (2007)
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INTRODUCTION
not find any inconsistencies in the web hotel’s measurement during the studymeasuring period.
Furthermore, as top domain names can be valued to millions of dollar, this study did not take into consideration potential value of domain name sale. The simple reason for this is that such valuation is prohibitively time consuming. As one might have heard, a product’s price/value is only what someone is willing to pay. However, when Brown (1984, p. 235) describes valuation he mentions four dimension that effects price which are; a) the price is often set based upon prices of other like products, b) price is a social event, c) it is set by real-world transactions, and lastly d) price is set per the total supply. One could conclude that the price should only be $62 (the price of a new site) since there are unlimited sites available to be assigned, however, since there is speculation in the value of a name, one will not know it’s true value until it is sold.
Limitation
This study is not about e-business in its general sense, selling and buying (Brown, 2002, p.11), but rather about trying to get visitors to come to certain domains and teasing them to click on advertising ads on the site – to create eyeballs and click through revenue. Sure, the advertisers’ seeks e -business from the link clicks on the domains; however, the study seeks not buyer-seller transactions but rather eyeballs and clicks.
2
All prices are in USD.
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INTRODUCTION
This study investigates the domain owners’ side of the money equation and will not try to assess the value of domain name parking enterprises.
One assumption, though hard to validate, is that the domain names chosen in this study comes from a uniform population. Hence, the study assumes that the 59 domain names used in this survey represents names uniformly drawn from the 100 million domain name population. Without further study this assumption is difficult to validate.
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2. Theory
In this section, a theoretical discussion around the marketing aspects of a web site is derived through the exploration of the traditional marketing mix promotional branch. The section will describe how marketing promotion leads into advertising’s two communication messages; method and media. After this marketing introduction, it takes a look at domain names, their acquisition, market and purpose. Thereon after, a
discussion of web hotels hosting model and service model. A general discussion around promotional tools – advertising - used by web sites follows. Ending the section is a descriptive connection between web hotels and domain advertising revenue. After
reading this section, the reader will be familiar with the acquisition process of a domain name, its cost and different methods of web advertising such as clicks, click for action, and eye-balls3. In order to decide whether to buy or keep a site for the purpose of making money through web hotels’ advertising model, a couple of important theories has to be studied. The first avenue of revenue comes when a visitor arrives at a site. This is measured as the number of visitors and has nothing to do with what is actually done by the visitor at the site, only that they arrive there. The second avenue of revenue comes from the action that the visitor performs at the site. Here the revenue depends on the advertising that is clicked. Therefore, by
looking at the money flow of the hotels’ model we can learn what makes them tick as well as understand what will generate money for a domain owner. Based upon these two vehicles there will be two important factors that will assist a
3
According to Interactive Advertising Bureau (http://www.iab.net/resources/glossary_a.asp) Eyeballs reference to the number of people who view, or "lay their eyes on," a certain advertisement.
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THEORY
domain owner in making money. First is the number of visitors that can be drawn to a site and secondly, once there, the advertising enticing visitors to perform certain actions at the site. Since the study has limited itself not to participate in optimization search engines it will not have the ability to affect the propensity for visitor to arrive at the site. Once a visitor has arrived, an
economical revenue model initiates and is based upon on what is performed during the visit. Here the study created web sites advertising messages via through the web hotel’s marketing system. The revenue model can, hence, be outlined as two separate paths. One being the impression revenue and the other advertising revenue. See Figure 1.
Figure 1, Domain revenue creation. Based upon Shen (2001, p. 60) Internet Measurement and Pricing Model.
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THEORY
Domain Services and Parking Hotels
Domain hotels, domain parking, hosting of domain names, all of these can be used to describe a place where one can place ones domain name to earn advertising money while a site is unused. However, there is a distinction
between domain services and parking hotels that are often not communicated.
Domain Service provides a home for your web site. These providers often sell unused domain names and often provide a trading service for owned names as well. Example of these is Godaddy.com, 1&1.com, Yahoo.com, and
Networksolutions.com. Often they also provide a place, if one does not provide one’s own web server, where one can pay to rent a physical location that will hold the actual web site. These hosting services are merely holding place for web site information, which are not created by them. Parking Hotels Services offers a twofold business model. As communicated by Sedo (2007) they advertise their services as ‚…offers our users all the tools needed to buy and sell domains among a community of users stretching around the world, including domain appraisals, brokerage services, promotion and last, but not least, Sedo's popular domain parking program”. Parking hotels are in the domain-parking and eyeball and click business where domain owner trade their domain or place their sites so they can earn passive revenue. The advertising service is what the
study’s objective is set out to evaluate, as illustrated in Figure 2. The study will focus on the design and linkage on a web site and will exclude search optimization and the domain trading aspect.
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THEORY
Figure 2, Author's interpretation of Parking Hotels' service model.
These hotels make money hooking up buyers with sellers of domain names. Sedo (2006) charges 10% of the sales price. Sedo, for example had one site sold at the fifth place on the 2006 money list, yielded them $100,000 in commission, Figure 3. They facilitate this commerce through two methods. First, they act as a middle man between buyer and sellers. This service focuses on sites that are not currently for sale but where a buyer would like to buy it and does not want to approach the owner themselves. This one-on-one method is described by
Vulkan (2003, p. 66) as inefficient. Vulkan (2003, p. 66) states, “ At one extreme, bilateral or ‘one-on-one’ barging can be very inefficient…”. Hence, unsolicited bids for existing domains can be expensive since you have to convince an owner to sell their domain name based upon a financial incentives. As stated, this one-onone service carries a 10% trade commission.
A second method for trading domain names is auction. This method is has a number of preferred characteristics for sellers that are worth noting (Vulkan 13
THEORY
2003, p 154f and Kranton & Minehart, 2001, p. 491). First, what better media is there for one to reach many then an internet auction? Secondly, auction
maximizes revenue for the seller provided that there are one more bidder then sellers. There are, however, vehicles to protect if this relationship is not obtained. One such vehicle is the setting of a minimum opening price. Lastly, there is a cost advantage with on line actions as compared to live or seal bid auctions.
Domain Name Market
According to Verisign’s (2006, p.2) report, the second quarter 2006 ended with over 105 million domain name registered, an impressive 27% increase of 2005. Interestingly, there are 14%, or some 15 million sites that when accesses (Verisign, 2006, p.5) no site will appear. The cost for obtaining a site ranges with some quotes averaging $7.63 (GoDaddy at $6.95, 1&1 at $5.95, and Register.com at $10). This price will provide ownership of a site name for one year.
Domain Name Value
Due to the value of domain name recognition versus IP number, a market for domain names has surfaced. The top ten 2006 domain names sales have fetched more than $12 million (Dnjournal).
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THEORY
Figure 3, Domain Sales (Dnjournal)
Incorporating sale prices such as those listed in figure 3, which for many are incomprehensible, into the study would distort the objective. Since the study’s arguments is around domain monetization, domain name ownership should be reviewed.
