The Web site http://www.flashgames.com has no staff, spends no money on marketing its name, and offers no games. All it offers is a list of links to other game sites. Yet it earns revenue of more than $150,000 a year selling online ads. Flashgames.com is just one of thousands of Web sites that are cashing in on the online advertising boom in an unusual way—by piggybacking on the ad-sales efforts of giant search engines Google Inc. and Yahoo! Inc.

These sites’ ability to make lots of money for little investment is now attracting attention from big players. A group of investors led by former MySpace.com chairman Richard Rosenblatt has raised $120 million from investors to build a new company, Demand Media Inc., centered on generic domain names like these.   The   venture   has   already   acquired 150,000 domain names—including flash games. com—and plans to aggressively acquire more. Conscious of the limitations of these barebones sites, it plans to add some low-cost content in hopes of making the business even stronger.  “We will be taking billboards and turning them into content Web sites,” says Rosenblatt.

Sites like flashgames.com used to be considered “cybersquatting,” a long-standing Internet tactic where entrepreneurs register domain names associated with a particular subject or company and then sell the name for a quick profit. These new generation sites go a little further, reaping ad revenue. Demand Media says it will not buy trademarked domain names.

Owned until recently by two Australian entrepreneurs, flashgames.com draws people— about 250,000 per month—looking for a Web-based game   that uses flash-animation technology. The links that the would-be gamers find on flashgames.com are actually paid ads placed by Google or Yahoo!, both of which sprinkle ad links all over the Web, paying the host sites a cut of the revenue they receive when anyone clicks on one of their links. When some- one finds flashgmes.com and then clicks on a link to another games site, flashgames.com gets paid.

Analysts estimate these types of sites, known as “domain parking,” generate about 5 percent to 10 percent of search-engine revenue, putting the industry’s annual revenue at about $600 million. “The profit margins are extraordinary,” says RBC Capital Markets’ Jordan Rohan. He predicts industry revenue could double to $1.2 billion in three years.

Given the sites’ merger offerings, some in the industry worry that these domains may not

have staying power. Even finding one of these sites is a matter of luck. Web surfers must type its full name into the address line of a Web browser, although some browsers automatically add a dot-com to the end of something they type. Most parked domains don’t generate enough traffic to show up at the top of search engine rankings.

“This is grandma-type navigation,” says Matt Bentley, chief strategy officer of Sedo.com LLC, a domain-name parking business. “It’s probably not currently being done by a lot of sophisticated people.”

A critic of the domain-game business commented, “How crazy has the world become? A handful of people are getting rich when people with poor Internet search skills type into their browser, phrases like dogfood.com, helpwitharthritis.com, asthmahelp.com, and carloan.com. What really drives me up the wall is that somebody is getting a cut when a person enters alzheimersdisease.com into the browser.”

Discussion Questions

1. What is your evaluation of the ethics of domain-name companies earning commissions

when people insert ordinary names into their Internet browser?

2. What about the ethics of Google and Yahoo! becoming involved by paying ad revenues to

the domain-name companies?

3. What possible links are there between DomainName companies and click fraud? (Click fraud occurs when someone clicks on an online ad multiple times, perhaps with a robot, in order

to receive pay-per-click commissions from a bigger and better-known Web site.)

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