Podcast 9: How To Profit From Domain Names – Advice From Visionary Rick Schwartz

Intro: Welcome to the MakeMoneyOntheInternet.com podcast where you will learn tips and strategies from the pros on how to build your own online business. Now, here is your host, Chris Guthrie!

Chris: I’m very excited to have Rick Schwartz on the podcast today to talk about domain names. Rick got into domain names back in 1995 and currently owns about 7,000 great domain names like candy.com, property.com, punchbowl.com, and a whole lot more. Welcome to the show, Rick.

Rick: Thank you. Thanks for having me, Chris.

Chris: Yes, so I know – I mean obviously 1995 is a long time ago in internet years to get into this side of the business. So I’m just kind of curious how you really got into buying domain names and why you even did it in the first place.

Rick: Well, it goes back to the toll-free 800 numbers and they came out I guess in the mid- or early 1970s. And when I was traveling around the country, I wasn’t that organized and I’d have to call Information for the 800 toll-free all the time to get the numbers of the hotels. But, in time, I learned that the hotels even, whether they published them or not, or advertised them or not, if you dialed 1-800-Holiday Inn, Holiday Inn would answer, and if you dialed 1-800-Days Inn, Days Inn would answer, and if you dialed 1-800 for Hilton, Hilton would answer. And so it showed me – I learned a couple of things from that. First of all, the ones that had a vanity 800-number got my business and the ones that didn’t were completely not in the running at all. And most of the advertisement that I would hear with the 800-numbers were on the radio and you can’t scribble down when you’re driving 800-679-4321, but you can remember 1-800-Thank You or something like that.

Chris: Yeah.

Rick: So, anyway, fast forward to 1993. In 1993, you were allowed to get your own vanity 800-numbers. You can actually call AT&T or MCI or Sprint or whoever and you can say, “Is such and such number available?” and they would look it up. And if it was, you can get it hooked up. And you’d sit there and it was like domain-hunting, except you were trying to figure out combinations on the keypad [UNCLEAR 2:51] spell things. And there was even software at that time that you can punch in a number and all these different type of letters would pop up and you can figure out how to spell a word. So I ended up getting my company name which is the reason that I wanted it. But besides that, I ended up with about 350 other ones. And besides the hotels that had it, you call 1-800-Motorola, they would have it. All the big companies, Toshiba, every big company had their vanity 800-number. And it was just very interesting and that was the exact parallel that led me into the domain names. The only thing that I’ll add to that is that when I call – if I would call a dirty phone number, there would always be a sexy chick that would pick up the phone and ask for $4.95 a minute. And so, eventually, I kind of took a turn there because I said, okay, there must be something and that’s what really started to originally generate a monthly recurring income was numbers which I still have today that still earn income, 1-800-Make Out, 1-800-Sir Love, 1-800-For My Tits, all kinds of things like that and they’ve been earning revenue for me since, what, for 16 or 17, 18 years now. But there was an exact parallel when domain names arrived on the scene and I was a little bit late on them because – or just months before I gotten into domain names, they were free. And then when I got in, they were $100 a pop so every one that you registered was $100 bill, each and every one of them. That was a pretty expensive game, a very expensive gamble.

Chris: Yeah, so I guess then – and that’s a cool story, too, just kind of showing how the 800-number isn’t kind of recognized and that that’s kind of their virtual property on the phone lines and then driving that, using that parallel to the internet in that having property in the form of domain names would be also valuable. So is that really kind of the line of thinking that you thought? You saw that these companies all have their own company names for their 800-numbers and you thought that when people started to have more computers and there’s more internet access that people are going to need these domain names. Is that kind of your line of thinking and…?

