«DomainSherpa.com: The Domain Name Authority Zappy's Proven Process to Extract Maximum Value from Domain Names - With Michael Zapolin Watch the ...»
We think we could do it with these properties. What do you think?" And he, number one, got really excited, but the point I was making earlier was I asked Jeff Taylor at some point in my relationship with him: "How do you figure out? At Monster.com, you are buying all these different companies. How do you figure out which ones to buy?" And he is like: "I wish it was a little bit more scientific." He was like: "I will hear about some company and then somebody in my company will say something, and then I will see a news story." He was like: "By the time somebody pops up two or three times, they are on my radar and, who knows, if it is the right fit, we might buy them."
Michael C: Great advice. So, you need to try and get as much PR as possible for whatever you are trying to sell because everybody has a lot of information coming to them; and if you can reach them, somehow, two or three times via
different sources over the course of some time, then they are going to say:
"Hey, there is something to this."
Michael Z: Yes.
Michael C: "Let me take a look at it."
Michael Z: Exactly.
Michael C: Great point. All right. Back to Beer.com. Where did you get the eighty thousand dollars to buy that domain name to begin with?
Michael Z: That is a good question. So, I had been doing these infomercials fairly successfully. So, I had some money around, but at the same time I was bringing in this Beer Group - this advertising niche agency who had the beer sponsors. So, they wound up putting up a significant portion of that eighty thousand dollars. To come into the deal, I was going to run it and ride shotgun, so it made sense that I was going to put in some cash to show I was Michael Zapolin (InternetRealEstate.com) Page 13 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority serious, but the lion share of it came from those guys. And ultimately, they owned the biggest piece of it as well, so they were pretty excited.
Michael C: All right. So, a seven million dollar sale to Interbrew. You were not a majority stakeholder in Beer.com, but you were running the company and you had some stake in it.
Michael Z: Yeah. Yeah. I think I had about twenty-five percent of the company after I gave the kid a piece and gave the guys who were putting in the money and were bringing the advertisers to the same. And that always feels like a significant enough piece along with whatever other additional little tidbits you might be able to earn for yourself in the way of income and things like that.
Michael C: Sure. And so, did you have a partner on Beer.com in addition to the investor?
Michael Z: No.
Michael C: No. Andrew Miller?
Michael Z: No, the first deal that I did with Andy was Diamond.com. When I decided to make that acquisition, I went to Andy and said, "Look, obviously you know what I just did with Beer.com. Here is what I am thinking of doing with Diamond.com. And it is a bit more money that I am going to have to put in here and I need somebody valued-added to the industry." And in a couple of those places, he was a great fit for that. So, we did Diamond.com together and it was, obviously, a pretty good, quick success.
Michael C: Yeah. And I do not have it in my notes, Zappy. What was the end sale price of Diamond.com?
Michael Z: When we sold it, it was like a combined value of around seven million dollars. Pretty similar to Beer.com.
Michael C: Yeah.
Michael Zapolin (InternetRealEstate.com) Page 14 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority Michael Z: Ours was cash in equity. A few years later after the Internet bubbled and they had burned through their capital and stuff, they wound up selling Diamond.com off for seven and a half million to the guys up in Canada Ice. And so, what was cool was you could see that the domain had retained its value. Even though the company had tanked, it was great to see that the domain was still holding value.
Michael C: Yeah, definitely. So, the key in both of those sales was not necessarily an operating business; a valuation based on a multiple of the earnings. It was, basically, you put up and running a website, you talked about what the vision could be, and then people looked what that potential growth could be, what it could cost in opportunity if they did not take advantage of it - what their competitors might be able to do -, and you sold it based on that potential.
Michael Z: Yeah, absolutely. And I could have even left some money on the table after the fact; in knowing these guys, I had talked to them. And part of what they had told me afterwards was that they did not know if they would wind up making money on Beer.com, but they saw it as a way to market to beer lovers. And they have a broad portfolio, so Beer.com makes a lot of sense. And they said to me that a one percent shift in the beer drinking market - if one percent of beer drinkers switch from one brand to another, that is a billion dollar swing.
Michael C: Wow.
Michael Z: So, who knows what it did for them or what the real value was, but I think at some point, again, you have to negotiate something that you can live with and something that, in that case, I was not so passionate about beer that I needed to be in that category for the next ten years.
Michael C: Now, beer is both singular and plural, but diamond is a singular versus diamonds - the plural. Was that a concern to you when you were buying Diamond.com for three hundred thousand and thinking: "Oh, did I buy the wrong one? Is this one going to be the category killer domain name?" Michael Zapolin (InternetRealEstate.com) Page 15 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority Michael Z: Yeah, that is funny. It was an important variable. In my mind, there was a difference between Diamond.com and Diamonds.com in that I believe that two domains are different if one is singular and one is plural. So I was confident in that. The plural was owned by a company that was setting a lot of the prices. They were like the rap sheet. Rapaport had this rap sheet in New York that was calling prices on diamonds; they owned Diamonds.com.