Sites can be categorized into three important groupings; active or live sites, parked sites, and inactive sites, respectively. An active site is one that presents the visitor with an active site associated with the purpose of the site such as www.jambala.com. A parked site is a site that is under construction or hosted by web hotels such as www.nomom.com. More on parked sites below. Lastly, an inactive site leads the URL to a non-existing link, meaning that no web page will be presented to the visitor such as www.lsdkfjasdf.com. When combining the two groups, inactively managed or parked they represent a combined 40% of the domain market according to Verisign (2006, p.5) Domain Name Industry Briefing report. See Figure 4, below.
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Figure 4, Unused Domains percentage per Verisign (2006, p.5)
Domain Name Money Flow
There are over 100 million domain names registered (Verisign 2006, p.2) today. Three forth of them are being renewed (Verisign 2006, p.5, attachment A) annually and with a renewal charge of averaging $7.63, a renewal revenue of around half a billion dollars is generated. It is easy to see the there is a lot of commotion around domain names and their renewals. Combined, this annual renewal rate with the estimated growth rate (Verisign 2006, p.4) of 24 million domain names which also carry the $7.63 hosting rate, and one can see a healthy market.
Advertising Revenue
In the early days there were four generic marketing strategies (Bagozzi, 1986, p. 12) that created fueled traditional marketing strategies. It contained four anchors (4 Ps); Price, Promotion, Place, and Product and was, according to Duncan & Moriarty (1998, p.1) derived from Borden’s (1964) seminar work. These four anchors were later seen related to a client-oriented marketing philosophy by Lauterborn (Yudelson 1999, p. 62). Lauterborn added four Cs to enhance the traditional marketing mix – the four Ps. 16 The four Cs added were
THEORY
Communications, Customer Needs and Wants, Cost to Satisfy, and Convenience. In the figure 5, below, the four “traditional” Ps are shown with their corresponding “new” Cs. For example, one can see that P
roduct corresponds to what the C:Customer want and needs. Another example is that Promotion corresponds to C:Communication. As outlined in the limitation section, this study limits itself to the promotional side of marketing, hence, the study will not reflect on the other three facets here.
Focus of study.
Figure 5, Authors collaboration of Bagozzi's (1986, p.12) four Ps and Lauterborn’s four Cs (Yudelson (1999, p.62)
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Promotion
Promotion and communication is presented by Nilsson (2006, p.22) through the eyes of Richards and Curran (2002, p. 71) as “Advertising is a paid non-personal communication from an identified sponsor, using mass media to persuade or influence an audience”. Hence, advertising is a way to for an identified sponsor to use ma ss media, often monolog, to reach a potential non-personal consumer. So how is promotion done? As Hakansson et al (2005, p. 258) states, “ The promotion issue is in the marketing model’s interpretation a question of how to send a message about a given product to potential users”. So a message over a media needs to be created by and advertiser. In this study, this is a web site (media) with a message (text or picture) on it. There are of course many media channels that can be used to approach potential buyers. Such medias can be, according to Nilsson (2006, p.8): Television Newspaper Billboards Radio Magazines Internet Since this study focuses on the internet, we can further expand the internet section according to Nilsson (2006, p.8): WAP E-Mail Instant Messages New Groups World Wide Web Lastly, since web sites are placed on the world wide web we can continue this world wide web extrapolation according to Nilsson (2006, p.8): Entertainment Web sites News Paper web sites 18
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Search Engine Web Sites E-Mail web Sites Ilustrated in a figure form, figure 6.
Figure 6, Media Channels per Nilsson (2006, p.8)
As the discussion will detail below, parking hotels has a service that creates entertainment web sites that are promoted via a world wide web media channel. This is the service the study will use in its investigation to see if parking hotels’ claim of advertising revenue is true.
Since the study restricts the change of advertising messages other than through suggests of key words, the final selection within this traditional advertising section is the medium selection within communication. The advertising message is therefore, through the engagement of a web hotel in this study, fixed except for directing the web sites purpose as detailed below. The study’s medium will be the World Wide Web and a web hotel. The study’s objective is to see if the web hotels’ promotional *entertainment+ medium is sufficient enough to create revenue in excess of cost for a domain placed at a hosting hotel. From an
ontological view the study agrees that a revenue model exist, however, epistemologically does it really provide a true value?
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For clarification a recapitalization on the path, figure 7, from the traditional marketing mix’s promotion category to research medium follows. Initially, the traditional marketing mix’s four Ps (Price, Promotion, Place, and Product Bagozzi 1986, p.12) were outlined. Secondly, the study uncovered that the
promotional aspect had it’s own mix (Sales Promotion, Advertising Public Relations, and Personal Selling). Thirdly, under the advertising selection of the promotional mix there were a Communication section, which consisted of
Message and a Medium (Yudelson 1999, p.62). Domain name hosting hotels,
as outlined below, provide a defined message and has defined medium, the World Wide Web and is this study’s research medium.
Figure 7, Authors Theses Approach from Bagozzi (1986, p.12) and Lauterborn Yudelson (1999, p.62)
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Advertising Revenue Generation In order for a web hosting hotel to make money, and for the site owner to make money, advertisers need to place advertising on the sites. This flow of
advertising can be illustrated through the Adwiz model, figure 8, where advertisers places their advertising material on an advertising server (Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, p.1264). This server is where advertisers store the advertisements that the web hosting hotel uses to populate a web site. As the study will outline below, the web hotel, pulls
advertising from these web based upon certain key-words that are set by the web site owner.
Figure 8, Adwiz Model by Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, page.1264
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THEORY
Advertising links, as seen in Figure 9, are the clickable links created by the hosting web hotel. This picture was chosen based upon key-words that the author entered for the study’s Ativer.com site. Hosting hotel’s lets allows user of their service to pick key works that they think are associated with their specific web name. For example, Ativera.com, used in the study, were given key-words of; TV, Movie, Screen for the site. A list of each of the key-words that were entered by the domain owner per site can be found in Attachment C. The advertising was generated with clickable links and pictures that the web hotel thought were associates with the key words. In this case, Vivitek, Sharp, Pioneer, Samsung, and so forth are all suppliers of consumer TVs and can be seen associated with TV, Movie, and Screen key-words that were used.
22
THEORY
Examples of Clickable Links
Figure 9, Sample of advertising links. Screen picture from www.Ativera.com one of the sites used in this report.