Rick: Well, basically, I mean the only one at that time really using a domain name to advertise I think was CNN and it was all CNN.com. I think I probably heard of CNN.com one or two years before I even got online or went on the internet. And most of the techies of that day it wasn’t about a domain name. They thought I was a moron for buying domain names. They were about the links to 195.68.913.6 and every time I would ask them how they – well, how do you advertise that on the radio or something or on TV so people remember? They say, “This is the internet. Everyone there’s a link” so I – so there was huge disconnect between myself and a techie because I kind of understand how the consumer marketplace works and they kind of just understand what’s under the hood. And you know what, I really didn’t care what was under the hood, it didn’t matter to me. It’s kind of like an automatic transmission. All I want to do is put it in drive and go. I really don’t want to know about the gear shift box unless I’m racing.

Chris: Yeah. Yeah, no, that’s definitely something that – I know you mentioned on a previous blog post about – because I’ve read your blog and seen some of the history and kind of where you got started. So after the 800-numbers, when was the first name that you actually did buy? Was is 1995 or was it a little bit after that or…?

Rick: It was the day after Christmas 1995 and I wanted to hook up some of my – I wanted to advertise some of my 800-numbers. I want to see – I said, well, you know, I don’t know much about the internet and this was a good way to test it. So when I called up this ISP, he said, “Well, the first thing you need is a domain name.” I said, “Well, what’s that?” And he says, “Well, that’s the name that, you know, make up a name and, you know.” Anyway, I was basically caught off-guard and I thought for like 10 seconds and I thought about the 800-numbers I was advertising and I said, “Well, how about like lipservice.com?” So, okay, he did that and he registered. I didn’t register, I didn’t know how register at that point. So he registered lipservice.com and a few days later, I had a site with my 800-number banners on it. And after 30 days, they – I think it was $39.95 a month and after the first 30 days, I made like $50 or $60 because I put numbers on there that were getting zero calls so I knew if I was getting any traffic or making any money, that it was definitely coming from the internet. So after the first 30 days, okay, I made $60, it cost me $40, okay, there’s life here. There’s something here. There’s something I need to explore. And then like two days later, they pulled the plug because the guy that hooked me up then went and told his buddy that, “Oh, by the way, he’s advertising adult 800-numbers.” So that lasted exactly 32 days. So that was the next hurdle. Then I had to go and find someone that would let me put my page up and have adult numbers. So I found a guy somewhere and he hooked me up and I was back in business.

Chris: Okay. And so then – and I know, too, just from seeing some of the names in your portfolio then so did you – when did you start to transition into other domain niches then? When did you think, okay, let’s just buy these as potential property to resell later?

Rick: Well, I didn’t buy my second domain at least the spring – I would say the spring of ’96. So I didn’t buy any domains between December of ’95 and the spring around May of ’96, I would say, and that’s when my brother got me a couple of domain names that matched my company names and so we got me those. And then I started thinking, geez, maybe I should get a domain name to match one of the 800-numbers so I called my brother and can you register me makeout.com and can you – and then I’d think of another one and sir love, can you register sirlove.com and – anyway, after about a month of pestering him, he said, look, he sends me the URL or whatever, he says, “Here’s the place you can go and you can do it yourself.” And then I was like a pig in shit. I mean that was a great day. So then I just sat there and I started thinking of combinations and I realized with phone – with the 800-numbers, you aren’t limited to seven letters. But it was really better to have three-digit word and the four-digit word so people wouldn’t be confused and it was easy to translate and transcribe and that was the gold standard, three and four, like “the success,” whatever, it was like “the card.” American Express had “the card” so that was the gold standard in those days. But with domain names, geez, you can have it as long as you wanted and that basically, again, head-to-head with the techies, they said, well, domains have to be short or they have no value. And I said, no, they have to mean something and that transcends whether they’re short or they’re long. They just have to mean something and they have to be valuable. So one of my very first domain purchases outside of registering a few was actually whorehouse.com because if I had all these adult 800-numbers, well, I guess I need a whorehouse for them. So I bought that I think for $5,000 and if I’m not mistaken, Ari Goldberger was actually the lawyer involved in that transaction with another early, early domainer.

