Why you would spend $160 milion on thefart.com

As a Canadian journalist who follows new media news, my curiosity was seriously piqued by the announcement last March that American Capital, a Maryland-based VC firm, was investing $US160 million in Geosign, an internet publishing company in Guelph, Ontario I’d never heard of nor apparently had almost anyone else.

The press release read: “With hundreds of web sites in 20 categories, Geosign attracts over 35 million unique visitors to its network of sites on a monthly basis.”

To which my first reaction was, “That’s crazy. Instapundit — a one man blog, albeit a very successful one — has been getting around five million visitors. Based on the American Capital investment, he’d be worth $23 million.”

What’s more, Geosign’s marquee sites — including dietnation.com, nomadik.com and think.fashion.com — looked like ads (or at the very best advertorial), failed to show up high in Google searches for obvious key words like diet, hiking and fashion, and, unlike Instapundit, were bookmarked by very few people, if any, in del.icio.us, indicating a low regular readership.

It must be about the technology, I figured. That American Capital press release had also quoted Virginia M. Turezyn, managing director of its technology group, saying: “Geosign is ideally positioned for continued expansion as the Internet claims an ever greater share of consumers’ time and advertisers respond by steadily increasing their spending on the Internet. Geosign has built a first class Internet technology platform (italics mine), from which it can continue to build on its position as an Internet media and marketing leader. In addition, Geosign has a talented and entrepreneurial management team that has demonstrated an outstanding ability to respond and adapt to a fast changing market.”

All very well but strange that there was nary a mention of any exciting new technology in this brotherly love fest of an interview with Geosign founder Tim Nye conducted by “domainer” king Frank Schilling, who now lives in luxury in the Cayman islands after making a fortune wheeling and dealing in internet domain names. The interview is a classic of the genre — incomprehensible gobbledy gook mixed with adulation from groupies who can’t distinguish between someone who has made a fortune for creating something of value and use, and someone who has made a fortune from speculation or getting lucky, at the expense of a bunch of other poor saps.

It was scary to me to think that guys like this are getting big money to “publish.” For all its many faults, old media has never been a place for people whose sole goal in life is making a buck.

Still in the interests of trying to find out more and possibly landing a writing gig with a company that looked like it could really use some help with its content, I applied for work at Geosign. I had a telephone interview with a clueless HR person/recruiter in early May, never heard back, and became preoccupied with other stuff. It wasn’t until mid-June that I read that Geosign was laying off large numbers of its staff despite the fact its website still said it was hiring.

The rumoured explanation of preference was that Geosign had been caught in a so-called arbitrage crackdown by Google, that it had been buying ads to drive visitor traffic to its sites and then profiting hugely when the visitors clicked on different ads on the Geosign sites. That still didn’t make sense to me though. First, I doubted the Geosign sites could make any significant money this way, and second, they didn’t seem any worse to me than a lot of other sites displaying Google ads. After all, any publisher that doesn’t sell anything other than ad space would be considered an arbitrageur according to this rather loose definiton.

The answer it seems is slightly more complicated. Along with the 200 sites and the big domain names like hockey.com that it talks about, Geosign also owns — through a subsidiary or associated company by the name of NYCGroup.com — some 90,000 other domain names including stuff like canadianrockiestour.info and myrtlebeachresortdirectory.com. If you do a “who is” search , these sites are affiliated with NYC Group, which is none other than Geosign.

These sites are designed in a similar Geosign manner. There are no ads on the landing page and if you’ve ever landed on a page like this, your likely first reaction is confusion. “Huh? What is this? How did I get here?” Most likely you’ll also opt for the simplest way off with minimal mouse action, namely clicking on one of the links, which will bring you to a second page filled with ads or “sponsored links.”

Every click to get out of this maze earns Geosign money, a business that can be profitable with as few as 10 visits a day per page. Given the number of domains Geosign owns, it’s got itself a perfect long tail speculative business. If it gets 20 cents for every click with 10 clicks on every site times 90,000 sites, that’s $5.4 million in a month and all it has to do is pay the next-to-nothing overhead for a bunch of junk sites

Every click also earned money for Google, which apparently used to allow its ads on Geosign sites in contravention of its own rules, and Yahoo, who apparently still does. The crackdown appears to have been prompted by fed-up advertisers who found that potential customers arriving from junk sites like Geosign’s had lower “conversion rates” than customers coming from content-rich sites. In other words, someone reading about the Rockies on a site about Canadian bears and moose would be more likely to book a flight than someone who just clicked on the ad to get away from internet profiteers. Advertisers, many of whom are small buinesses, are prepared, it seems, to pay to advertise their products but not to pay extra for the privilege of merely enriching Geosign, Google, Yahoo and American Capital. Not to mention the millions of information seekers who are coming to distrust Google ads thanks to junk sites like Geosign’s.

Unfortunately, no one at Geosign or Google or American Capital would agree to talk to me about this story and answer the questions of why anyone would invest $160 million in a company like Geosign or what exactly makes it so special or how this racket went on as long as it did and still does. Sure, there’s chatter on the net but the MSM is ignoring things so far and there are still suck-up interviews appearing like this one with Geosign CEO Ted Hastings where he plays that elusive technology card, saying: “The company has designed some incredible systems [that] track where the user has come from [and] if they converted for the advertiser, all in real-time. Traditional online publishers can’t give those kind of stats back to their advertiser[s].”