One of the reasons that I actually wound up doing the deal with Beny Steinmetz and these guys and having all this money behind me was I did see that there was a clash coming between us and Diamonds.com, and that Rapaport did have some money to fight that I would have had to fight the battle. So, a part of what my partners were taking on was that potential legal situation. It did come to a head and it was decided, as sort of domain precedent, that Diamonds.com was different than Diamond.com. They were two totally different things. Obviously we could not have pretended we were Rapaport or something like that, but if we were going to do our own thing, then we were two different companies in the eyes of the judges and people like that. So, it was important. It probably set a lot of precedent - that Diamond-Diamonds situation.
Michael C: So, you did both of these deals. You gave twenty percent back to the company that sold you the deal. It seems like that is a nice maneuver. It is a nice-guy maneuver. It is a good karma business decision. You are trying to convince somebody: "Hey, this is going to be big. I want to cut you in." It is a good way to also bring down the price, but it makes the process much more complex because now you have another investor in the process. You have more people to potentially listen to and have to deal with. Why did you decide to do that - give twenty percent to the people or companies that sold you that - rather than just buy it outright?
Michael Z: Yeah, I mean I am a big believer in, if you share something, it is going to come back to you in some multiple. I mean I believe that fundamentally, so I want to have that happen in any business. I want to share, whether it is employees or people like that. But for a lot of the reasons that you just said - intelligent reasons, like bringing the price down, get the deal, separate myself from somebody else who might be offering them one million and a half dollars or something for the domain -, that is a way to set it. But at the same time, with the Beer.com kid, I really felt like I was going to affect Michael Zapolin (InternetRealEstate.com) Page 16 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority
the value pretty substantially. I did not want this kid to come back to and say:
"Oh, you sophisticated marketer, you suckered me in; now I am going to sue you." With the Diamond.com guys I did not feel quite the same, but in both of the cases I convinced them that I had some expertise - some intellectual capital - in doing this that they were going to be a passive investor - passive shareholder - and that they were going to own the stock, but I was going to do what I was going to do and they were going to have to except what I did and when I sold it. The only caveat was they were going to have some piece of that upside.
Michael C: Yeah, all right. And when you did the deal for Beer back in 1998, hosting was not very cheap back then, design work was not as cheap as it is today, legal work was probably cheaper back then. So, this eighty thousand dollars that you had some investment and that you put your own money on the line for was only the first step. You actually had to close the paperwork, get your lawyer at one hundred or two hundred dollars per hour to write that up, go back and forth on that, design it up, and host it. Do you know how much more you spend besides the eighty thousand dollars to get it up and running to the point where you could say here is my vision for it?
Michael Z: Yeah, we actually, between myself and the other party, threw ten thousand dollars into like an operating kitty; and it was enough. Again, it was a thin site. I do not want to claim there was a whole lot of depth to this site, but it was enough to reface the site; have the documentation real clean, which I think is important to domainers. If you are going to do something that you eventually think you are going to sell, do everything really clean. Spend the time to put together the LLC Operating Agreements. Do everything right.
Lay out the distribution of capital. But it was definitely, since I sold it three or four months later, really had not spent that much money. We never spent the whole ten thousand we had put in there, but it was probably several thousand dollars went in. And the good news was if we had wanted to bring in some outside capital at that point, I think we could have presented to somebody. "Hey, we have got some press. We have got a site. We got interest from some of these companies. Why don't you come in now at five hundred thousand dollars or a million dollar valuation?" So, I think every time you move forward you have to worry a little bit less about what you gave away or how much capital you are going to need to take it to the next level.
Michael Zapolin (InternetRealEstate.com) Page 17 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority Michael C: Right. All right. So, we talked about those two sites that you bought that you built sites for, marketed, and then sold not too much later. So you rolled out of Diamond.com with another seven million dollar sale; by this time, you are probably a multi-millionaire. Was there any thought that: "Hey, I am done, man. I have got enough. I can go to Puerto Rico. I can live where I want and I am done."
Michael Z: No, I mean, at that point, I had made a couple million dollars for myself and what not, and everything was looking great. But I was having a lot of fun. I knew this was a very early industry. I knew that the Internet, as I was seeing my friends using email and using America Online, was rolling. It would have been insane to just kind of stop right there and, quite frankly, that did not seem like a whole lot of money to me, especially even early on there.
You started to get the sense that this was going to be pretty big and there may be some hundred million dollar sales and some billion-dollar sales. It was like I was interested in participating in that.
Michael C: So this was just a prelude you were looking at it. Was your next purchase for CreditCards.com?
Michael Z: No, the next purchase I did sort of simultaneous to Diamond.com while it was happening was I wound up buying Computer.com.
Michael C: Oh, yeah, that's right. Let's talk about the Computer.com one.
Michael Z: Yeah. And that was during the 1999/2000 total exuberance. You call up your dentist to get a cleaning appointment and he would say: "Oh, I just started an Internet hedge fund." You know what I mean? It was crazy.