Chris: Oh, okay. So then what was the first name that you ended up selling that I know some – it sound like you’re registering – as soon as you had the access to register your own domain name, you started registering any and all possible word combinations you could think of that had meaning. So then do people start to just contact you randomly and that’s when you say, I’m going to just start really scaling this up and buying more domain names?

Rick: Well, no, I wasn’t buying domain names to sell them. I mean I knew I had a sellable asset and I realized in time it can only go up in value and it would only go up in value. But I was buying them for the same reason I got the vanity 800-numbers. I guess I forgot to mention that the vanity 800-numbers came with what we call now type-in traffic, except in those days, it was people surfing on the phone lines on the 800-numbers and people would actually surf and spell words and spell dirty words and that was the type-in traffic of those days. So what I was trying to do was trying to target domain names that I believe would have type-in traffic and that’s what I did. Now, I wasn’t William Tell at the beginning. I didn’t exactly score homeruns. But in time, I started realizing more and more what people on the internet were surfing for and little by little, I homed in on these domain names. I bought ass.com, A-S-S.com, for $1,250 from a guy in Germany and that came with $3,000 visitors every single day since then, before then, after then. Goes up sometimes a little bit, but you can set your watch that there’s going to be between 3,000 and 3,500 a day type in ass.com. Now as far as selling domains, I wasn’t actively trying to sell domains. Some people would try – they contact me and of course offer me ridiculously low numbers and I would just either learn not to answer the emails or just try to explain it to them. That didn’t usually end up very well. But my first domain sale that I think – I’m not even sure but I believe it was escore.com and that was to Kaplan Educational Services in New York City. So they came and I bought that three years before for $100 and to turn it into $100,000, to me it wasn’t the sale, it was the fact that now I had proof. Before, everything I had said about the value of domains was theory and anyone can talk out of their ass and make a prediction or a theory. But not I have, actually, evidence of it and I mean it was covered by the New York Times even, that sale, it generated quite a bit of interest. So I was able to build on that. That was my first little building block to be able to build on to show people that domains really do have value and how much value they do have and how quickly the ascent in value is.

Chris: Yeah. So I mean I guess part of doing that for sale was your way of, too, just trying, maybe even just try and show other people that might contact you and say, look, I sold this name before for $100,000, did that kind of help in trying to get buyers more focused on seeing the actual value that was there? Did it help you like lead to getting better prices for your names or people coming up with more realistic offers? I assume you probably still get emails every day from people offering you $500 for a great domain name or something.

Rick: $500, sometimes less than that. You know it’s like I said, my motive was never selling domain names. I knew that would come in time. It’s like buying notion from land, you want to build stuff, you have dreams of doing this on it, doing that on it. And when you’re all done doing whatever you want to do on it, then you can kind of take stock of what’s going on and reassess the landscape and see if anyone else opened up around you and that’s what was going to create the value, not me doing anything. My job was just to be patient and let it develop and let people come and build it because it was a desert on the oceanfront at that point. But I know people would like the oceanfront and eventually you’ll come and you’ll build on the oceanfront. That’s where the people have gravitated to.

Chris: So I know you mentioned that it was in 1998 and that’s kind of getting closer to the time when the tech stock market particularly started crashing late ’90s and early 2000s. Is that when you found – were you buying more names then or what did you do during that time of tumultuous stock market with the tech space specifically?

