Linens ‘n Things, and the Domain Name Industry — Circuit City
Will we see domain name firms go bust in 2009?
It’s capitalism at its best. Circuit City is being liquidated following failing to find a buyer. Linens ‘n Things is finishing up the liquidation process (I wonder when they’ll sell the LNT.com domain?).
And that’s how it’s supposed to be. Weak firms fail, strong ones thrive. Thank goodness the government didn’t step in to bailout Circuit City. Best Buy (NYSE: BBY) offers a superior shopping experience. Even though it is facing hard times, it has knocked a competitor out and ought to reap the rewards.
Will we see similar failures and consolidation in the domain industry this year?
Domain Parking Firms
At last count there are regarding 20 well known domain parking firms.
Firms go bankrupt when they can’t service their debt. The startup costs of running a domain parking firm are minimal. So parking firms rarely carry long term debt, unless it is for another part of its business. Advanced parking firms, such as DomainSponsor, have higher costs of doing business since they hire mathematicians and optimizers. But the point is that most domain parking firms could survive even if they scale back to a couple people managing the system.
We could see some consolidation in domain parking, but there’s not much benefit in buying a competitor’s parking business. Clients are usually under no obligation to keep their domains there, and can flee to another service the day following the firm is purchased. Sometimes buying a parking firm for its technology or advertising contract makes sense.
Domain Name Registrars
There are huge economies of scale for domain registrars and consolidation makes sense. I think we’ll see a lot of consolidation in this space over the next year or two. Domain registrars may have taken on some debt to get going (or to buy an existing registrar), but it’s still limited compared to other types of businesses. But the benefits of combining operations may be compelling.
Other Domain Businesses
We might see failures at other domain related businesses. Banks.com is essentially dead thanks to its heavy debt load (backed in part by IRS.com). One other firm to keep an eye on is Live Current Media (OTCBB: livc.ob), which is scrambling to raise cash. Although debt-light, it technically owes its cricket partners lots of money this year (although they have forgiven some those payments in the past). Other debt-laden firms include NameMedia, but NameMedia is doing a good job extracting case from its assets.
