Demand Media Featured in Domain Name Journal

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04/08/2007

Demand Media Featured in Domain Name Journal

His Companies Have Sold for Over $1.3 Billion: Can Demand Media's Richard Rosenblatt Do It Again with Domains?
April 8, 2007

Despite having been founded less than a year ago (in May 2006), Demand Media has already become one of true giants in the domain industry. The mastermind behind the company’s meteoric rise is a 37-year-old serial entrepreneur from Southern California named Richard Rosenblatt. Rosenblatt is best-known as the guy who transformed Intermix Media and their marquee website, MySpace.com, from a money-losing albatross into a half-billion dollar racehorse. Less than 18 months after he became CEO at Intermix, Rosenblatt had sopped up the sea of red ink and engineered a $580 million sale of the company to Rupert Murdoch’s News Corp.

While that was Rosenblatt’s biggest success, it was far from his only triumph – in fact it wasn’t even his first half billion dollar sale! In 1999, Rosenblatt sold a company he had founded himself, iMall, to ExciteAtHome for $565 million. That same year he became the founding investor and Vice Chairman of GreatDomains, a domain aftermarket sales company that he then quickly ramped up and helped sell to Verisign for $100 million in 2000.

Hitting a home run is one thing, but doing it over and over again is something else. Clearly Rosenblatt has something a lot of other entrepreneurs do not. But what is it? I got part of the answer the first time I met him. That was last month in Las Vegas where Demand Media’s popular registration company, eNom.com, held a summit conference for their resellers at the Venetian Hotel (just before the the T.R.A.F.F.I.C. West conference began at the same venue).

Rosenblatt attended the eNom Resellers Summit to fill the company’s partners in on Demand Media’s plans to make the .TV extension into a platform that would allow registrants to build their own global video channels (more on that a bit later).

As soon as he began his talk, you could feel the genuine enthusiasm and excitement Rosenblatt felt about his latest project. Some people simply radiate a positive energy that is infectious and inspiring. You see how pumped up kids are when they open their Christmas presents? That was Rosenblatt that day in Las Vegas and I would bet that is him 365 days a year.

It is an invaluable asset when you are trying to get investors, partners and the general public behind what you are doing. Of course, his track record alone would have brought a lot of those people on board, but my guess is he wouldn’t have that track record in the first place if he didn’t have the kind of personal charisma he has.

If you can say that someone was born to be an entrepreneur, Rosenblatt could be held out as exhibit A. He grew up in a tight knit family just over the hill from Los Angeles in the San Fernando Valley. His mother was a college professor and his dad was a computer scientist. Rosenblatt told us “One of the more memorable moments from my childhood was when my dad sold his science consulting company, California Research and Technology, to Titan. This sparked my entrepreneurial spirit!”

He stayed near his home and family to attend college at UCLA, then headed across town to earn a law degree at Southern Cal in 1994. “I was never sure if I was going to practice law but I was always fascinated by how the law impacted all aspects of business and life,” Rosenblatt said. “I knew a legal education would teach me to think in an organized manner and see all sides of an issue. While I was an undergrad, I had the experience of running my own small advertising firm that served local businesses. That experience as an entrepreneur combined with my law school education really made it easy for me to take on big challenges and opportunities at an early age and rather quickly – like forming iMall.”

Rosenblatt started iMall the same year he got his law degree. While “user generated content” has become a buzz phrase today (and was the foundation for Rosenblatt’s success at MySpace) he actually started using the concept 13 years ago at iMall.

“The idea for iMALL was simple – businesses could “open shop” on the Internet and get traffic by placing their store in a “mall” where larger marquee stores (back then our big store was the Super Bowl website) would help drive traffic for everyone,” Rosenblatt said. “We incorporated user gen tools when we realized how difficult it was to scale our business. Our merchants were very particular about their stores and were constantly asking for updates and changes. Therefore, we said “how about letting the store owners do it themselves! ”

“The biggest challenge was making it simple enough that these “newbies” could do it all themselves. No one knows their business as well as the owner of that business. So why not empower them? Give them the tools and let them be able to build it themselves.” Rosenblatt’s plan worked and in May of 1999 he was able to take iMall public. Just two months later the sale of iMall to ExciteAtHome was announced.

