LAST WEEK BROUGHT yet another milestone in electronic commerce: The Internet address www.beauty.cc was purchased for $1 million.
This was the highest price ever paid for an Internet name that does not end in ".com," according to online auctioneer GreatDomains.com, which brokered the transaction. And it provided an impressive boost to Seattle entrepreneur Brian Cartmell, whose company, eNIC, has exclusive rights to register and manage the .cc domain for the tiny Cocos Islands off Australia (see "Master of his domain," Seattle Weekly, 1/27/00).
Last week's purchase "shows that dot-cc is rapidly gaining acceptance as an address with as much clout as dot-com," Cartmell said in a press release. The dot-cc triumph was disseminated worldwide by the Associated Press, picked up by Net news sources like The Industry Standard, and highlighted on ABC News and CNN.
But a review of public documents and interviews with participants raise many questions about this deal (to which Cartmell was not a direct party), suggesting it may be less of a market triumph than an overvalued publicity gambit by closely allied parties with a mutual interest in pumping up the value of the .cc domain.
For example, though the press release announcing the deal stated that "beauty.cc" was purchased "for $1 million dollars," that is not the case. Alan Brown, president of Universal Domains, which bought "beauty.cc," says in an interview that only $200,000 in cash was paid. The rest of the purchase was made in shares of Universal's very thinly traded OTC ("over the counter") stock—which, experts says, was valued with unusual generosity.
In addition, there are some indications that the selling company, David Sams Industries, an infomercial producer and major marketer of dot-cc names, may have already had a significant stake in Universal before this deal.
Two months ago, according to company statements, Universal entered into an agreement to purchase as many as 500,000 dot-cc domain names "at a preferential price." In "consideration" for this arrangement, Universal said it issued seven million shares of restricted common stock (more than doubling its outstanding shares).
The recipients of the stock were not specified. In an interview, Alan Brown, the president of Universal, says there were four parties to the licensing agreement, including Sams and eNIC, and that these companies hold some of the restricted shares. Indeed, last month Universal issued a press release saying it had "completed its initial purchase of 5,000 dot-cc domain names from SamsDirect Internet" (a unit of Sams) and that the two companies had an agreement that "provides for the acquisition" of up to a half-million more.
But Brian Cartmell of eNIC says that neither he nor his company has any ownership interest in Universal. Renee Sams of SamsDirect says that her firm's only connection to Universal is "they're the buyer [of 'beauty.cc]."
The sale of "beauty.cc" was the second-priciest deal ever brokered at GreatDomains.com, the main secondary market for buying and selling domain names. The top sale was last February, when Bank of America paid $3 million cash to a computer consultant in San Jose for the rights to "loans.com."
In contrast to that event, however, the sale of "beauty.cc" was not an auction with multiple bidders. Rather, the name "was listed for sale and the parties negotiated," says GreatDomains.com CEO Jeff Tinsley.
Why did the two companies—which already had direct dealings with each other—turn to GreatDomains.com for help with this particular transaction? Alan Brown of Universal Domains explains: "We wanted a third-party national reseller involved, just to make sure everyone knows it's not a backroom deal."
Tinsley of GreatDomains.com says he's confident of the deal's $1 million value, even though it was not all-cash. Since Universal is a publicly traded company, he says, "there's actual value associated with the stock."
But experts consulted by Seattle Weekly say that the valuation method used here produces highly inflated results. According to Brown, the parties simply took Universal's quoted share price on the day of the purchase—$1.25—and applied it to the new shares. Thus 640,000 restricted shares were deemed to be worth $800,000. Add the $200,000 in cash and presto, a $1 million publicity-generating deal.
But this method overlooks the fact that these shares are restricted (and so can't be immediately sold); that Universal has only a tiny percentage of its shares being actively traded; and that these restricted shares, when sold into the market, will more than double the supply of Universal stock available for trade—all of which depresses their current value and makes the shares extremely speculative.
"You're picking a number out of a hat as to what those restricted shares are worth," says Jim Dugan, an e-commerce specialist at the Foster Pepper law firm in Seattle. "You certainly don't have the dollar-per-share value that it's trading at today," say Jim Johnston, a corporate finance attorney at Lane Powell Spears Lubersky.
The deal, in short, looks more like a classic case of publicity-driven Internet bubblenomics than a true measure of dot-cc's future—though in the self-fulfilling world of Web hype, the two may ultimately be one and the same.