Zappy: "I said, $10 million. And he said, 10 million? That's crazy."

"It started with, the guy said to me, Why don't we give you a million dollars, and you'll be a millionaire. And I was like, well, I don't think so, because we're getting a lot of sign-ups for our emails, and this is really going well, and all the beer companies are going to be advertisers. So they said, what would you want to walk away?"

And I said, "$10 million."

And he said, "10 million? That's crazy."

Zappy, as he's known by all to meet him, is a Harvard Business School grad, former investment banker, and founder of direct marketing firm Z.T.V. Yet his biggest stamp on business and consumer brands arguably has been the domain space, where he co-founded Music.com and created such Internet brands as Computer.com, Debt.com, CreditCards.com, and Diamond.com. He picked up Beer.com for $80,000 and sold it for $7 million just months later. He later picked up Chocolate.com for $300,000 and has developed it into a tasty Internet success story, one he figures is worth more than $100 million.

Zappy, who once helped Bill Clinton acquire a domain name, created the Harvard Business School elective course, E-Business, and recently was a featured speaker at Inc. Magazine CEO Symposium and the Economist Magazine's Branding Conference in Shanghai. He's also launched Internet Warrior, a new site and service designed for soon to be Internet millionaires to help them get rich online by grabbing a tiny little piece of a $50 billion Internet marketing profit pie.

Here is part one of Jeff Zbar's three part interview with Zappy that was originally broadcast live on DomainSuccess.com. Directly below this transcript is a video that Zappy produced to explain simply the concept of domain names. A must-see for those who haven't seen it/

Jeff:
All these things that you're doing, the PR, the Internet and email and affiliate and video SEO and infomercials, how big is your team?

Zappy:
The good news is, for all of us, you can kind of either partner in each one of these specific areas, and you also can, I don't know if I'd call it outsourcing, but you have people who are specialists at each one of these areas. So you've got video SEO people. You've got pay per click people. You've got direct mailing experts. And you can really leverage these people in a way that's really win-win. So, working with people who have their own database . . .

I'll give an example. And I'll bring this all the way back to a really important point right now. I think if you're going to focus right now, again, you want it to be save money, make money. But in reality, beyond that, you want to focus on a situation, ideally, that's information driven. That's like Bankaholic. It wasn't that he was necessarily . . . it was lead gen, but it was information that was driving that.

I've seen some companies, there's a company down here in south Florida called Agora, and they have newsletters about investing. They have one about entrepreneurship and another one about health and they're so good at direct marketing and emailing, direct emailing. They constantly keep a relationship going with their database. And in doing that, every once in a while, when they have something to offer to the database, the people are very, very receptive, and the conversion rates are very high.

So Agora, with their half a million people in their opt-in email list that they talk to on a very regular basis, they're a private company, but it's reported that they're doing like $300 million in revenues, most of it being profit. And what they're doing is, it's an information based driver, and from time to time, they put information products in there. In a lot of cases, they'll just partner with somebody, like in Internet Warrior. They'll drop it into their database and let's say 5% of their half a million people take you up on it. Well, there's 25,000 people, with a push of a button, that can be new customers.

I'm suggesting to people who have domains and are considering developing them to take that Internet Warrior approach, that Agora approach, which is build your database. Because if you're passionate about it, you're going to be able to build it, and other people are going to help you build it.

And I'll give you another example. There's a social networking software called Ning out there, Ning.com, and it's really easy to use. You can set up a social network overnight, and somebody set up a social network in there about quilting. If you heard that just offline, you'd be like, "Oh, a quilting site. That's weird. How do they make any money or anything like that?" With basically just feeding the conversation . . . a woman started it. She put up her pictures of her quilts and patterns and talking about what she's doing. And all of a sudden, all these other people start to talk about what they're doing and posting their patterns and their quilts that they're really proud of. And there's over 9,000 people in that community, and it was built overnight. But the amazing thing is, she's Google AdSense and ads up there for quilting supplies. And I have no doubt that (a) she's making good money, but (b) she's created something that to the right party is very acquirable.

Jeff: So now we know that Moroccan food, quilting, and dog training are three hot categories that people are exploiting, so it's a beautiful thing. Certainly, I jest, but again, it gets back to the main point that if you have a passion, to pursue it. And I believe that Owen's Domain Success, the community is hosted by Ning. So he has that out there as well.

