Recent news and developments are a reminder that we walk among Giants — and by this I do not mean the World Series Champion San Francisco Giants. I am talking about corporate behemoths like Amazon, Apple, Google, and Microsoft whose treasuries are overflowing with cash and who are systematically reinforcing market dominance through a combination of methods. And now, as expected, the biggest giant of them all, the US Federal Reserve has added fuel to the monetary fire through a massive round of monetization. How should internet entrepreneurs respond?
But first – a word on Google
As has been extensively covered in the Domain industry blogosphere, a minority percentage of Epik Product Portals were removed from Google’s index 2 weeks ago. Since that time, daily network traffic and revenues have fully recovered to their prior levels. Although there is still work to be done, sites are being re-indexed — even with better rankings. Nevertheless, the de-indexing incident was a reminder of the degree to which many people in our industry believe that Google IS the Internet.
Although I disagree with the broad characterization of Google as “judge, jury and arbiter” about the merits of a site, I do agree that Developers have to take into consideration that if a business model has a primary long-term dependence on organic traffic from Google, this does come at a cost. That cost can be measured in the form of compliance with Google’s Terms of Service, and/or can be measured in the form of investment in development of organic content and authoritative links.
Search remains a significant source of traffic. That said, we have always viewed search volumes and CPC prices as a useful indicator of a site’s potential rather than viewing traffic from search as being the end unto itself. By developing on keyword domains, we are giving consumers what they want and delivering it on a domain that is easy to remember. I believe the merits of this development strategy are 100% in tact, with or without an abundance of Google traffic — which we thankfully still have and appreciate.
I would like to think the Epik Developer network for their enthusiastic support. This is a very unique group of individuals. We kept the Developer network closely apprised about our findings, action plans and progress. Rather than blog, I chose to do this entirely via email and phone. I am very pleased with the progress made and know that we did right by our Developers. The Product Portal platform is stronger than ever and will continue to actively improved in parallel to the rollout of full eCommerce.
We walk among Giants
The Google incident caused me to step back and take a macro view of our strategy and operating environment. This happened to overlap with a planned 2 day visit last week to our Sandpoint, Idaho operations center for the purposes of working on the 2011 operating strategy and plan. Although setbacks are never good, it helps when they occur right before key planning milestones. So, here is the bottom line: in spite of very rapid growth, Epik — and indeed the entire Domain industry — is still small relative to the Giants that dominate the Internet economy. A few more illustrative examples:
- The news this week of Diapers.com parent company, Quidsi, being acquired for $540 million, is illustrative of the alchemy of great strategy, solid execution and a category-defining domain name. What was not broadly reported is that Amazon allegedly undercut Diapers.com via a price war that ultimately served to bomb Quidsi to the bargaining table. I for one believe that Quidsi, in time, like Zappos before it, would have been a material threat to Amazon.
- Apple Computer, Microsoft and Google are swimming in cash with liquidity hoards, of $51 billion, $44 billion and $33 billion respectively. These are enormous sums, particularly when compared to something as small as the Domain industry. These are also enormous sum in terms of the implied ability to acquire small operating companies that represent a future threat to these would-be monopolists.
- Yet, as impressive as these balance sheets are, these companies store the vast majority of their wealth in the form of a currency that is being rapidly debased by the US Federal Reserve, who, as predicted, launched QE2, the next phase of central bank monetization. The official number of $600 billion is just another tranche of money-for-nothing that are systematically debasing the world’s main reserve currency. That is more than all of the profits of the Fortune 500 — combined. Gotcha!
The Implications for Domain Investors and Internet Entrepreneurs
So, what does this mean for Domain Investors and Internet Entrepreneurs? Since I have been right about a number of other predictions over the past year, I will offer two more:
- Here comes the next wave of Corporate M&A: The single biggest issue for US monetary policy has been the absence of monetary velocity. In response, I believe the Fed has decided to play chicken with anyone that chooses to keep idle cash on the sidelines. Commodity prices are telegraphing in no uncertain terms: inflation is here. Whether or not that translates into hyperinflation is subject of debate. There are plenty of smart people that still believe that the Fed can put the inflation genie back in the bottle before it is too late. In the meantime, the message from the Federal Reserve is very clear to holders of cash: use it or lose it. I expect corporate executive teams will have a mandate to put their warchests to work – ASAP. The near-term result will almost certainly be that the Giants will become more giant.
- The Dollar as reserve currency is toast: Whether by design or by incompetence, The Federal Reserve has crossed the Rubicon. The Federal Reserve’s mandate is to preserve the integrity of the currency yet is now openly debasing the world’s main reserve fiat currency. Even inflation-protected TIPS are not a counter-measure against monetization since (1) the CPI index has little to no correlation to real world inflation, and (2) proceeds are payable in US Dollars. Gotcha! The rocketing prices of precious metals — and the retail scarcity of actual physical metal — are a clear indicator that the monetization bluff is being called. Where this ends up nobody knows, but, tragically, I don’t see a happy ending for the US Dollar as reserve currency.
The bottom line for Internet entrepreneurs: Although these are perilous economic times, I know of no better investment strategy than a diversified and capital-efficient portfolio of income-producing websites that can be operated from anywhere, and sold to anyone, either stand-alone, or as a portfolio.
The bottom line for Epik: Epik’s model is already proven: we are building online businesses. What makes Epik truly special is that these businesses are leveraging a unified architecture that aligns the interests of a network of Development Partners in building an Internet that we believe will be better than the one that preceded it.
Robert W. Monster
Founder, Chairman and CEO