We have seen that a web owner makes advertising money on the web when an advertising link is clicked. This click revenue is calculated by taking the number of times a web link is click times the revenue that an advertiser is willing to pay for such click. There are commonly used nomenclature around these
measurements which are: Click-through-Rate (CTR) represents the number of times a visitor clicks on an advertising link at the site. Such user clicks may yield revenue for the domain owner. A ratio of click-through over impression is often calculated. In other words, if 10 visitors clicked an advertisement out of 100, a 10% ratio would be achieved. Click-through rates are affected by the layout of the layout and 23
THEORY
content of the web site. As indicated by Lohtia et al’s (2003, p. 415), the click through rate can be manipulated by changing the use of incentives, interactions, emotional appeal, color, and animation. Earning per Click (EPC aka Pay-per-Click (PPC): When an advertising link is clicked, see click-through-rate above, the advertiser pays a fee (Hoffman and Novak 2000, p.10). The higher EPC the more revenue is generated when a link is clicked. Since the propensity to click an advertising link is dependent on the advertising message, key words to create the message is important. Nomom.com is an example from the study. If it’s domain owner thi nk that Nomom.com associates with kids or dads that has lost their moms/wives then logical keywords could be mom, wife, divorce, single dad, raising kids, adolescence among others. The better linkage between the site name, keywords, and advertising message, the better click-through rate. Web hotel provides
owners with keywords suggestion but the actual message can formulated. When a site is parked, there are three ways to choose these key words: a) The hotel can select these keywords by themselves automatically, b) The hotel can select them manually though this happens only in rare cases, c) As a domain owner one can selects these keyword by oneself. Sedo claims that this click income can range from $0.03 to as high as $3 for a click-through. This price, the amount paid by advertisers, is negotiated by the hosting hotel. The better the selected keyword, the higher the click-through price, hence the higher the domain owner’s revenue. In other words, every time an advertising link is clicked, the domain owner makes money.
24
THEORY
Pay-per-Action or Lead (PPL), even though not applicable in this study, Shen (2002, p.60) mentions a third way of paying for specific actions namely, “ the outcome-based model assumes that advertisers pay for performances, such as inquires and purchases”. In click-through, there is no consideration what happens after the visitor clicks a link. In the PPL scenario the advertiser is willing to pay (generally more) if the vistor actually provides a sellable event or actual lead. There is, however, a paradox according to Ephron (1997, p. 97) in web advertising, “ web media want to be paid for interactivity but are unwilling to price on response ”. In other words, the higher revenue potential of PPL is intriguing for the web site owner, however, they have to live with performance of click-through in this scenario.
Impression Revenue
The second avenue for revenue generation is impression revenue. This revenue
represents revenue generated by the number of visitors that arrive at the site regardless of what they do there. Hence, the more visitors the more impression money is paid out. Even though impression revenue is important, Hofacker and Murphy (1998, p.704) states that “Web advertisers question traditional media’s cost per thousand pricing model based on impressions, often insisting on paying for results, click-throughs, as well as, or instead of, impressions. Advertisers want to understand who is clicking on the banner, and which factors lead to higher click-through rates”. This revenue is often described as Revenue/ or Cost-per-Mille (RPM/CPM aka Cost-per-Impression or Revenue-per-Impression (CPI or RPI), Eye-balls, or visitors) and represents a revenue that is based upon site or site-page visits. A common name is eye-balls count representing the eyes that are viewing the sites content. Hence, the name. The more eye-balls the more value the site-page carries and the more the site or site-page can charge for advertising on the site or 25
THEORY
site-page (Hofacker and Murphy, 1998, p. 704). This revenue-per-mille (mille from the Latin’s word mille, meaning 1000) is a payout that is based upon visitors to the site. The more visitors the higher the value of the site. Advertisers pay a fee per kilo impressions that can range from $0.25 to $0.75 (Earnersforum, 2007).
Theory Summary
In this theory section, we learned that there were two distinct paths of revenue if a site were placed at a web hosting hotel. One being money earned through advertising. This money is earned when a visitor clicks a specific advertising link on the site. An important measurements for this advertising revenue is EPC, the factor of click-through-rate (CTR, when someone clicks on an advertising link) and earnings-per-click (EPC, how much is paid out if a link is clicked) requires a visitor clicking a link on the site. Argument that better key-words creates better link, hence, a higher propensity of click-through were provided.
We also learned about a second revenue stream, impression revenue.
This
revenue is earned when visitors arrive at a site regardless of what they do there. The measurement for this is Revenue-Per-Mille (RPM) and Earnings-Per-Click (EPC). To optimize RPM it is important to have many visitors come to the site.
A side discussion around domain names and valuation of domain names was also provided. This theoretical discussion allowed us to review and enhance our understanding of site ownership facets.
26
METHODS
3. Methods
This section describes the study approach and strategy as well as the validity and reliability of the study.
Research Approach and Strategy
Subject selection This study’s research approach stems from the authors interest in the interpretation of marketing messages received from web hosting hotels. Expectation whether to purchase something are established and beliefs are set based upon marketing messages received, which can be difficult to understand or in some cases misleading. The web hotels’ marketing messages combined with the internet boom and the new web site centric world peeked an interest to see if one could not create a money making machine through simple ownership, letting others do the job. The author’s view, at its highest level, is a study around truth visa vie lies, or shall one say, interpreted messages from parking hotels. As Zinkhan & Hirschheim (1992, p 80) exclaims, “
Marketing communications are messages and related media used to communicate with a market.
Företagsekonomi D, VT07 Hakan Andersson
Assignment: Enskilt Arbete Spring, 2007
D-THESIS
CAN YOU TRUST MARKETING MESSAGES? CHALLENGING A CLAIM IN THE DOMAIN MARKET?
DEPARTMENT OF BUSINESS ADMINISTRATION D-PROGRAM SPRING 2007 HÅKAN ANDERSSON SUPERVISOR: MARGARETA GÄLLSTEDT
Abstract
Today, millions of purchased domain sites names are sitting unused with no real web designs or concrete purpose coupled with them. Why would not owners engage a web-hosting domain-parking hotel so they can earn money through eyeballs advertising or click revenue while their sites sits unused? Parking hotels claim access to passive domain monetization through advertising programs tailored to generate revenue via automatic web page generations containing tailored advertisement. When visitors access these web sites, revenue is generated for domain owners. This study sought to investigate if parking hotels’ advertising claim, that you can make money through them, carries substance. Hence, is it possible to generate sufficient revenue using a parking hotel’s advertising revenue model to pay for the cost of domain ownership and, if possible, generate excess revenue? The study’s epistemological approach,
trying to distinguish the truth about the hotels’ claims, stems from a ontological discussion around web hosting hotels’ advertising vehicle existence and its ability to generates revenue. The study challenged a parking hotel’s claim
through an inductive quantitative approach by watching advertising revenue for 59 domain names over 105 days. statistical approach, that there Quantitative data concluded, through a were insufficient advertising income,
approximately a nickel, to cover the annual cost of approximately $6 USD. Therefore, the study concluded that the advertising claims were misleading and recommends that sites are not purchased, or renew, for the purpose of making money through web hotels’ advertising models.