Rick: I don’t think I paid much attention to it. I was in a frenzy to buy domain names. I couldn’t buy them fast enough. I mean to give you an idea, let’s see, ’97, okay, so ’99, 2000, I’m still pretty actively buying domain names at that point. I mean I’m buying anything that has traffic. Anything that I – it’s an equation at that point. The payouts were such – I mean this is before pay-per-click but the payouts and what I focused on was adult domains because there was no mainstream. There was no way to make a living or earning in mainstream in 1997, 1998, 1999. That’s basically when it just started to become a mainstream, but mainstream was so many years behind adults that it was just a desert. Everyone was just starving to death. So what I would do is I would buy the adult domains to make money from. And then the money that I would make from them, I would buy the mainstream domains that I knew would be much more valuable in the future, that I knew was a much bigger snowball than anything that the adult world could ever even dream about. But there was no mainstream. It was going to take 10 to 20 years for a mainstream to develop and evolve and flourish. And as you’ve seen, look, we’ve had a couple or three crashes along the way and to me, that’s just part of the territory. It’s like the market going down today. It doesn’t really mean anything. As long as the market is moving, you make money. The only time you don’t make money is when the market doesn’t move. So if the market goes up, it doesn’t matter. It goes down, it doesn’t matter. As long as it’s moving and the bigger the gyrations, the more money you make.

Chris: Yeah.

Rick: So it all translates to the internet as well.

Chris: Okay. So I know, we’re kind of getting closer to the future here and I also want to kind of try and bring this back and apply it towards some of our listeners that obviously most likely didn’t – weren’t buying domain names around the time that you were, but where do you see the future of these domains? Do you see – are you pretty bullish on the future that domains are just going to continue making more and more money? Are there different extensions that you think are going to be better for you to buy or worse for them to buy?

Rick: Well, I think like anything else in life, there’s always a shakeout. So we could all say we’ve been down in the mines, digging and getting some gems, some rocks, some gold, some diamonds, whatever. We’re kind of coming up to the surface now and I think most people, after 15 or 20 years, you start to learn what works, what doesn’t work, what has a value, what doesn’t have a value, where the net is going. And you start to go through your portfolios and inventory and you get rid of the stuff that isn’t going to go anywhere because maybe a hunch wasn’t right, you know what I mean? That’s what happens. You have hunches. Sometimes they pan out, sometimes they don’t. Just like golds. You put a lot of dirt in the pan to get the little bits of gold. So at the end of the day, you sit back, you cull through what you have, you get rid of the garbage, you keep what you have that’s good where it’s going, and those domains are going to go up for as long as I’m breathing and probably well beyond because they’re all places, they’re all addresses, they’re all TV stations, they’re all content, they’re all whatever you want it to be. It’s a nation in this little computer that we have here. And there’ll be things that come along in the future that are going to only enhance the experience of the internet, whether it be virtual experiences or 3D or a marriage of both. So I think we are long, long – we haven’t even started getting to true values of the domain names. Until they start taking the value of what it costs to run a business in the real world and apply it to a domain name, we’re far from it.

Chris: Okay. What’s promising I guess for anyone who is looking to try and get more into domain names? I mean I know that hand registering domain names you can still occasionally find some decent names to hand register. It’s more and more difficult. But you think if someone – if people, lots of people who are listening here, they might have seen that people are making money with domain names and they might be interested in trying to do the same thing. Do you think it’s more for them the advice would be to buy names based on different types of trends that they might be seeing from domains? Or is it if they already own the names so maybe a few thousand dollars here or there and then hoping to sell it for a lot more money down the line? It’s sort of like with cloud domains. I know that was something that was recently popular with all the different cloud computing companies coming out. Is that kind of the advice you might give or what would say to someone kind of getting started with domains?

Rick: Well, I don’t follow yesterday, okay? I don’t chase yesterday. I chase tomorrow. So there’s only one good cloud domain. I mean it’s cloud.com or maybe it’s icloud. There’s a few. There’s a dozen. There aren’t thousands. So to put a portfolio together of strictly cloud domains I mean, look, if you just want to sell them off, I guess there could be a market for it. Most of the domains that I buy I mean I have some kind of a business idea in the back of my mind or I think that it’s going to bring people together at some point because a lot – I mean look, if you will maybe had occupywallstreet.com right now, you may be getting a lot of traffic on that site. So I mean there’s ways to take relevant things that are happening and trying to just be a little bit ahead. You only have to be a few minutes ahead. Most of the domains I lost in my life were by seconds. Not by minutes, days, hours. Seconds! And a lot of these things, if you have your ear to the ground and you hear a new term, it’s a gamble but it’s an educated risk. And the other thing is buy great domain names. You don’t have to have a lot of money to buy a great domain name. I mean it just blows me away that people are brainwashed to believe they need a lot of money to buy a great domain name. That’s just not true. I mean you have to know what constitutes a legitimate, good domain name to begin with. It’s about nouns, verbs, and adjectives. And no matter how many times I say it, people do not believe it. Nouns, verbs, and adjectives.