Zappy: Excellent.

Jeff: You've said that selling Beer.com for $7 million, that it left millions more on the table. You sold CreditCards.com for $2.7 million, and two years later it was sold again for $133 million. So again, some money on the table. But you've also said you have no seller's remorse. So discuss with us the driving factors behind those decisions and how sometimes current realities must drive decision making of the moment.

Zappy: Right. I've got to take that back. I definitely have seller's remorse.

Jeff: [laughs]

Zappy: But not so much so that I'm not going to continue, like the Bob Dylan song says, "Keep on keeping on." Because obviously, we're all very lucky. We're early in the development of the Internet, and similar to the automobile happening where gasoline . . . all you really had to do was be proactive, be in the right . . . stick with it, and you were going to do well. So, we're all right there. We're probably in the second inning of the domain game.

But I think the best thing to do when you have an experience like that is just to take the best of what happened and roll with it and, at the same time, not make the same mistake twice. So the situation with Beer.com, I think that was the right thing to do at the time. Again, I had bought Beer.com just a few months before that. We had put $100,000 value on it, and we gave the domain owner $80,000 in cash, and he kept 20% of the new LLC. And we set up a beer portal site, which was how to brew beer, rate your favorite beer, get a free Beer.com email. We kept on rolling along with that vision and put some press out.

Again, press being one of the key components, because again, I think it's important to let other people know what you're doing, not necessarily doing what you're doing and then trying to go out and find everybody who is a would be/could be partner or acquirer. It would take a lot of luck to find those people. But if you can put it out in the press, you're in a position where they may have their own agenda. They may like where you're at and come after you.

So we decided, a few months after we bought Beer.com, when we were offered the $7 million, we decided to pull the trigger and take it, regardless of whether we left any money on the table. On CreditCards.com, it's a little bit more painful, because the website that you see today at CreditCards.com is literally the same website that we sold them in 2004. The same logo, the same . . . it's not like they came up with some secret sauce or some algorithm that made it exponentially more valuable. What it was, was we built CreditCards.com using search engine optimization, and we really didn't drive any pay per click at the time or any offline advertising. We were just doing the natural search stuff. So we kind of got to a critical mass point where we were doing well, but it really needed somebody to take it to the next level.

A guy from Austin, Texas came to us, and he was passionate, really passionate about the online financial lead gen space. And so he offered all kinds of deals of cash, cash and equity, and so forth. And we decided to take the cash at the time because of our investors and because of just wanting to get ourselves into a little bit more of a portfolio approach. So, when we did that, looking back of course and now, if we're going to partner with somebody or sell a domain or let somebody else develop it, it's going to be a situation where we're not going to give up all the equity.

Jeff: Right. You had said that before how the seller retained 20%, so as long as you keep a stake, because if someone has that passion, I guess it's a great way for you to tap into their passion. If somebody's into lead gen, credit card lead generation, then more power to them. They've got to have something going on.

Zappy: Exactly. So ride their passion. That's why when you look at Internet real estate and the brands that we have . . . again, our goal now is to partner up with people in each one of these categories who are really passionate or have some unique technology and to attempt to retain a piece, and hopefully as much as possible.

Jeff: One of the questions that came up, and I'm going to say it's the person's question, because it's really the next question on my list, is when a large company approach to buy a site, how are you able to negotiate a great price or a price that you think is fair or what you want versus what they may think is what they want? Most people wouldn't feel comfortable negotiating at such a high level, in the seven figures, eight figures, we're talking nine figure deals here. You went into Interbrew, which is a $5 billion company, and you walked out a millionaire. Talk about the process. Talk about how you have to know, how you have feel the value of a property, what it's truly worth. How do you cost justify that and really evaluate a company or the brand?

Zappy: Yeah, so that's a good question. I count myself really lucky. When I got out of school, I wound up working at Drexel Burnham for Michael Milken, who was known as the junk bond king. He was doing all kinds of high flying deals. And that experience on Wall Street . . . and I then went to Bear Stern's. And that experience, I'll call it a little bit of brainwashing, but what they brainwashed into you was the fact that you shouldn't make any assumptions just based on who you are and where you're at and where you come from. So, they basically were saying to me at the time, look, you just got out of college, you're a trainee here.

