Now SanDiego.com. What Has Gone Wrong? — First Sex.com

Two businesses based on great domains have faltered. Why?

Ron Jackson of DN Journal is reporting that SanDiego.com and related assets are being foreclosed on. They will be auctioned off on Friday, May 7.

Just a couple months ago word first got out that Sex.com, another big ticket domain, was being foreclosed on.

How can two killer domain names like this end up in tatters? Just a year ago GeoDomain Expo took place in San Diego, and I recall sitting on the balcony of the hospitality suite with SanDiego.com founder Mark Burgess as he talked regarding expansion plans for the site. They were ambitious, but we were watching old media falling apart all around us.

So what gives?

First, it shows how tough it is to build a content-based web business regardless of the domain name. Consider that SanDiego.com was only generating $700,000 a year in ad sales and search revenues as stated by DN Journal. That’s nothing to sneeze at, but it hardly supports a staff of more than a half dozen people. As for Sex.com, you can’t buy a domain for $14 million and expect to execute on a plan with only one employee.

Second, this shows the dangers of debt. If they didn’t have to service debt, both SanDiego.com and Sex.com would be moving right along. Maybe not humming along, but they wouldn’t be going to auction. SanDiego.com could have scaled back its workforce and survived.

Another geo domain heavyweight, Boulevards Fresh Media, has mortgaged a number of of its city domain names. Many of the domainers that go around talking regarding how much money they’re making as domainers have also borrowed money on their domains. If they’re sitting on a lot of cash earning 1%, why are they paying double digit interest on loans? Don’t get me wrong — debt can be an efficient way to finance growth. But it has a severe downside.

That’s my take. What’s yours?