Key Words: Domain Parking
TABLE OF CONTENT
Table of Content
1. INTRODUCTION ....................................................................................................................... 1 BACKGROUND ..................................................................................................................................... 1 Domain Names – Truly Revolutionary ............................................................................................ 1 PROBLEM FORMULATION AND PURPOSE ............................................................................................. 2 PREVIOUS STUDIES .............................................................................................................................. 4 RESEARCH QUESTIONS ......................................................................................................................... 5 PURPOSE.............................................................................................................................................. 5 POSITIONING OF STUDY ....................................................................................................................... 6 LIMITATION ......................................................................................................................................... 8 2. THEORY ..................................................................................................................................... 10 DOMAIN SERVICES AND PARKING HOTELS........................................................................................ 12 Domain Name Market ................................................................................................................... 14 Domain Name Value ..................................................................................................................... 14 Domain Name Money Flow........................................................................................................... 16 ADVERTISING REVENUE .................................................................................................................... 16 Promotion ..................................................................................................................................... 18 Advertising Revenue Generation ................................................................................................... 21 IMPRESSION REVENUE ....................................................................................................................... 25 THEORY SUMMARY............................................................................................................................ 26 3. METHODS ................................................................................................................................. 27 RESEARCH APPROACH AND STRATEGY ............................................................................................. 27 Subject selection ............................................................................................................................ 27 Foundation.................................................................................................................................... 27 Study Approach ............................................................................................................................ 28 Theoretical Approach ..................................................................................................................... 30 Practical Approach ........................................................................................................................ 31 Purchase of web sites ..................................................................................................................... 33 Selection of web hotel ..................................................................................................................... 33 Advertising Optimization ............................................................................................................. 34 Monitoring ................................................................................................................................... 36 RESOURCES AND INFORMATION ........................................................................................................ 36 VALIDITY, RELIABILITY, AND REPRODUCIBILITY ................................................................................ 36 Statistics ....................................................................................................................................... 40 Collection of Data .......................................................................................................................... 41 4. EMPIRICAL STUDIES ............................................................................................................. 42 MONITORING AND RESULT COMPILATION ......................................................................................... 42 Visitors (RPM).............................................................................................................................. 43 Click-Through (CTR) .................................................................................................................... 43 Earnings-Per-Click (EPC) ............................................................................................................. 43 Statistical data .............................................................................................................................. 48 5. STUDY FINDING AND CONCLUSION ............................................................................... 51 Post script ..................................................................................................................................... 57
TABLE OF CONTENT
6. FUTURE RESEARCH AND RECOMMENDATION ............................................................ 58
References………………………………………………………………………………………………………………………64
Attachment A: Domain Name Industry Attachment B: Statistical Calculations Attachment C: Domain Names Purchased and Advertising Key-Words Names Attachment D: Sample Web Layout Attachment E: 1and1 Purchase Orders for Domain Names Attachment F: Accumulative Visitor per Site Attachment G: 1and1 Search Engine Submission
Figures
Figure 1, Domain revenue creation. Based upon Shen (2001, p. 60) Internet Measurement and Pricing Model. ...................................................................................................................................... 11 Figure 2, Author's interpretation of Parking Hotels' service model. ................................................ 13 Figure 3, Domain Sales (Dnjournal) ................................................................................................... 15 Figure 4, Unused Domains percentage per Verisign (2006, p.5)....................................................... 16 Figure 5, Authors collaboration of Bagozzi's (1986, p.12) four Ps and Lauterborn’s four Cs (Yudelson (1999, p.62) ......................................................................................................................... 17 Figure 6, Media Channels per Nilsson (2006, p.8) ............................................................................. 19 Figure 7, Authors Theses Approach from Bagozzi (1986, p.12) and Lauterborn Yudelson (1999, p.62) ...................................................................................................................................................... 20 Figure 8, Adwiz Model by Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, page.1264 ....... 21 Figure 9, Sample of advertising links. Screen picture from www.Ativera.com one of the sites used in this report. ............................................................................................................................... 23 Figure 10, Author's illustration of the study approach. .................................................................... 30 Figure 11, Timeline. ............................................................................................................................. 32 Figure 12, Bell Curve. .......................................................................................................................... 40 Figure 13, Visitor and Revenue. The figure shows around 650 visitors creating around $0.75 in revenue. ................................................................................................................................................ 44 Figure 14, Visitors per site and regression. The figure shows mean visitors of approximately 10 visitors per site for the duration of the 105 day test period. ............................................................. 45 Figure 15, Normalization curve for Visit per Site. Most sites had around 10 visits per site. ......... 48 Figure 16, Dotplot of Visits per site. Most sites had 11 visits per site. ............................................ 49 Figure 17, Normalization curve for Revenue per Site. Most sites had no revenue during the study. .................................................................................................................................................... 50 Figure 18, Dotplot of Revenue per Site. Most sites had no revnue. ................................................. 50 Figure 19, Empirical revenue data superimposed on the theoretical revenue model. .................... 52 Figure 20, Conclusion articulation. The picture illustrates that domain cost is larger than annual revenue for a domain. ......................................................................................................................... 56 Figure 21, New Registration growth per Verisign (2006, p.3). .......................................................... 68 Figure 22, Renewal rates per Verisign (2006, p.5). ............................................................................. 69 Figure 23, Statistical calculations (www.jambala.com/sedo stats.xls) .............................................. 70 Figure 24, Domains used in study, 1 of 3 ........................................................................................... 71 Figure 25, Domains used in study, 2 of 3 ........................................................................................... 72 Figure 26, Domains used in study, 3 of 3 ........................................................................................... 72 Figure 27, Sedo’s Web layout after the study had entered its associated key-words. From www.ativera.com. ............................................................................................................................... 74
TABLE OF CONTENT
Figure 28, 1&1 purchase order, 1 of 6 ................................................................................................. 75 Figure 29, 1&1 purchase order, 2 of 6 ................................................................................................. 76 Figure 30, 1&1 purchase order, 3 of 6 ................................................................................................. 77 Figure 31, 1&1 purchase order, 4 of 6 ................................................................................................. 78 Figure 32, 1&1 purchase order, 5 of 6 ................................................................................................. 79 Figure 33, 1&1 purchase order, 6 of 6 ................................................................................................. 80 Figure 34, Visits per site (Accumulated) ............................................................................................ 81 Figure 35, Accumulated revenue generated over the test period. .................................................... 82 Figure 36, Revenue per site (accumulated) ........................................................................................ 82 Figure 37, Number of Click through per site (accumulated) ............................................................ 83 Figure 38, 1&1 search engine submission, 1 of 4 ............................................................................... 84 Figure 39, 1&1 search engine submission, 2 of 4 ............................................................................... 85 Figure 40, 1&1 search engine submission, 3 of 4 ............................................................................... 86 Figure 41, 1&1 search engine submission, 4 of 4 ............................................................................... 87
INTRODUCTION
1. Introduction
This section introduces the reader to the purpose and goal of the research. It provides background to problem articulation and presents theories relevant to the objectives. It further set forth the limitations of the study.
