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Michael Z: It is funny. All of these things, as you learn, as you know, they all have these all crazy situations involved with them. And, as I remember it - I am just remembering it right now -, something happened, where I had been willing to pay substantially more, but I said, "What do you want? You are not going to develop it. You are going your way anyways," and they wound up having a very successful IPO for their backend credit card company. So, they really did not need it. I mean they should have kept it, but they did not need it. And they had originally said something like two hundred thousand; and while that was happening, there was some kind of an Internet scandal, where Russian hackers had stolen people's identities and things like that related to credit cards. And they just called me up and they were like: "You know what? If you do one hundred thousand, we will just do it together." And I was like: "Okay." Like who calls you up and gives you fifty percent off? But it was just the nature of that moment for them. And so, we very quickly did the deal. Andy Miller was my partner on this.
Michael C: Yeah, sure, there were the nay-sayers that thought you were crazy at that time for spending one hundred thousand dollars.
Michael Z: Yeah, and the fact that they were not being approached by other people to buy it. Again, you got to be proactive because I think there is a lot in that proactivity that comes out of there.
Michael C: Yeah, definitely. So, you strike me as a pretty personable guy, Zappy, and we have not spoken before today. But you are a likable guy. You are a clear communicator. I think you are a good person. How much of the relationship aspect comes into play when you are negotiating for Beer.com, or Diamond.com, or CreditCards.com? At the point where the sellers of CreditCards.com called you up and said, "Hey, give us one hundred thousand dollars and it is your," did you have a long standing relationship by telephone with them? Did you meet with them? What was that relationship like?
Michael Z: Yeah, I knew one of the people over there originally, which is how I got really synced into talking to the Senior Management. I went and met with them because I thought it was important. I thought it would elevate the relationship. I still think, again, face-to-face communication is the best;
second is what you and I are doing, which feels almost like that; third would be the telephone. And just coming back to what you said, I am sure there are plenty of people that do not think I am a good guy that think I am an opportunist or whatever they think. So, my philosophy has always been there is some percentage of people who are going to like you for who you are, there is another group of people who, if you said all the right things, would like you, and there is a whole group of people who are never going to like you no matter what you do. You cure cancer. You save the planet. They could care less. They do not like you. And I think just to try to focus on being who you are and trying to communicate clearly, you are going to have your haters and you are going to have that anyway, so do not focus there. But I Michael Zapolin (InternetRealEstate.com) Page 25 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority think that is a good point. If you develop a relationship with a domain seller who you are working with or somebody you are trying to sell your thing to, it is just another part of the equation that you can leverage into maybe getting a better price. I have had circumstances where I have wanted to buy a domain name and somebody stepped in last minute with a bunch more money and I was still able to get the deal because the person felt like they did not want to go back on their word or their relationship, or they valued the relationship with me going forward. So, they did not just take the highest bidder.
Michael C: Yeah. Yeah, I have heard of that case happening in real estate - in physical real estate - a lot. And when we actually moved to the Seattle area, we found this beautiful home overlooking Seattle. And it was older, but the view, you just cannot get that kind of view every day. And so, we started to form a relationship with the sellers who we knew were going to retire in a couple of years and probably move some place closer to their kids. And we wanted to have that relationship with them so we could be on the inside track;
and maybe, if somebody else put up the exact same offer as us, they would pick us because they knew us.
Michael Z: Yeah.
Michael C: Maybe.
Michael Z: It is a good point. It is an important point for domainers because I do think a lot of this comes down to relationship and, in this case, a lot of the folks that took domains early on - the beauty of it is that they are not maybe marketers or developers, or even business people. They are just intelligent, savvy people who have an asset. And for you to be able to build a relationship there, I think it could go a really long way. There is always this moment at the very end when they are about to sell you the domain name where they just go: "You know what? Before I sell this, maybe I will just send an email to everybody in my email box that I am selling it just in case."
And of course people come out of the woodwork, and want to pay more, and want to disrupt you from getting it or something. So, having that relationship, whether it is by phone or in person, I think that is a great thing to have if you can develop it.
Michael Zapolin (InternetRealEstate.com) Page 26 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority Michael C: Yeah. So, I think this is a fantastic interview so far, Zappy. I love to hear all these details. I have a ton more questions to ask you, so let me just finish up the CreditCards.com story. You bought it in 2001. One hundred thousand dollars. You actually created the website. You did not just create a "mini-site" of what it would be and then market it and sell it to the highest bidder. You actually created a functioning website. Is that correct?
Michael Z: Yes, definitely. So, with a couple of people in Boston - a real small team -, we just set out to make a search engine for credit cards. It was not really deep. I do not want to claim it was as complex as somebody might think it was. It was: What Credit Card is Right For You, Good Credit, Bad Credit, Airline Miles, What Do You Want, and then we would show you the top credit cards for those different categories. And you click on one; if you fill out a form, the credit card company would pay us. And originally we started out doing that through Commission Junction and just getting paid.
And at a certain point, where we got enough confidence, we started to contact the credit card companies directly to try to make direct deals. And I want to make this point. This is like the power of the generic domain. You can literally get anybody on the phone when you are the domain category and you start calling around. So, we were able to get Sandy Weill from CitiBank on the phone.
Michael C: Wow.
