GoDaddy purchases Marchex’s domain name portfolio for $28 million

An in-depth look at GoDaddy’s purchase of over 200,000 domain names and what it means for domain name investors.

GoDaddy (NYSE: GDDY) has purchased regarding 200,000 domain names from Marchex (NASDAQ: MCHX) for $28.1 million, plus a potential earnout.

Marchex has owned the portfolio for a long time, and it includes most of the 100,000 domains it purchased from domain name investor Yun Ye for $164 million in 2005. The firm didn’t focus on selling its domain names until 2012, when it created a separate domain-focused business called Archeo. The plan was to spin Archeo off as its own publicly traded firm, but it canceled these plans in 2013.

GoDaddy SVP and GM of Domains Mike McLaughlin stated GoDaddy looked at the domain portfolio as a unique opportunity.

“We looked at [acquiring the portfolio] as a pretty unique opportunity to acquire a group of high quality names that previously weren’t, in our mind, generally available,” he told Reglike.

Although Archeo has been selling the domains for a couple years now, sales have primarily been handled through negotiations. The prices haven’t been cheap, either.

McLaughlin believes making the portfolio available at reasonable prices will allow GoDaddy to do a better job of getting the right name to the right client.

“We’re focused on providing modest businesses with the best name to establish their digital identity,” he stated.

GoDaddy plans to market the portfolio more broadly than Marchex did, counting assigning “buy now” prices to the vast majority of domain names and listing them for sale on its Afternic marketplace system. This means the domains can be purchased at GoDaddy and at other Afternic partner registrars through the shopping cart path.

Now that GoDaddy is selling its own aftermarket domains, will domain investors be competing for shelf space with GoDaddy’s own portfolio?

McLaughlin stated the firm will not favor its own domain names over domain investors’ domains. Giving priority to its own portfolio would be counter to the firm’s goal, he explained.

“If you think regarding what the point of Godaddy’s efforts are around this and everything else we do around naming, it is to get the right name in the hands of the modest business,” he stated. “When showing results, it does not matter where the name is coming from…we want to get the right name to the modest business. We will absolutely not be doing anything in our search results that flags [a domain as] part of our portfolio and give it any sort of preference.”

He also stated that the firm’s phone reps will have the same commission and incentive structure for selling its own domains as third-party domains.

The buyout doesn’t mark a shift into domain name investing for GoDaddy, McLaughlin stressed. The firm will not buy expired domains (as it did with Standard Tactics), nor will it buy domain names one-off like a domain investor. The firm will, still, look at other sizable portfolios with similar characteristics to the Archeo portfolio if they become available.

Marchex’s sale of the portfolio marks an end to what was a questionable investment in domain names. The firm paid $164 million for Yun Ye’s portfolio and registered or purchased many more.

Pay-per-click revenue faltered shortly therafter, and Marchex’s attempts to mass develop the domains into sites were short-lived.

When the firm created the Archeo division with an eye of selling more of the domains, then CEO Russell Horowitz told Reglike that the firm hadn’t focused on the domains since other opportunities, notably call analytics, were more pressing.

He described the domain name portfolio as an “idiot proof asset” that would retain its value even if the firm didn’t invest in it right away, and he believed that time had proven this belief correct.

In response to the portfolio sale, current Marchex CEO Pete Christothoulou told Reglike he still believes owning the domain names positioned the firm for what it is today. He stated the domain portfolio has generated $290 million in revenue excluding domain sales, and another $80 million in domain sales prior to the GoDaddy transaction.

“When you look at the amount of cash we’ve been able to generate from domain sales and what that’s done in terms of spawning [our mobile analytics business], we think we’ve gotten good value out of it,” he stated.

The sale comes shortly following long-time CEO Horowitz left the firm and is part of the firm’s plan to focus solely on its mobile analytics business.

“We’re at the point that we need to focus and double down,” stated Christothoulou.

Ahead of the earnout, GoDaddy is paying approximately $140 per domain name.

Last year, Endurance International Group purchased BuyDomains’ million domain portfolio for $44.9 million, or regarding $50 per domain. That portfolio had been picked over much more than the Archeo one.