The Big Business Of Domain Buying/Monetization Fraud Exposed

This article goes over the fraud filled insutry of domains and the two loopholes that companies have been using to make hundreds of millions of dollars.
Do you want to know why every domain you are looking for is taken and parked with a bunch of PPC ads? Yes, maybe because someone thought of it before you and legitimately wants to build something out of it. But, most likely it was purchased by a mass-domain buying application that some of the top domain squatting/monetization companies in the country have been using for the last decade. I personally know one of these companies, and they have been making a killing on the first loophole that just ended today. What’s the loophole? It’s called the Add Grace Period (aka Domain Tasting), which lets registrars return the name they just bought within 5 days for a full refund. This one company in particular I am close to disclosed to me they have been consistently buying 250,000 domains a day for the past 5 years, holding onto whatever seems like it could be worth something or sounds legitimate and returning anything else that doesn’t fit (they keep about 0.5-1%). The return policy was originally Designed by ICANN to help registrars who made errors in their domain names. Convieniently, the grace period refund was not monitored for bulk buyers, which led to the unavailability of popular names.
Yesterday, ICANN won a major battle over the abusive tactic of domain tasting. In its report, ICANN used the following example to illustrate the policy change: Someone registers 1,000 domain names and gets rid of 300 of them during the grace period. Under the policy, the registrar is allowed up to 70 deletions. The remaining 230 cost 20 cents each for a total of $46. Plus, each excessive deletion costs the registrar at least $6.75. Dumping 230 domain names rings up a bill of $1,552.50 for a grand total of $1,598.50. ICANN said the new policy resulted in a 99.7 percent decrease in domain deletions from June 2008 to April 2009.
So big deal, some companies are out there owning a ton of useless domain names and possibly some popular ones, right? Well, there are two huge problems here. One, because of ICANN’s stupidity, any worthwhile domain is definitely gone and the market for domain buying/selling is only going to get crazier in the future (Toys.com was recently sold for $5.1M). That is inevitable. But, the companies who took advantage of this loophole are pulling in obsene profits off of the bank of domains they have built up in the last decade. Not only have they bought and sold many of them, but there is another scam out there that has yet to surface, making them godly amounts. It’s called Mass Domain Monetization. Either these bulk domain buyers have their own domain monetization company (which sells and displays ads across a network of inactive domains), or they are in bed with one of the other major ones such as Parked.com, DomainSponsor.com, Google (as of recent) and many more. This ‘company’ I keep referring to that I am close to says that they are profitable on EVERY domain they have in their database. This is the same company I said was buying 250,000 domains a day for 5 years and keeping 0.5-1% every day (lets be liberal and say they maintain between 1.5-2 million domain names that are parked with ads). How can you be profitable on every domain with just PPC ads and nothing else on the site? Well, they are using a really smart tactic, which is to take advantage of the fact that domain monetization companies such as Google will not pay attention to a few ad clicks a day by a unique IP address as long as it looks legitimate and the site is making a very small amount of money. This ‘company’ told me they run bots they have perfected to go through each domain they own with a unique IP and generate between 2-4 clicks a day on the ads. “Google themselves have said they can’t monitor such minor click fraud and they have acknowledged they know it’s going on” says this particular company.
Now let’s do the math. If the bots click 1-2 ads a day, that’s generating around on average $0.12 per domain a day. Multiply that by the 2 million domains being monetized in their catalog. That’s $240,000 per day. Is someone going to stop this? Google or other parked domain monetizers won’t. Who’s going to take the time to ban sites that are generating $0.12 cents a day or less in ad revenue, especially when there isn’t a repeat IP address to recognize in the first place? The cost associated with sorting through hundreds of millions of domains making a little ad revenue would take forever, and wouldn’t be worth their time. Not to mention, if they turn their backs on it, it makes them a nice chunk of change too.

Tagged as: domain, domain buying, fraud, ICANN, tasting