Background
Domain Names – Truly Revolutionary
A staggering 105 million sites have registered on the worldwide web today according to Verisign (2006, p.2), the global register operator for .com and .net. Though there seems like there is a site for everything on the web, many of these sites are non-active, meaning they do not provide an active web page if you surf to the web address. Verisign (2006, p.5), estimates that there are between 7.5% and 14% of non-active sites on the web today. Extrapolated, nearly 8 to 15 million sites sits idle without a “direct” purpose at any given time on the web. Although, corporations and individuals buy many sites to protect existing and future products names, misspellings of product or company names, speculation for selling, or otherwise, many sites just sitting there doing nothing other than costing the owners money. Each site comes with a yearly fee for ownership. One way out of this cost dilemma could be to place inactive sites with domainhosting hotels. These “soup to nuts hotels” supposedly provides services that give owners advertising revenue service – many hotels like Sedo, claims to have a 1.5 million domain names in under their management.
1
INTRODUCTION
Problem Formulation and Purpose
On one of the parking hotel’s web site, we can find advertising that reads “Earn Money while you Sleep” and “You can make money without even lifting a finger” (Sedo 2006). So would it not be smart to generate some ancillary revenue for unutilized sites? One logical question could be, why not? It is free, right? Even better, would it not be nice if one could make this into a money making machine by generating more revenue than the site’s annual ownership cost. A true money machine is created? Here is the concept, just buy domain names, place them at a domain hotel, lean back and collect the advertising money! Of course, and without argument, this money machine must create excess profit [from advertising revenue] to cover the ownership cost otherwise it logically would be a losing proposition. In other words, it must be profitable.
So why are domain names so important? The purpose of using domain names instead of addresses based upon numbers is to assist humans to remember a domains address. It is obviously easier to remember a name than an 11-digit number, at least for most of us. When a domain name is entered, the address is translated into a universal resources locator (URL) number. This translation relieves the users from remembering numbers and keeping up with IP changes, should they occur, as they only need to remember the web name. It also
introduces the ability to guess what a web name could be. One example of this is the daily newspaper in Sweden, Dagens Nyheter. It’s URL are
www.dagensnyheter.se or www.dn.se.
Without common knowledge, both
names are translated into IP address or 62.119.189.4 by the URL translator on the web. This translation is done at the Internet Corporation for Assigned Names and Numbers (ICANN). This translation and linkage with the world wide web’s 2
INTRODUCTION
URLs carriers a translation cost. This fee is for a site is a cost that without income is a losing owner proposition. Understandable, some of these domain names can, and most likely does, have legitimate purposes long-term. The research asks, though, what if a domain could generate more revenue that its cost? A little deeper description of the revenue model yields that one must transfer one’s domain to a domain hosting hotel in order for it to be managed. A simple redirection of its unique web address (URL). Hotel then takes over and
generates advertising, monitor site statistics such as visitors and their activity, and reconciliation. After deducting their advertising commission, they return advertising revenue to the site owner. There is no cost for placing a site with them other than a commitment to pay commission. As the study will point out, owners’ involvement is to provide key words linking advertising content to the site name. These key words are then what the hosting hotel use to automatically tailor/link appropriate advertising content to the domain site. The study will point out there is a belief that there is a propensity to visit a site based upon its name (See domain name Value below). It is therefore important to try to link domain names to specific key words. For example, if a site is named www.ITAKE-AWAY-DUST.com thinking that it is a cleaning company, one could link key-words such as cleaning or dust – to increase traffic to the site. Alternative to the hosting hotels, although more laborious, is to create one’s own web s ite layout. This path requires agreements with advertisers, monitoring of site traffic, and collecting of advertising revenue. The benefits would be less intermediary commissions since one bypasses the hosting hotel.
3
INTRODUCTION
Previous Studies
This study has similarities with advertising studies made by Chatterjee, Hofman, and Novak (2003) dissertation research; Modeling the Click-stream: Implications for Web-Based Advertising Efforts Marketing Science. In their research, they studied visitors’ propensity to click on banner advertising based upon exposure, timing, and prior exposure. Although, their research sought to measure
consumer propensity to click on banner ads while navigating web sites it did not relate back to revenue generation and domain cost.
Further, promotion research by Hofacker and Murphy (2000, p.57) argue that, inconclusively, too many banners can eventually reduce revenue generated from links and the host site. Although the Hofacker and Murphy argue that their conclusions are inclusive, it shows that researchers are investigating propensities for click-through. Similar research was done by Lohtia, Naveen, and
Hershberger (2003, p.410-418) where they in their research investigated content and design on click through rates between consumer and business.
One of the closest matches of previous research was Nilsson’s doctorate study; Attention to advertising based upon web site complexity (Nilsson, 2006). Nilsson’s discussion around promotion and how web site complexity affects attention to advertising, lend itself to this study in that the web site advertising complexity affects the propensity for site revenue. Though the study’s
limitation, distracts from personalized web design, it could certainly affect the outcome of the results.
4
INTRODUCTION
Interestingly and surprisingly, the study could not find similarly research related to this specific revenue cost articulation. One suspicion, and possible reason, could be that domain name hosting hotels has no reason to support or release such tests- and advertise-findings since it could potentially prove a negative business proposition. Why would you tell domain owners of a losing
proposition? Studies on click through rates, eyeballs, and advertising in general are easily found and are in abundance. With the vast number of unused sites
floating in cyberspace, the lure of shaky site sellers and their spam, and people’s search for easy money, researching the economics around web sites ownership is more imperative now than ever. Is there an easy way to make money through web site ownership?
So is it worth to buy, place, or hold/keep, domain names with the intension of making passive advertising money to covering the annual ownership cost?
Research questions
What affect can marketing message interpretations have on sellers and buyers, and under what circumstances can their facts and promises be accepted.
Purpose
The purpose of this study, to create knowledge around advertising message truthfulness, is done by challenging a "revenue generation" message through an empirical test.
5
INTRODUCTION
Positioning of Study
The study’s dependencies is based upon one of the classical marketing mix (Bagozzi, 1986, p. 12-14) – the four Ps; (Price, Place, Promotion, and Product) namely Promotion. The study will, vertically within this Promotional branch, branch out into Advertising – a subcategory found under the promotional umbrella. Advertising could be seen as, “the various activities that a company undertakes to communicate the product’s merits and persuade target customers to buy them.” according to Kotler (Quoted by Hakansson, Harrison, and Waluszewski, 2005, p.258) and since the purpose of a domain hotel is to “advertise” links on ones domain web sites, it was felt that this would become a limitation of the study. This study’s objectives is to investigate if a web hotel advertising engine is sufficient in generating revenue in excess of domain ownership cost. Since the owner is not able to try different advertising layouts this limitation is needed. Even though one could easily argue that, more web design features could potentially improve revenue generation (pop-up, pop-under, flash, video, or music) they are deliberately excluded in this study. The study would like to acknowledge that this limitation – the ability to affect web complexity - could affect the outcome of the success as indicated by Nilsson (2006, abstract page). Nilsson states, “Reduced complexity, on the other hand, releases cognitive resources that can be spent elsewhere. Thus, a higher attention level to the advertising stimulus was recorded”. One could therefore argue that different web layouts could affect the advertising effectiveness. Furthermore, this study does not intend to prove or argue if domain hotels are “good or could be better” advertisers by trying competing advertising layouts, but rather if they are worth using. Consequently, this study does not offer arguments or comment on the web hotel’s advertising strategy but rather on its effectiveness with associated valuation of service 6
INTRODUCTION
offering. Such study would require a dualistic approach, with dual sites (a study owned design and the domain hotel’s design) to compare. This will not be covered in this study.