Rosenblatt, then just 30 years old, had financial freedom. So what does an entrepreneur do when that happens? Sit by the pool and drink margaritas, sail around the world? Of course not - they look for a new business challenge. Rosenblatt spent the next five years with his hands in many pies. “I spent time on a number of other companies and some worked very well, such as GreatDomains, and others did not,” Rosenblatt said. “I had a challenging year stint trying to resuscitate the fallen DrKoop.com as interim CEO. That experience helped prepare me for the challenges at Intermix and the post bubble times really helped me grow as an entrepreneur and I think as a person as well.”

Intermix came calling in March 2004 and persuaded Rosenblatt to sign on as CEO and Chairman of MySpace.com. The company was floundering at the time but Rosenblatt quarterbacked a complete turnaround in his 18 months there. When he started Intermix had a market capitalization of approximately $70 million. By the time the sale to News Corp was made, that number had ballooned to over $650 million. Rosenblatt had transformed MySpace.com from an unknown website into one of the most popular destinations in Internet history.

“I had learned at iMall that the user (the business in that case) knows better than anyonewhat they want from their online experience and my job was to give them the tools to make it possible. When I was introduced to MySpace it was so clear that the core attribute was empowering individuals and that made immediate sense to me,” Rosenblatt said. “Instead of a store, it was a profile and individuals could control it and develop it however they chose. And who knows better about what they want than the individual himself or herself? They could now express themselves online in any way they chose.”

While Wall Street was stunned to see MySpace become an overnight sensation, Rosenblatt said he saw it coming. “I knew MySpace was going to be a success from my experience at iMall and also from working the previous year expanding an online gaming community called Superdudes. Superdudes grew to over a million people virally and it was centered on users creating their own online identity, profile, friends lists, etc. The big difference was that Superdudes was fantasy based and MySpace was all reality (or appears to be reality!).

After being courted by many suitors, the historic sale to News Corp was made in July 2005. By the end of that year, Rosenblatt had already zeroed in on his next business opportunity – the world of domains.

The wheels in his head started turning when he saw a December 2005 article in Business 2.0 magazine called Masters of Their Domains. The piece was written by Paul Sloan, who did most of his research for the article at the 2005 T.R.A.F.F.I.C. East conference in Delray Beach, Florida. Sloan described how domain owners were making fortunes by placing pay per click advertising on their web pages.

In a later Business 2.0 article, Giving the Audience Its Own Domain, Rosenblatt told writer John Heilemann, “"I thought, it can't be that easy! So I talked to some domainers, and they said, 'We own 300,000 domains, we make $20 million a year, we have just four employees and some servers in the Caymans.' I thought, 'If you can make that much doing nothing, what if we added some Web 2.0 sprinkle so that people would come back - user publishing tools, social networking? ” What if we built a platform where we could snap that into as many domains as we wanted?'

That's when the lightning bolt hit me: You'd have a company that generates its own traffic, generates its own content, and monetizes itself. It would be the perfect lazy-man's media company!

Thus the idea for Demand Media was born and Rosenblatt teamed up with co-founder Shawn Colo to debut the company last May. Colo has stayed in the background but he has played an instrumental role in the company’s quick ascent. Rosenblatt told us “Shawn and I had two very different career paths that brought us together. Shawn spent ten years in private equity and was schooled in the careful and precise discipline of taking assets and securing the greatest value from them. He recognized the benefit of bringing together diverse media sites and domains to increase revenue through advertising synergies. I saw this aggregation of content and traffic as a unique platform for us to build vertical social networks, community and other web 2.0-type business models.”

In their first six months, Demand Media made nine acquisitions, including the purchase of major registrars eNom and BulkRegister. “Our first and most important acquisition in the domain space was eNom,” Rosenblatt said. “I get asked often why a media company owns what has now become the world’s second largest domain registrar as a part of its business. That platform lies underneath our media properties and provides us technology, data, and traffic as we develop niche verticals.”

At the moment, Rosenblatt’s eyes are squarely focused on transforming .TV into a major extension that surfers will recognize as the place to find video content. Technically, .TV is the country code for the small pacific island nation of Tuvalu, but in 2000 that country licensed operation of the extension to Verisign.

Verisign had some modest success with the TLD but decided a few months ago to turn management of .TV over to Demand Media. “Verisign is an important partner and we are thrilled to be working with them on .TV. It has been a collaborative process and we are working together to really build out the best possible offering that will drive .TV adoption,” Rosenblatt said. "We plan to make .TV ubiquitous. We are going to spend a lot of money to make .TV the domain you must have!"

