by Dana Blankenhorn
Volume V, No. XVIII
For the Week of May 7, 2001

This Week's Clue: Scandal of the Year

This Week's Clue: Scandal of the Year

SSP (Shameless Self Promotion)

SP (Shameless Promotion)

Cash Flow Blues 

Porn Crackdown Coming

Bell Power Grab

Clued-in, Clueless

The biggest financial scandal of 2001 is the abuse of the domain name system by registrars.

How would you feel if Ticketmaster were quietly grabbing all the tickets to top concerts, then launching a companion ticket scalping site? How would you feel if Morgan Stanley only sold part of an IPO, holding out the rest until the price went up in order to make a quick killing? 

These are obvious conflicts of interest. When a market maker creates artificial scarcity, then attempts to profit from that scarcity, we hammer them hard. So why was Verisign applauded last week when it announced record profits?

Verisign owns Network Solutions, the largest Internet registrar and holder of the .com registration database for most of the rest of the decade. Verisign also owns Great Domains, the world's largest "scalper" (excuse me, "after-market") for domain names. 

Versign knows from its Web logs when people ask about acquiring domain names, and it knows from its own financial records when domains are about to expire. It can grab expiring names or pre-register them. (A notice on its home page linked to Great Domains says "pre-registered domain names for sale.") It has every incentive to do this - does anyone seriously think it's not doing this?

Network Solutions isn't the only outfit playing this game. Register.Com owns Afternic  - Great Domains' main rival. 

Thanks to the dot bomb the "scalped" value of domain names has plummeted, as CyberAtlas recently revealed . But it has not yet fallen anywhere near zero, and that's just about what registration costs. Great Domains and Afternic have responded to this market collapse by putting names "on sale" - but not at their original price ($35/year) - no they're still guaranteeing themselves profits. (Afternic even times a pop-up window for its "discount bin" that makes the whole site look like it's selling porn.) 

There are also "entrepreneurs" playing this game, like Mark Duane of Kenosha, Wisconsin. Duane owns a site called Dumbceo.com  and he's a talented programmer. He likes to scarf up used domains that their owners fail to renew for some reason, hold them for ransom - then laugh at both the victims and the registrars, claiming to be some sort of Robin Hood.

I've got some bad news for Mr. Hood. When this scandal is discovered he's the one heading for jail, not Stratton Sclavos . Life isn't fair.

How will this scandal be uncovered? Here's a Clue. I recently did a story on a consortium or joint venture (they're not sure themselves what to call it) being developed among three major ad agencies to automate the process by which ads are bought and sold. (Right now the business isn't even processed by 20th century rules - more like late 19th century rules.) What's the name of this new company, I asked? I don't have one the CEO answered. I can't find one with an available URL. Once he figures out why, and once other powerful CEOs figure why they can't get names for their new companies, then we'll get a call to action and the crackdown will begin. 

What can you do about this? Call them on it now, and make sure that call comes from people who are ready to dump on big businesses, not just make an example of entrepreneurs who go over some undefined line. 

SSP (Shameless Self-Promotion)

Boardwatch  has launched its newsletter under my byline called ISP Executive. Check it out. I'm also doing a series of features this month for Advertising Age on new media technologies, for publication in June. If you want to be interviewed for it give me a call.

Join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive. You can also read me daily at ClickZ , monthly at B2B, and Boardwatch, and once every two weeks at Internet Content. (More deals are being negotiated as this is written, so call me at 404-373-7634 to get in on it.) Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

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Takes on the News

Cash Flow Blues

This is the cruelest part of the economic cycle. Everyone in the space is wounded, and here come the vultures, filled with cash from other ventures, ready to swallow everyone for a song. Mr. Potter's at the door, and there's no Bailey Building & Loan to save us.

Wall Street is especially hopeful over word Barry Diller plans to spend $1 billion this year taking out Internet companies . They've given him a great reputation for running them, even though HSN.Com and CitySearch would be as dead as Kozmo if they were stand-alone enterprises. But the fact is that cable and TV networks always generate cash flow. While that cash flow falls in a recession, it doesn't fall to zero. So Diller has money to spend.

Microsoft has the same situation. Windows and Office are growing more slowly than before, but there's still plenty of money around. So they branded Qwest (formerly US West's) DSL with MSN's name and grabbed CNBC from NBC.

E*Trade has gotten the Clue - use profits from elsewhere to hide online investments that can now pay off. That's why it is moving to become a "finance portal" (not just a day trader site) and hired a CNN pretty boy as its public face . But should Morgan Stanley own Dow Jones - I don't think so.

Porn Crackdown Coming

Here's a prediction with a gilt-edged guarantee. The Bush Administration will launch a major offensive against online porn within six months.

The word has quietly gone out to "legitimate" Internet businesses to get out of support for dirty pictures. Both Yahoo and Primedia have abandoned profitable operations in this area in recent weeks, both claiming the profits weren't material to their business models. (Yeah, sure.)

The fact is that obscenity has long been an exception to the First Amendment (carved out by the courts, not the founders) and that obscenity is always in the eye of the beholder. Change the name of the beholder and the "free speech rights" of dirty pictures vanish - especially if the only people left in the market can be branded as "pornographers." Well, we've got a new eye (John Ashcroft was a major anti-porn figure in the Senate), one that badly wants to be on this list .

But before trying to kill a multi-billion dollar industry you want to avoid friendly fire. Thus the quiet warnings to folks like Yahoo. This will be followed by a PR offensive branding anyone who is in the trade as evil (the magic phrase is child porn). Plenty of people (not just on the hard right) will eat it up. It's also true that the U.S. dominates this market today, and no large country is likely to stand up to a crackdown by welcoming it. (If it goes to Antigua, for instance, the crackdown on online gambling becomes easier to justify, and Antigua doesn't have the power to resist a complete break in online relations.)

Of course the only real result will be pricier porn of poorer quality. As we've found with cocaine and "gaming" you can't beat the market. Crackdowns are just wasted taxes.

Bell Power Grab

With the arrival of GOP control the Bells have decided to brazenly demand not just a monopoly on broadband Internet access but a subsidized one at that.

This is precisely what Rep. Bill Tauzin's "Internet Freedom and Broadband Deployment" bill, now sailing through the U.S. House, would provide. It would subsidize broadband in rural areas and give the Bell companies monopoly power over those upgraded lines. It would also extend that monopoly into the cities, by lifting restrictions on the Bells' use of DSL for phone service and eliminating the requirement that such lines be wholesaled to rivals.

In an Administration sponsoring the most brazen power grabs on behalf of politically-connected businesses since the days of "Big Jim" Fisk (who didn't even get played by Cary Grant in the movie ) this bill takes the prize. Competing local carriers are already flat on their backs, and under this the Bells can not only kill them off but win billions in subsidies while they do it.

I've been heartily criticized by many readers lately for supposed left-wing bias, but let me make something clear. I favor the market and free competition. This Administration is proving it likes competition about as much as Vladimir Putin likes a free press.

Clued-in, Clueless

Clued-in is Secureexam, which has found a way to let people take tests online without allowing cheating .

Clueless was Yahoo , which banned reporters from its annual meeting, thus guaranteeing that would become a major story. (The rumor, by the way, is they're selling out to Vivendi Universal.)

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