Chris: Oh, that’s good advice. And part of the reason, too, why I wanted you to come on is because of your experience with domain names back when it pretty much first started and then also, too, just moving toward into the future to see what you think web people can be doing the best. So that’s good advice. So then do you think that’s probably the biggest mistake that most people make when they’re getting domains, is that they’re still kind of following this old mentality of needing to spend thousands and thousands of dollars to buy domain names and get started and they’re not thinking about looking at future trends or looking at what people are more interested in, new terms and stuff like that?

Rick: Well, the first thing is don’t go out and buy a thousand domain names. There’s no reason to do that. A thousand domain names are going to cost you at least $8,000 a year, okay? Over 10 years, that’s $80,000 and you may have a bunch of pigeon shit that’s worthless. So the key is if you know you’re going to have $80,000 expenditure in the next 10 years, go buy an $80,000 domain name. If you know you’re going to spend $80,000 in the next year, buy an $8,000 domain name, buy an $800 domain name. I see domains every single day for $200, $500, $1,000, $5,000, $10,000 that are really good domain names. Look, I can’t buy everything in the world. I mean there’s a point where, okay, look, I got enough for a lifetime or two or three lifetimes, you can’t buy everything. But I see stuff every single day that that I can – with a few thousand dollars, I could build a nice little portfolio, but you can’t buy your domain today and want to flip it in five seconds. That dog doesn’t hunt well. I mean not that people don’t do it, but it isn’t my recipe to make the most amount of money. You got to have a little bit more patience than that. And I know people don’t want to hear about type-in traffic, but let me you something, it is about type-in traffic regardless of what these bozos want you to believe. If out of 7 billion people, not one single person can type in your dot.com, then you got zip-o, man. I’m telling you, 7 billion people, not one person today, tomorrow, next month, next year types it in, that means no one else is thinking like you. And if no one else is thinking like you, you’re not going to make any money because your job is to think like them! I mean that’s the bottom line. You have to think like them. And the ultimate proof that you are thinking like them, is you have a domain that has some type-in traffic. It doesn’t have to have a lot. But it has to have one. There’s got to be one other moron in the world that thinks like me or thinks like you. If there isn’t, then it’s time maybe to abandon that ship. I mean if you’ve gone through a year and you’ve never had any traffic, that means there ain’t nothin’ there, man. I mean maybe there’ll be something someday, depending on what you do. I don’t want to talk anyone out of getting rid of their domain names. I have plenty of domain names that have no traffic, but I have a reason for owning those domain names.

Chris: You know that’s good advice. I know that when I first got started, I was buying domain names and hand registering them, but I was doing things like when ending with an “s” I use a “z” because the “s” wasn’t taken so I was a real beginning and made some pretty dumb mistakes. People obviously they wouldn’t be typing in to those types of domain names. I know you kind of mentioned being able to get more money for selling the domain names. So what would you – where are you finding places to sell the most domain names for? I mean I’ve done some through forums and through other types of newsletters and all that. But where would you – where do you find the most success with selling your names?

Rick: WHOIS. I mean, really, at the end of the day, it’s about WHOIS. I mean I don’t know why anyone in the world would want to have privacy on their domains. The number one avenue to sell your domain names is having your information readily available in WHOIS. It’s that simple.

Chris: Okay. So I know most of the names you have are pretty high quality so you’re getting just a lot more who are contacting you by not having privacy on your domain names when you’re trying to actively sell the domain names or I know you run…

Rick: I don’t actively try to sell domain names.