One should further state that the study did not influence the optimization of search engine indexing as the study were trying to be a passive owner. In other words, during the study, no sites were submitted to any search engines other than if such submission were done by the domain name hosting hotel. The only active part, as will be outlined below, were the direction of advertising association related to the domain name – the provisioning of key-words. Further, it is understood that no cookie technology 1 was used by the hosting hotels to identify returning visitors nor were the sites considering browser or operating systems (PC or MAC). The lack of cookie technology limits the
tailoring of advertising based upon returning visitors. The study did not argue what advertising were delivered to a visitor by the hosting hotel. Since the research did not control the web hotels statistical information it took it for granted. Lastly, a short note on delivery of advertising and delivery. Even though there are difference between when an advertisement is served and fully downloaded the study follows the measurement methodology used by the services of the selected web hotel (Stanley and Witter, 2000, p. 23). The study did
1
Cookie Technology is a unique identification text file that is placed on the hard drive of a visitor by the visiting Web Page’s server. The purpose of a cookie is to know when a visitor has returned to the web site. Microsoft (2007)
7
INTRODUCTION
not find any inconsistencies in the web hotel’s measurement during the studymeasuring period.
Furthermore, as top domain names can be valued to millions of dollar, this study did not take into consideration potential value of domain name sale. The simple reason for this is that such valuation is prohibitively time consuming. As one might have heard, a product’s price/value is only what someone is willing to pay. However, when Brown (1984, p. 235) describes valuation he mentions four dimension that effects price which are; a) the price is often set based upon prices of other like products, b) price is a social event, c) it is set by real-world transactions, and lastly d) price is set per the total supply. One could conclude that the price should only be $62 (the price of a new site) since there are unlimited sites available to be assigned, however, since there is speculation in the value of a name, one will not know it’s true value until it is sold.
Limitation
This study is not about e-business in its general sense, selling and buying (Brown, 2002, p.11), but rather about trying to get visitors to come to certain domains and teasing them to click on advertising ads on the site – to create eyeballs and click through revenue. Sure, the advertisers’ seeks e -business from the link clicks on the domains; however, the study seeks not buyer-seller transactions but rather eyeballs and clicks.
2
All prices are in USD.
8
INTRODUCTION
This study investigates the domain owners’ side of the money equation and will not try to assess the value of domain name parking enterprises.
One assumption, though hard to validate, is that the domain names chosen in this study comes from a uniform population. Hence, the study assumes that the 59 domain names used in this survey represents names uniformly drawn from the 100 million domain name population. Without further study this assumption is difficult to validate.
9
THEORY
2. Theory
In this section, a theoretical discussion around the marketing aspects of a web site is derived through the exploration of the traditional marketing mix promotional branch. The section will describe how marketing promotion leads into advertising’s two communication messages; method and media. After this marketing introduction, it takes a look at domain names, their acquisition, market and purpose. Thereon after, a
discussion of web hotels hosting model and service model. A general discussion around promotional tools – advertising - used by web sites follows. Ending the section is a descriptive connection between web hotels and domain advertising revenue. After
reading this section, the reader will be familiar with the acquisition process of a domain name, its cost and different methods of web advertising such as clicks, click for action, and eye-balls3. In order to decide whether to buy or keep a site for the purpose of making money through web hotels’ advertising model, a couple of important theories has to be studied. The first avenue of revenue comes when a visitor arrives at a site. This is measured as the number of visitors and has nothing to do with what is actually done by the visitor at the site, only that they arrive there. The second avenue of revenue comes from the action that the visitor performs at the site. Here the revenue depends on the advertising that is clicked. Therefore, by
looking at the money flow of the hotels’ model we can learn what makes them tick as well as understand what will generate money for a domain owner. Based upon these two vehicles there will be two important factors that will assist a
3
According to Interactive Advertising Bureau (http://www.iab.net/resources/glossary_a.asp) Eyeballs reference to the number of people who view, or "lay their eyes on," a certain advertisement.
10
THEORY
domain owner in making money. First is the number of visitors that can be drawn to a site and secondly, once there, the advertising enticing visitors to perform certain actions at the site. Since the study has limited itself not to participate in optimization search engines it will not have the ability to affect the propensity for visitor to arrive at the site. Once a visitor has arrived, an
economical revenue model initiates and is based upon on what is performed during the visit. Here the study created web sites advertising messages via through the web hotel’s marketing system. The revenue model can, hence, be outlined as two separate paths. One being the impression revenue and the other advertising revenue. See Figure 1.
Figure 1, Domain revenue creation. Based upon Shen (2001, p. 60) Internet Measurement and Pricing Model.
11
THEORY
Domain Services and Parking Hotels
Domain hotels, domain parking, hosting of domain names, all of these can be used to describe a place where one can place ones domain name to earn advertising money while a site is unused. However, there is a distinction
between domain services and parking hotels that are often not communicated.
Domain Service provides a home for your web site. These providers often sell unused domain names and often provide a trading service for owned names as well. Example of these is Godaddy.com, 1&1.com, Yahoo.com, and
Networksolutions.com. Often they also provide a place, if one does not provide one’s own web server, where one can pay to rent a physical location that will hold the actual web site. These hosting services are merely holding place for web site information, which are not created by them. Parking Hotels Services offers a twofold business model. As communicated by Sedo (2007) they advertise their services as ‚…offers our users all the tools needed to buy and sell domains among a community of users stretching around the world, including domain appraisals, brokerage services, promotion and last, but not least, Sedo's popular domain parking program”. Parking hotels are in the domain-parking and eyeball and click business where domain owner trade their domain or place their sites so they can earn passive revenue. The advertising service is what the
study’s objective is set out to evaluate, as illustrated in Figure 2. The study will focus on the design and linkage on a web site and will exclude search optimization and the domain trading aspect.
12
THEORY
Figure 2, Author's interpretation of Parking Hotels' service model.
