In its second-largest acquisition, Amazon buys the company for $970 million.
The assets of defunct dot-coms prove a treasure trove for others—but when loading up on technology and equipment, it’s buyer beware.
Along with numerous others, web toy store ToyTime.com took a fatal hit in last year’s online marketplace. Closing down the shop last summer left the e-retailer loaded up with more than $11 million worth of Legos, Barbie dolls and board games. The company was circulating a massive list of available merchandise at a Las Vegas trade show when Overstock.com Inc. CEO Patrick Byrne bought it all for $3.7 million. The liquidator of surplus goods promptly pumped out a press release, just in time for Christmas shopping, that touted the bonanza of name brand toys now available online at up to 60% below retail prices. On that turnaround - as on most of its transactions - Overstock scooped up a margin of about 20%.
Byrne created his 2-year-old company to help manufacturers deal with surplus merchandise, but it’s enjoyed a shot in the arm from the liquidation of failed e-retailers. Over the past six to nine months, they’ve come to be the source of 15% to 20% of Overstock.com’s inventory.
And Overstock isn’t the only one to sniff out opportunity in a wave of capsized dot-coms. Other companies like SmartBargains.com and Bid4Assets Inc. have jumped into the ring, scouring the e-retail landscape for soon to be defunct dot-coms who may just need to unload merchandise and equipment from high-rent offices and warehouses in a hurry. For even after companies no longer have customers, they still have plenty to sell. And it’s not just inventory: URLs, customer lists, computer equipment, office furniture and other goods ranging from foosball tables to intellectual property all have secondary market value.
While some may see something vulture-like in picking off the assets of retailers who have gone kaput, dealers in secondary-market goods say they help troubled companies make the best of a bad situation, and recover more from their remaining assets. And, just as the Internet has affected every other area of retailing, it has affected liquidation of bust companies. For one thing, the Internet provides a direct-to-consumer market for operations like Overstock.com, meaning, Byrne says, that the company can pay more for liquidated goods than others who have to pass the merchandise on to re-sellers who all have to add their markups. For another, technology in the form of web auctions that allow potential buyers to bid on merchandise without being on-site has broadened the market for bidders at liquidations, bringing in more potential buyers than bankrupt companies could have expected in the past. “The Internet has allowed them all to recoup more of their investment.” says Jared Blank, a Jupiter Media Metrix analyst. “You can aggregate a greater number of buyers online, and when you do that, you get a better price.”
Each liquidator has different ways of going about its business. Some, such as Overstock, have retail operations themselves. Some are willing to sell everything for the failed company, from merchandise still in stock to computer infrastructure. Others draw a line between capital assets and inventory, operating in one market or the other. Still others specialize in very specific segments of corporate remains, such as URLs. Any way you look at it, though, bone picking already was big business in the offline world. The recent run of dot-com blowouts-493 since January 2000 according to webmergers.com, of which 232 were e-commerce sites-has simply ratcheted up existing secondary-market activity.
URLs bring something new to the clearance goods table; they’re an asset that didn’t even exist before the rise of the Internet marketplace. URLs that describe popular product categories sold on the web have the power to drive traffic directly to a site. And if you’re a retailer in the same line of business, acquiring the URL of a fallen competitor can drive that site’s traffic to you. It’s not so surprising that bricks-and-mortar chain PetSmart Inc. grabbed Pets.com’s name when the online pet store tanked last year, or that cosmetics retailer Sephora.com acquired the rights to the URL of former competitor Eve.com, which had created brand awareness with a mass marketing campaign.
Sometimes, an in-demand URL can be as valuable as any high-priced server or luxury merchandise. When online drugstore PlanetRx.com Inc. exited retail this spring, it announced plans to transform itself into an online pharmacy for high-tech and specialty pharmaceuticals. But it eventually shut down altogether-just maybe, because the prospective income from the sale of 30 URLs in its possession looked like a better deal than the expense of building out a new business. The company had registered but not used URLs based on common diseases and medical conditions, such as acne.com, diabetes.com, and AIDS.com. PlanetRx chose secondary market URL broker GreatDomains.com Inc., a VeriSign Inc. subsidiary, to act as its broker. Great-
Domains already has sold half of the domain names including URLs such as acne.com, cholesterol.com, depression.com and hypertension.com, at prices ranging from $100,000 to $300,000.
“These names are extremely valuable,” says Steve Newman, director, secondary market, at GreatDomains. “Any name that represents the best possible generic name in an industry is going to be worth a lot of money.” That’s why The Bank of America paid $3 million last year for the domain name Loans.com.
But those aren’t typical prices. Typical prices are lower by order of magnitude, priced at perhaps thousands of dollars rather than hundreds of thousands. Of the companies that do fail, “Many contact us and we wind up relisting the names,” Newman says. But with listings of 30 million names, failed dot-coms represent a tiny portion of GreatDomains’ business.
Nevertheless, GreatDomains has developed a proprietary model for figuring out what a URL is likely to fetch in the market. Newman says the formula is based on the number of characters-the shorter the better-and whether the name relates to commerce, and if so, the size of the related industry. Also factored into a URL’s value are whether it’s a dot-com extension, which commands higher prices, and the comparable value of similar domain names.
You don’t have to be out