Michael Z: Left a message: "CreditCards.com calling." He comes to the phone. We talk. We said, "We want to have a direct relationship." He said, "Oh, okay. Great. It makes sense. I will connect you with my head guy there." And of course, when the CEO is calling the head guy, you are going to make a deal. So, we were able to make some direct deals and that increased some of the bounties we were getting. And we were learning as we went on search engine optimization and affiliate marketing; and about three years into the process, it was going well. We were making money every month and distributing it out, and it was going really nicely. But a guy came to us three years in, and he was from Texas, and he had a company called Click Success and he said, "Look, I am doing really well with financial lead generation. If I were CreditCards.com I would be doing incredibly well and I would like to figure out a way to work with you guys." And this is like the Michael Zapolin (InternetRealEstate.com) Page 27 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority classic fish that got away story for me, where we continued to talk it through and negotiate with him. And the internal group, who maybe had not had some of the sales that I had had maybe wanted an exit that was post the Internet bubble, said, "Hey, let's sell CreditCards.com for cash. Let's take the money and diversify into a bunch of domain names," which sounded pretty good too.
So we wound up making a deal with this guy to sell it to him for 2.75 million dollars, which, again - you buy something for one hundred thousand dollars, make money for three years, sell it for 2.75 -, is not the worst thing in the world.
Michael C: Yeah.
Michael Z: We sold it to him. He immediately took the natural traffic that we had, he took the credibility, and he started to buy traffic in the paid search.
We were doing all SEO for the most part and haggling a little bit. He started to go heavy at what he knew, which was paid search. He very quickly increased the number of cards he was doing each month; went back to the banks and said, "Hey, instead of fifty bucks a card, I want one hundred bucks," they said no problem, and, long story short, two years to the month that we sold it to him for 2.75 million, he sold it to American Capital for 133 million and he kept some stock in the company too. And the painful thing is that it is the same logo, it is the same website, and it is the same business model. Nothing changed. It is the exact same thing. It is just he leveraged in the next evolution of Internet marketing, and so that was obviously a lesson.
Every night when I am watching TV, at some point, CreditCards.com commercial comes on. You want to jump out the window, but at the same time, I took the money, diversified into some great domains, and have all kinds of amazing domain situations and companies that have developed and flourished from that. So, again, you got to put your blinders on and move forward.
Michael C: Yeah. So, on your first two deals, you actually left a portion of the company with the person that you bought the domains from - Beer.com and Diamond.com. Did you think about, when you were selling CreditCards.com to this guy: "Hey, let me keep ten percent of it or twenty percent of it so I got some portion of upside"?
Michael Zapolin (InternetRealEstate.com) Page 28 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, it was back and forth, and there was definitely that deal was on the table as well. But from my group's standpoint and, again, when you have investors and partners and things, you have to be willing to go with some of what works for them. And the consensus was that we should sell it and take the cash and diversify into a broader portfolio. Maybe try to create the next IAC or something like that with (Unclear 1:03:54.4) domains.
Michael C: Right. Yeah, everything is 20-20, right? 20-20 hindsight because cash is king when you get a deal. I would rather have cash in the bank today because you do not know what the buyer is going to do with the website.
They could run it into the ground.
Michael Z: Yeah. No, there is definitely opportunity costs and there is risk if you do the wrong deal. If you do not mind if I fast forward to a more recent deal just so people do not think that this is like ancient history; that this cannot be done. It can actually be done in more niche now because, back then, I was thinking I would want to own Insurance.com. That is the domain I want. I do not want something.
Michael C: Yeah, I think about that all the time. If I only had a time machine and I went back and I bought Insurance.com, and Esurance.com, and AutoInsurance.com. Like yeah, I would be set.
Michael Z: Exactly.
Michael C: But today your strategy has changed.
Michael Z: Yeah, I broadened it, where I realize that some of the niche domains could potentially be stronger than the broad category names because you might be attracting a more qualified consumer with those. So, the example is I was watching TV like everybody else in the last few years and, in 2006, every commercial was Geico, and State Farm, and everybody saying go online, change your insurance, and save money. Get an insurance quote.
So, I started thinking: "InsuranceQuotes.com is a really cool name because I would love to have Insurance.com, but it is long gone. It is a big business.
But InsranceQuotes - somebody who types that in knows the terminology and they are asking for a quote. I mean that is like a really prime direct marketing Michael Zapolin (InternetRealEstate.com) Page 29 of 47 DomainSherpa.com: http://www.domainsherpa.com http://twitter.com/domainsherpa http://facebook.com/domainsherpa DomainSherpa.com: The Domain Name Authority opportunity." So I looked it up. It turned out it was owned Ken Lawson, who is a great domain guy with great stories that you should definitely have on Domain Sherpa at some point.
Michael C: Right. Ken Lawson.
Michael Z: He is the guy who bought Porn.com for a couple million dollars with a portfolio and sold it for close to ten million dollars just for the Porn.com name. And he has a lot of great domains, and he owned InsuranceQuotes.com and he was not really doing anything with it. And so, I approached him. I said, "Ken, this name. If I do natural search engine optimization and affiliate marketing - some of these things - leading into paid search, I think InsuranceQuotes.com has a chance to be a lot more than just a flat domain."