At the same time, he’s also telling the Guelph Mercury: “We are no longer aiming to build a costly content and publishing empire,” adding that Geosign will now work to develop content that’s less expensive to produce. “We are also growing our lucrative search marketing business, which requires fewer employees.”

Curiouser and curiouser, but if I were an American Capital investor I sure wouldn’t be very happy about this deal or the fact that one of the NYCGroup’s great domain properties is thefart.com.

15 thoughts on “Why you would spend $160 milion on thefart.com

  1. The lack of understanding in this article is staggering… Surely someone writing about Geosign should understand the difference between direct-navigation domaining and search arbitrage.

    “I doubted the Geosign sites could make any significant money this way”

    That’s a joke, right? Geosign was in the millions of dollars a month range of arbitrage revenue.

  2. I was also referring to the ‘name-brand’ sites… The ‘junk sites ‘ are ‘direct-navigation’ domains not arbitrage sites.

  3. Hmm, Anonymous. Like I said I don’t see those name brand-sites being highly profitable.

    If it were that simple to create highly profitable on-line free content, the MSM wouldn’t be facing all the problems they face. Why would only Geosign’s crappy name brand sites be rolling in dough?

    It seems to me he only way the Geosign sites are highly profitable is because there are so many of them and they pay zero for content at 99% of them. It’s a long tail speculation scam for as long as the ad placers go along with it.

    As for Direct Navigation, that’s a whole other topic whioch I would love to write about, but let me just say for now that I’m very sceptical that Joe Blow, who wants diet info, direct navigates to dietnation.com.

    Diets.com, ok. Newdiets.com, check. Diettrends.com. But dietnation.com? I don’t think anyone types that into their adress bar spontaneously.

    Ditto, Canadianrockiestour.info. That doesn’t sound like a direct navigation winner to me.

    Feel free to correct me if you know something I don’t.

  4. Let me guess. The other anonymous commentator is an unemployed, 20-something “web developer” from the triangle.

    They are so tiresome and learn evrything they know from reading richdomainer.com. (Probably found it via direct navigation, ha ha ha)

    Of course, you are right. If those websites were more than marginally profitable, then why would they lay off all the people that worked on them?

    And duh, if it were so easy to make millions from web content no kidding the circ departments of media giants would know about it.

    The Geosign crew are domain squatting blood suckers. “Nice guy” Tim Nye is laughing as he cashes his $50 million check. Meanwhile anonymous has his eight week severance package.

    Smarten up kiddo, and direct navigate yourself to getaclue.com.

  5. To the anonymous poster seeing “a lack of understanding” in this article:

    Direct navigation domaining is all fine and good, but I do not know a *single* human being who might enter canadianrockiestour.info into his browser. Not a single one. Doesn’t happen.

    So where might the traffic come from when you are not listed in search engines (just try to google site:canadianrockiestour.info), and when the sites are so useless that noone in his right mind would bookmark them or even recommend them to friends? Where does the traffic come from?

    It must be other sources of course, in this case: paid advertising. Bring in the “customers” through Google, then use Yahoo! to monetize this traffic. This has been going on for a long time now, and many are happy that Google finally put a stop to this nonsense.

    Great article BTW.

  6. Ann, it’s remarkable that you got this far. This is only half of the story, & the tale is still evolving. Keep digging…

  7. Thanks for that link.

    Yes, I’ve learned that quite a few people have known all along what Geosign was really up to.

    I came at this story, however, not as a webbie/domainer/direct navigation espouser but as a journalist who is interested in viable web publishing models for real content.

    I knew nothing about the 90,000 junk sites because neither Geosign nor American Capital mention them. In fact, Ted Hastings in that suck-up intvu with Red Canary seems to be outright lying, which, after the conflicting figures about the layoffs he gave, is just more bad PR.

    As someone who doesn’t move in VC circles, my question now is whether it’s standard to lie — or shall we be kinder and say “mislead” — like this to conceal proprietary information or whether this is really an exceptional case?

    Your leads are welcome, as always.

  8. Ontogenix could be the key: “An example of this Ontogenix, which optimizes landing pages by providing AI like matching. For example, if you type in “smart creative child’ into Ontogenix, it returns links for chess, lego, ping pong etc. so imagine how relevance will greatly improve across all sites.” (from the interview with Nye) — Now it’s easy to understand how those 90,000 domains were populated with content… That’s soo sick.

    From the same interview: “One example which is closing shortly is a local search partner with distribution that complements Truelocal.com.” — I read into this that they will buy more domains in order to further litter the web with their junk pages.

    Ann, this is true investigative journalism IMO, and from the previous comments I think you are on to a big story, at least for Canada. I’d look at Geosign’s corporate structure. Which companies belong to Geosign? What are their assets? Which deals have they closed? Do they secretly own companies that run a similar scheme?

  9. Unfortunately, no one at Geosign or Google or American Capital would agree to talk to me about this story and answer the questions of why anyone would invest $160 million in a company like Geosign or what exactly makes it so special or how this racket went on as long as it did and still does.

    //////////////

    Umm…I hate to state the obvious but how many people would agree to talk to anyone who claims their business is a racket? The whole article is poorly researched and borderline nutty.

  10. Looks like I’m needed to perform another one of my trademark comments section interventions.

    When your website announces that you are “leading the publishing revolution” and “one of the largest internet media companies” and leaves out the crucial fact that what you’re really “publishing” is The Fart X 90,000, I don’t think it’s nutty to call that a racket.

    What’s nutty is STN Labs or Soup to Nuts Labs. No soup. No labs. Just a bunch of nuts.

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