It was a year and a half program where they put us through all the departments of Drexel, trading with the analysts, the marketing department, Mike's crew, and investment bankers and everything. And they basically said, "Look. You can't really look somebody in the eye and tell them that they should make a million dollar investment and that it's not a big deal, if you're bringing too much of your own baggage to the party. Because to them, it might not be a big deal to put a million dollars, but to you it is. And we're going to brainwash out of you why where you're at really doesn't have anything to do with where somebody else is at or where a situation is at."

So that was (a) really helpful, but I think the other thing that I've really learned in business is the more you look like you don't need a deal, the more value you can command. And the best way to do that is really to take your business from being a domain name to being a business. And I'll open up the kimono on how the Beer.com negotiation went, because I think it's kind of key. And the mentality, I think, was the element of confidence in the fact that we weren't meaning to just sit there. We didn't say, OK, we have Beer.com the domain name. Now let's go market the name around to people who should own it. Because at that point, I would've gotten some domain valuation, even though it might have been a nice return on what I paid.

So the fact that we put up a site, the fact that we put up some content about brewing beer and rate your favorite beer, and we started to give our Beer.com emails, as we did that, we started to get more and more traction. People were signing up for the Beer.com emails, and the traffic was growing. And so what happened was, I put out some press about what I was doing in the industry, and I got calls from all the beer companies. I chose my partners based on making the pitch to the owner of the domain that I knew some people who did liquor promotions all around the country, and they had relationships with some of the big beer companies.

So if we rebranded Beer.com as a beer portal, these guys would come on as advertisers. At least we'd have the ability to get in front of them and pitch them why they should advertise on Beer.com. So, with that relationship in tow, I went to all the beer companies who called and started to talk to some of them about advertising. And one of the calls was from Interbrew, which is now called InBev. They were represented by McKenzie, and they said, "Why don't you come up to Toronto? We want to talk to you about getting involved with Beer.com."

So I hopped on a place and I went up there. I was sitting there, and they said, "What are your plans?" And I laid out how excited I was about the fact that we had built this portal, and people were actually signing up for Beer.com emails, and the traffic was growing, and we had all kinds of plans to create our own couponing and maybe even our own brand of beer, and all kinds of crazy thoughts about where the business could go.

So they basically, at some point, looked to me and said, look. That sounds great, but we're Interbrew, and we have 20 different beers from Rolling Rock to Bass Ale, Stella Artois. If we could get 1% of the beer drinkers to shift to our beers, that's a billion dollar swing. So we can't necessarily get into a joint venture with you or something like that, because it may not turn into a profitable company. It may just turn into an advertising vehicle. And they said let's do a deal where we buy and you walk away kind of thing.

So again, it started with, the guy said to me, "Why don't we give you a million dollars, and you'll be a millionaire." And I was like, "Well, I don't think so, because we're getting a lot of sign-ups for our emails, and this is really going well, and all the beer companies are going to be advertisers." So they said, "What would you want to walk away?" And I said, "$10 million." And he said, "10 million? That's crazy." And I was like, "Well, that's, you know . . ."

Jeff: You asked.

Zappy: "Yeah, that's what I think it's worth. But not a problem. We're approaching 100,000 Beer.com email people. If you want, I can come back in six months or so when we have a million, and we can talk about it then." And so they said, "Well, how about $5 million?" And I said, "How about $8 million?" And he said, "How about $7 million?" And I said, "All right, $7 million."

Jeff: And this was all in that one meeting when you flew to Toronto that one time.

Zappy: Basically. Basically, yeah. But again, if I didn't have the people signing up, if I didn't have the traction, if I didn't have the confidence or the passion that I was onto something and that I thought the Internet was going to be an important marketing vehicle, I probably would have had to sell it for domain value. But what I really got from them was opportunity cost of me not doing it and them going and doing it.

Jeff: Right. It begs the question, are you passionate about beer, or was this just an opportunity that you saw?

Zappy: I was passionate about the Internet for marketing, and I really thought that that demographic of 21 to 30 crowd is a great audience, because you're getting them early. And if you get them early, you've got them for a long time. So what I did, I call it my Super Bowl test, which I describe in Internet Warrior. But basically, the way I got into the Internet space was I was in the infomercial business. And when I left the Wall Street thing, I just was bored with it and I wanted to be an entrepreneur. And I saw people doing infomercials, which just basically meant that they would pay somebody to make a television show and go out and buy the air time. And I thought, wow, that sounds incredible. I could be a TV producer and put businesses on and products and things like that. That sounds great.