These hotels make money hooking up buyers with sellers of domain names. Sedo (2006) charges 10% of the sales price. Sedo, for example had one site sold at the fifth place on the 2006 money list, yielded them $100,000 in commission, Figure 3. They facilitate this commerce through two methods. First, they act as a middle man between buyer and sellers. This service focuses on sites that are not currently for sale but where a buyer would like to buy it and does not want to approach the owner themselves. This one-on-one method is described by
Vulkan (2003, p. 66) as inefficient. Vulkan (2003, p. 66) states, “ At one extreme, bilateral or ‘one-on-one’ barging can be very inefficient…”. Hence, unsolicited bids for existing domains can be expensive since you have to convince an owner to sell their domain name based upon a financial incentives. As stated, this one-onone service carries a 10% trade commission.
A second method for trading domain names is auction. This method is has a number of preferred characteristics for sellers that are worth noting (Vulkan 13
THEORY
2003, p 154f and Kranton & Minehart, 2001, p. 491). First, what better media is there for one to reach many then an internet auction? Secondly, auction
maximizes revenue for the seller provided that there are one more bidder then sellers. There are, however, vehicles to protect if this relationship is not obtained. One such vehicle is the setting of a minimum opening price. Lastly, there is a cost advantage with on line actions as compared to live or seal bid auctions.
Domain Name Market
According to Verisign’s (2006, p.2) report, the second quarter 2006 ended with over 105 million domain name registered, an impressive 27% increase of 2005. Interestingly, there are 14%, or some 15 million sites that when accesses (Verisign, 2006, p.5) no site will appear. The cost for obtaining a site ranges with some quotes averaging $7.63 (GoDaddy at $6.95, 1&1 at $5.95, and Register.com at $10). This price will provide ownership of a site name for one year.
Domain Name Value
Due to the value of domain name recognition versus IP number, a market for domain names has surfaced. The top ten 2006 domain names sales have fetched more than $12 million (Dnjournal).
14
THEORY
Figure 3, Domain Sales (Dnjournal)
Incorporating sale prices such as those listed in figure 3, which for many are incomprehensible, into the study would distort the objective. Since the study’s arguments is around domain monetization, domain name ownership should be reviewed.
Sites can be categorized into three important groupings; active or live sites, parked sites, and inactive sites, respectively. An active site is one that presents the visitor with an active site associated with the purpose of the site such as www.jambala.com. A parked site is a site that is under construction or hosted by web hotels such as www.nomom.com. More on parked sites below. Lastly, an inactive site leads the URL to a non-existing link, meaning that no web page will be presented to the visitor such as www.lsdkfjasdf.com. When combining the two groups, inactively managed or parked they represent a combined 40% of the domain market according to Verisign (2006, p.5) Domain Name Industry Briefing report. See Figure 4, below.
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THEORY
Figure 4, Unused Domains percentage per Verisign (2006, p.5)
Domain Name Money Flow
There are over 100 million domain names registered (Verisign 2006, p.2) today. Three forth of them are being renewed (Verisign 2006, p.5, attachment A) annually and with a renewal charge of averaging $7.63, a renewal revenue of around half a billion dollars is generated. It is easy to see the there is a lot of commotion around domain names and their renewals. Combined, this annual renewal rate with the estimated growth rate (Verisign 2006, p.4) of 24 million domain names which also carry the $7.63 hosting rate, and one can see a healthy market.
Advertising Revenue
In the early days there were four generic marketing strategies (Bagozzi, 1986, p. 12) that created fueled traditional marketing strategies. It contained four anchors (4 Ps); Price, Promotion, Place, and Product and was, according to Duncan & Moriarty (1998, p.1) derived from Borden’s (1964) seminar work. These four anchors were later seen related to a client-oriented marketing philosophy by Lauterborn (Yudelson 1999, p. 62). Lauterborn added four Cs to enhance the traditional marketing mix – the four Ps. 16 The four Cs added were
THEORY
Communications, Customer Needs and Wants, Cost to Satisfy, and Convenience. In the figure 5, below, the four “traditional” Ps are shown with their corresponding “new” Cs. For example, one can see that P
roduct corresponds to what the C:Customer want and needs. Another example is that Promotion corresponds to C:Communication. As outlined in the limitation section, this study limits itself to the promotional side of marketing, hence, the study will not reflect on the other three facets here.Focus of study.
Figure 5, Authors collaboration of Bagozzi's (1986, p.12) four Ps and Lauterborn’s four Cs (Yudelson (1999, p.62)
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THEORY
Promotion
Promotion and communication is presented by Nilsson (2006, p.22) through the eyes of Richards and Curran (2002, p. 71) as “Advertising is a paid non-personal communication from an identified sponsor, using mass media to persuade or influence an audience”. Hence, advertising is a way to for an identified sponsor to use ma ss media, often monolog, to reach a potential non-personal consumer. So how is promotion done? As Hakansson et al (2005, p. 258) states, “ The promotion issue is in the marketing model’s interpretation a question of how to send a message about a given product to potential users”. So a message over a media needs to be created by and advertiser. In this study, this is a web site (media) with a message (text or picture) on it. There are of course many media channels that can be used to approach potential buyers. Such medias can be, according to Nilsson (2006, p.8): Television Newspaper Billboards Radio Magazines Internet Since this study focuses on the internet, we can further expand the internet section according to Nilsson (2006, p.8): WAP E-Mail Instant Messages New Groups World Wide Web Lastly, since web sites are placed on the world wide web we can continue this world wide web extrapolation according to Nilsson (2006, p.8): Entertainment Web sites News Paper web sites 18
THEORY
Search Engine Web Sites E-Mail web Sites Ilustrated in a figure form, figure 6.
Figure 6, Media Channels per Nilsson (2006, p.8)
As the discussion will detail below, parking hotels has a service that creates entertainment web sites that are promoted via a world wide web media channel. This is the service the study will use in its investigation to see if parking hotels’ claim of advertising revenue is true.
Since the study restricts the change of advertising messages other than through suggests of key words, the final selection within this traditional advertising section is the medium selection within communication. The advertising message is therefore, through the engagement of a web hotel in this study, fixed except for directing the web sites purpose as detailed below. The study’s medium will be the World Wide Web and a web hotel. The study’s objective is to see if the web hotels’ promotional *entertainment+ medium is sufficient enough to create revenue in excess of cost for a domain placed at a hosting hotel. From an
ontological view the study agrees that a revenue model exist, however, epistemologically does it really provide a true value?
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THEORY
For clarification a recapitalization on the path, figure 7, from the traditional marketing mix’s promotion category to research medium follows. Initially, the traditional marketing mix’s four Ps (Price, Promotion, Place, and Product Bagozzi 1986, p.12) were outlined. Secondly, the study uncovered that the
promotional aspect had it’s own mix (Sales Promotion, Advertising Public Relations, and Personal Selling). Thirdly, under the advertising selection of the promotional mix there were a Communication section, which consisted of
Message and a Medium (Yudelson 1999, p.62). Domain name hosting hotels,
as outlined below, provide a defined message and has defined medium, the World Wide Web and is this study’s research medium.