Demand Media will officially relaunch the extension May 1 at the prestigious AlwaysOn Hollywood show for digital media and entertainment executives in Hollywood, California. Rosenblatt and NBC-TV personality Carson Daly, who signed on as .TV’s spokesman, are both scheduled to sit on the keynote panel for the event at the Roosevelt Hotel.

The show should give .TV a tremendous amount of exposure as organizers says it will attract 700 technology, entertainment and media CEOs, studio heads, business development officers, media buyers, venture capital and private-equity investors. Leading members of the press and blogging community will also attend and over 20,000 webcast viewers from over 100 countries are expected to tune in and interact with the program.

Rosenblatt will take the opportunity to introduce a much anticipated suite of proprietary free tools that the company says will allow anyone to build a video channel with social networking features on their .TV domains registered through eNom.TV or any eNom reseller site .TV fans are also anxiously awaiting the reinstatement of premium .TV domain registrations (high quality generic or geo names offered at variable prices to be determined by the registry). Demand Media put the premium names on hold when they took over management of the extension. Since then if you have tried to register a domain on their premium list you have had to fill out a form that promises you will be contacted when the domain is made available (you can still register any domains not on the reserved list).

Though premium registration has ostensibly been closed, sharp observers from the .TV Forum at NamePros.com say they have seen some top tier names turned over to new owners in recent weeks. Demand Media spokesperson Quinn Daly could only tell us “We are continuing to respond to inbound requests and evaluate sales on a limited basis, but are finalizing our strategy to make premium names available in a more automated fashion through our platform.”

Though the distribution mechanism for premium names remains unsettled, Rosenblatt is convinced the path to .TV success is on solid ground. “There are a couple of fundamental shifts in the market place that we see coming. First, media has become more personal and community focused, so users want to build their own space and control their own social network. Second, video has exploded online with millions of users creating, viewing and sharing video content. "

"Here in L.A., there was a fire recently that was burning very close to the Hollywood sign. Within an hour from when the fire broke out, there were thousands of videos uploaded to YouTube. Thousands!,” Rosenblatt marveled.

“This is the time for .TV. We believe that the market is ready, that users will immediately understand the benefit and meaning of a .TV site. Market adoption will be driven by great examples of .TV sites and by providing very simple and easy tools to empower the user to build their own channel. See the pervasive theme here?,” Rosenblatt asked. “Again, it comes down to giving users the ability to build their own store, or profile, or channel that they want. The great thing is that the users and technology keep evolving so we can give them much more than an iMALL store.”

Demand Media started beating the promotional drums as soon as they took over management of .TV. There is an informational site at ChannelMe.tv and Carson Daly, who has a popular late night national TV talk show in the U.S., has been providing a celebrity push at Carson Daly.tv .

While .TV is front and center at Demand at the moment, they have their eyes on other pillars of a domain empire. “Our overall company strategy is to build and grow enthusiastic vertical sites by empowering the user. We are doing this in multiple ways, but they all involve combining professional content relevant to that vertical. We then snap in our social networking tools, our user publishing and multiple forms of monetization,” Rosenblatt said. He also told us the company intends to continue making new acquisitions that fit their strategy.

Demand Media has been a key player in the wave of consolidation that has swept through the domain industry over the past couple of years. Some people have looked at that trend and said we are now in the end game. However, with online ad revenues rising over 30% a year (and that growth expected to continue for several more years) others believe that the game is just getting started. Rosenblatt falls into the latter camp. “We are clearly in the first inning in every aspect of the internet,” Rosenblatt said. “The fundamental shift from domains simply being web addresses to being able to be monetized through PPC is only the beginning. There will continue to be more and more ways to monetize valuable traffic beyond CPC links.”

In closing Rosenblatt added, “I realize that I keep coming back to the same point of focusing on the user. Don’t tell users what they have to do, or how to do it. Just give them the place, give them the tools, and give them the means to find other like-minded people to share what they know. And keep innovating and giving them new and powerful tools to make doing all that even easier!”

That philosophy has helped Rosenblatt sell several internet media companies for a total of over $1.3 billlion. He has already acknowledged that Demand Media will go public, probably before this year is out. He told Business 2.0 that he expected the company to hit a market cap of $2 billion by the middle of next year. Those are heady numbers, but Rosenblatt has been riding a hot streak for 13 years. Whether or not he can keep it going will be one of the most interesting business stories we will see unfold over the next 12 months.