So I went off and did that for a few years. In 1997 or so, I was having pretty good success with infomercials, but it was very expensive to buy the air time and very expensive to make the television show and change the television offer. So what I was looking for was, I was thinking to myself, where can I get in my own 24 hour network with 24 hour ordering that, to me, would be the Holy Grail? And I turned around, I see the Internet. I thought, wow, that could be my own network where I just play stuff constantly. People can order 24 hours a day. This is great. I thought, wow.

Even if I'm still in the infomercial business, I'm better off spending my time on television that's expensive, drive them to a website where they can spend all kinds of time offline. They can show their wife. They can show their husband. They can show their accountant, whoever. And that's a better model. So I thought to myself, how do I fit into the Internet? And I came up with the concept that if I owned a category generic domain name like Beer.com or CreditCards.com, I would (a) have immediate credibility. I would (b) have a certain amount of natural type-in traffic. And (c), as other people came onto the Internet and started to advertise, I would rise with the tide.

So I thought to myself, if I'm going to build one of these categories, I want it to be big enough that if I spend three to five years developing it that I could have a really significant idea. So I thought to myself, whoever advertises at the Super Bowl, that's a big enough category for me to get involved in. So I did a list, my Super Bowl list. If you think about who advertises at the Super Bowl, it's beer, cars, computers, diamonds, insurance. And top of the list was beer, and I typed it into the browser and up came a hobbyist type kid who was really passionate about beer but didn't necessarily have a marketing capability or interest.

So that's how I jumped into it. And I continued to go back to that list. Next I got Diamonds.com from a software company that wasn't doing anything with it and partnered with a diamond retailer . . . or I should say, venture backed diamond retailing group. I got Computer.com during the Internet bubble and the phone number 1-800-COMPUTER. And I just kept going down that Super Bowl list, and those categories have been the ones that I've tried to acquire.

Jeff: You've said that one of the greatest things about domaining is that anyone can do it, especially at a high level. Is that really a truism? Do you believe that this is . . . I guess that's the basis of Internet Warrior. Do you believe that anybody listening in can . . . maybe some of the key domains are gone, but maybe there's a lot of good ones still out there, and a lot of these people may own some of them. Do you believe that anybody can do this?

Zappy: Yeah. I'm totally confident that anyone can do it. I even believe anybody can do it at the high level if they have some of the resources or know how of how to develop. Because there's a lot of people out there who have these great names who took them back in '94, and they're techies, but they're not marketing people. They're not brand builders.

So it's a really unique opportunity. Like InsuranceQuotes.com, the guy that owned it is a really great domainer, and at some point he probably could have figured out how to develop it himself, but it was parked at the time. So for these names . . . Music.com I acquired with some friends back in 2003, and we're rolling with it now. For that name even to be out there is insane. The fact that a Sony or Universal Music or somebody didn't own that or MTV.

The fact that a couple of years ago I was able to get Debt.com with some partners. How could Debt.com be available? That's insane, except that a guy had taken it way back in 1994, because he was passionate and into the whole mortgage, refinance business and had a computer background and said, "I'll get Debt.com. That'll be funny." So he took it, and he had never really developed it. So when I came along with a development plan and a passion for, hey, I'm passionate about developing this category and building out this brand, I was able to do a deal with these people.

And I know there's a lot of people out there that have done these kind of deals where they approach a domain owner in a category that's breaking, that's ripe. That's the beauty of domaining is . . . all the domains are taken. So the secondary market is now the primary market. But the beauty of it is they're taken by techies and a lot of people who never could develop them, number one. Number two, there's always these breaking categories that happen when trends happen.

So part of Internet Warrior is tapping people into the trends that are happening while they're wearing their domaining hat. And then when they see the green revolution happen or eco-friendly happening . . . let's say they're into cooking, for example, and they see the green thing starting to happen. They can say, "Okay. Why don't I get GreenGrilling.com and GreenIngredients.com and GreenCoffee.com?" So the idea is that as these things break, foreclosure stuff, the loan modification stuff, the green revolution, all these new domains come into being and become valuable pieces of property capable of being developed immediately.

(note that the InternetWarrior.com site is down at the present time while it's undergoing a site makeover)

Zappy: "I said, $10 million. And he said, 10 million? That's crazy."