Figure 7, Authors Theses Approach from Bagozzi (1986, p.12) and Lauterborn Yudelson (1999, p.62)
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THEORY
Advertising Revenue Generation In order for a web hosting hotel to make money, and for the site owner to make money, advertisers need to place advertising on the sites. This flow of
advertising can be illustrated through the Adwiz model, figure 8, where advertisers places their advertising material on an advertising server (Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, p.1264). This server is where advertisers store the advertisements that the web hosting hotel uses to populate a web site. As the study will outline below, the web hotel, pulls
advertising from these web based upon certain key-words that are set by the web site owner.
Figure 8, Adwiz Model by Langheinrich, Nakamura, Abe, Kamba, Koseki, 1999, page.1264
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THEORY
Advertising links, as seen in Figure 9, are the clickable links created by the hosting web hotel. This picture was chosen based upon key-words that the author entered for the study’s Ativer.com site. Hosting hotel’s lets allows user of their service to pick key works that they think are associated with their specific web name. For example, Ativera.com, used in the study, were given key-words of; TV, Movie, Screen for the site. A list of each of the key-words that were entered by the domain owner per site can be found in Attachment C. The advertising was generated with clickable links and pictures that the web hotel thought were associates with the key words. In this case, Vivitek, Sharp, Pioneer, Samsung, and so forth are all suppliers of consumer TVs and can be seen associated with TV, Movie, and Screen key-words that were used.
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THEORY
Examples of Clickable Links
Figure 9, Sample of advertising links. Screen picture from www.Ativera.com one of the sites used in this report.
We have seen that a web owner makes advertising money on the web when an advertising link is clicked. This click revenue is calculated by taking the number of times a web link is click times the revenue that an advertiser is willing to pay for such click. There are commonly used nomenclature around these
measurements which are: Click-through-Rate (CTR) represents the number of times a visitor clicks on an advertising link at the site. Such user clicks may yield revenue for the domain owner. A ratio of click-through over impression is often calculated. In other words, if 10 visitors clicked an advertisement out of 100, a 10% ratio would be achieved. Click-through rates are affected by the layout of the layout and 23
THEORY
content of the web site. As indicated by Lohtia et al’s (2003, p. 415), the click through rate can be manipulated by changing the use of incentives, interactions, emotional appeal, color, and animation. Earning per Click (EPC aka Pay-per-Click (PPC): When an advertising link is clicked, see click-through-rate above, the advertiser pays a fee (Hoffman and Novak 2000, p.10). The higher EPC the more revenue is generated when a link is clicked. Since the propensity to click an advertising link is dependent on the advertising message, key words to create the message is important. Nomom.com is an example from the study. If it’s domain owner thi nk that Nomom.com associates with kids or dads that has lost their moms/wives then logical keywords could be mom, wife, divorce, single dad, raising kids, adolescence among others. The better linkage between the site name, keywords, and advertising message, the better click-through rate. Web hotel provides
owners with keywords suggestion but the actual message can formulated. When a site is parked, there are three ways to choose these key words: a) The hotel can select these keywords by themselves automatically, b) The hotel can select them manually though this happens only in rare cases, c) As a domain owner one can selects these keyword by oneself. Sedo claims that this click income can range from $0.03 to as high as $3 for a click-through. This price, the amount paid by advertisers, is negotiated by the hosting hotel. The better the selected keyword, the higher the click-through price, hence the higher the domain owner’s revenue. In other words, every time an advertising link is clicked, the domain owner makes money.
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THEORY
Pay-per-Action or Lead (PPL), even though not applicable in this study, Shen (2002, p.60) mentions a third way of paying for specific actions namely, “ the outcome-based model assumes that advertisers pay for performances, such as inquires and purchases”. In click-through, there is no consideration what happens after the visitor clicks a link. In the PPL scenario the advertiser is willing to pay (generally more) if the vistor actually provides a sellable event or actual lead. There is, however, a paradox according to Ephron (1997, p. 97) in web advertising, “ web media want to be paid for interactivity but are unwilling to price on response ”. In other words, the higher revenue potential of PPL is intriguing for the web site owner, however, they have to live with performance of click-through in this scenario.
Impression Revenue
The second avenue for revenue generation is impression revenue. This revenue
represents revenue generated by the number of visitors that arrive at the site regardless of what they do there. Hence, the more visitors the more impression money is paid out. Even though impression revenue is important, Hofacker and Murphy (1998, p.704) states that “Web advertisers question traditional media’s cost per thousand pricing model based on impressions, often insisting on paying for results, click-throughs, as well as, or instead of, impressions. Advertisers want to understand who is clicking on the banner, and which factors lead to higher click-through rates”. This revenue is often described as Revenue/ or Cost-per-Mille (RPM/CPM aka Cost-per-Impression or Revenue-per-Impression (CPI or RPI), Eye-balls, or visitors) and represents a revenue that is based upon site or site-page visits. A common name is eye-balls count representing the eyes that are viewing the sites content. Hence, the name. The more eye-balls the more value the site-page carries and the more the site or site-page can charge for advertising on the site or 25
THEORY
site-page (Hofacker and Murphy, 1998, p. 704). This revenue-per-mille (mille from the Latin’s word mille, meaning 1000) is a payout that is based upon visitors to the site. The more visitors the higher the value of the site. Advertisers pay a fee per kilo impressions that can range from $0.25 to $0.75 (Earnersforum, 2007).
Theory Summary
In this theory section, we learned that there were two distinct paths of revenue if a site were placed at a web hosting hotel. One being money earned through advertising. This money is earned when a visitor clicks a specific advertising link on the site. An important measurements for this advertising revenue is EPC, the factor of click-through-rate (CTR, when someone clicks on an advertising link) and earnings-per-click (EPC, how much is paid out if a link is clicked) requires a visitor clicking a link on the site. Argument that better key-words creates better link, hence, a higher propensity of click-through were provided.
We also learned about a second revenue stream, impression revenue.
This
revenue is earned when visitors arrive at a site regardless of what they do there. The measurement for this is Revenue-Per-Mille (RPM) and Earnings-Per-Click (EPC). To optimize RPM it is important to have many visitors come to the site.
A side discussion around domain names and valuation of domain names was also provided. This theoretical discussion allowed us to review and enhance our understanding of site ownership facets.
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METHODS
3. Methods
This section describes the study approach and strategy as well as the validity and reliability of the study.
Research Approach and Strategy
Subject selection This study’s research approach stems from the authors interest in the interpretation of marketing messages received from web hosting hotels. Expectation whether to purchase something are established and beliefs are set based upon marketing messages received, which can be difficult to understand or in some cases misleading. The web hotels’ marketing messages combined with the internet boom and the new web site centric world peeked an interest to see if one could not create a money making machine through simple ownership, letting others do the job. The author’s view, at its highest level, is a study around truth visa vie lies, or shall one say, interpreted messages from parking hotels. As Zinkhan & Hirschheim (1992, p 80) exclaims, “