Chris: Okay.

Rick: I passively sell domain names.

Chris: So, then, that’s good advice, too. I mean if you’re going to start to try and get into domain names, then, yeah, not putting privacy on will probably save you a few dollars depending on what register you get your names from and also, too, you’re going to be able to get people that might potentially be contacting you to buy them.

Rick: It’s the number one avenue. I mean why would anyone in the world want to close off the number one avenue? It’s like your number one billboard and these guys close it off and they spend money doing it. I mean, geez, I don’t get it. I mean if you’re trying to sell a domain name, why would you close your front door?

Chris: Yeah. You know as I’m listening to the things that you said and kind of reflecting back on other podcasts I’ve had, I think you’ve had some of the best sound bites and just applicable advice of almost anyone else I’ve talked to before.

Rick: Well, thank you. Thank you.

Chris: Yeah, I know you run and we’re kind of getting closer to the end of our conversation here, but I know you run or help run the traffic auction series. What was your kind of motivation to run that in the first place? Was it just try and provide an avenue to help illustrate the value of domain names by showing people – showing them selling for more money and then that might help, in turn, increase the price of the domains you owned? Or was it just something to do?

Rick: Well, actually, it was just something to add some value to the first traffic and second traffic shows, a little entertainment. We just have ideas and have the platform to try those ideas out and that’s where it started. We just had an idea and we did it and the people liked it. I’ll tell you the moment that it actually worked was in Del Ray in 2005 and I was sitting in the audience next to Monte and we had – Joel Langhorne was our auctioneer. He was our first auctioneer. And it was probably about the fourth or fifth domain in the auction, third domain, I’m not sure. It was early on in the auction and I was trying to get a bid and no one was bidding and finally someone bids a few dollars and he says, “Thank you, Mr. Rockefeller.” And at that moment, everyone just broke out laughing. Everyone started applauding and it broke the ice. And after that, we had an auction. It relaxed the people, it was just a moment of levity that created something and then we built on it. I mean we saw what happened. I looked at Monte. I said, “We got lighting in a bottle here” and that was my exact quote to him. “We have lighting in a bottle here.” When I saw that joke and the reaction and then what happened, the result afterwards, I knew we had lightning in a bottle. And that allowed us to do many auctions and we’ve sold tens of millions of domains at our live auctions and the numbers today are different from what they were back then. But guess what, back then no one ever saw a live auction before, no one ever saw a domain auction like that before. All of a sudden, I mean, it’s 24/7 now. How many auctions are going on right now? You couldn’t even count them, there’s so many auctions. You couldn’t list them all right now. So it’s a completely different environment.

Chris: Cool. And I will have to link to that to just the people that are curious about the traffic auction and that conference, too. So I’ll link to that in the blog post or the podcast just hosted but where’s the best place for people to follow along with what you’re up to?

Rick: Well, I kind of operate out of ricksblog.com and targetedtraffic.com is for the tradeshow but I make my blog post not on a daily basis. I’ve had the blog for, what, four and a half years and I’ve made about 650 posts so I average about one post every two or three days and sometimes I can go weeks without making a post. But if I think I have something to say or contribute or if I just want to get a little provocative to kind of mix it up and throw around ideas, I’ll make a post. In the last couple of days I’ve had quite a few posts so that’s it.

Chris: Alright. I’m so glad you’re able to come on and talk to us and give some advice for some strategies for domain names. It’s, as I’ve said before, great sound bites, really good advice and actionable advice for businesses. So thanks again for coming on.

Rick: Thanks, Chris. Thanks for having me and I hope your listeners find some value and it’s the greatest business on earth.

Chris: Alright. Well, thanks again, Rick.

Rick: Thank you, Chris.

Chris: And that was Podcast 9. Thanks again for listening and be sure to check out MakeMoneyOnTheInternet.com to get more actionable advice and tips and strategies to help improve and grow your online business. Thanks again.