August 13, 2011

Go Daddy looks to expand globally

Johannes Loutsch is giving a tour of Go Daddy's new productions studio when he mentions the life-size cardboard cutout of Danica Patrick dressed in a racing suit standing in his office.

Loutsch understands how pretty women can sell products. In New York, he worked mainly in the fashion and beauty industry, including on Victoria's Secret commercials. He came to Go Daddy in 2010, a year the company produced about 15 television and Web spots.

"We'll go international probably in (the) third quarter," said Loutsch, adding the domain-name registrar is set to surpass the number of commercials it made last year with five months still remaining in 2011.

"It's not been determined which markets we're going to go into, but I would imagine Hispanic (ones), Australia. We've done some advertising in the United Kingdom. Obviously, Asia is going to be huge target."

Without prodding, Loutsch, the company's executive producer and senior writer, offers insight on how the saucy Go Daddy girl commercials and the company's in-your-face style will play around the world.

"I don't think we'll advertise the same way," he said. "We're talking about cross-cultural metaphors and that sort of thing. We have to be careful because we're introducing ourselves. I think here, the kind of advertising we do is expected. It works. It's something akin to American beer advertising. You can't argue with the results."

It's clear the Scottsdale-based company, with its ubiquitous advertising and unconventional founder, is thinking more globally then ever.

In July, Go Daddy and three private-equity firms announced a partnership that is expected to pump millions into the business to beef up cloud-computing services and spur growth overseas.

Moreover, the deal is about finding a partner with international offices and enough financial clout to take Go Daddy to the next level. The partnership is expected to close by the end of the year.

"We all view it as sort of Phase 2," said Warren Adelman, Go Daddy president and chief operating officer. "We've gotten to this level, and we've brought in these folks who have seen it all, and we can tap into their knowledge, tap into their contacts, whether its business partners or international expansion. They have access to equity and sources of cash if we're interested in doing something acquisitive at some point. They bring a lot of intelligence and smarts to the table that could be really helpful for us going forward as we look to going from $1 billion (revenue) to $5 billion."

While Go Daddy has not divulged how much of a cash infusion it will receive, founder Bob Parsons has said the investment, plus money he and other members of management have already put in, will bring the total valuation of the company to $2 billion, potentially making it one of Arizona's largest companies.

Experts who follow Go Daddy differ on how its culture may change when equity partners also have a say.

Parsons will stay on as chairman, but it remains to be seen if the investments he's known for, including lavish holiday parties featuring big-name entertainment and employee cash giveaways, will continue to be the norm.

Building a brand

In 2003, Go Daddy had 2 million domain names under management. Today, it says it has nearly 25 times that number: 49 million.

According to webhosting .info, which tracks its numbers differently from the company, Go Daddy has 40.3 million, or 32 percent of the global market share. That puts it well ahead of second-place Kirkland, Wash.-based eNom and its 10.7 million domains.

Wild West Domains Inc., which is part of Go Daddy's stable of companies, adds 3.4 million domains to Go Daddy's total.

Sales at Go Daddy have soared as well, according to company records, from $58.7 million in 2003 to $947 million in 2010. This year the company says it's on track to generate $1.1 billion in revenue.

For many, the rapid rise started with a broken tank-top strap during a 2005 Super Bowl commercial that made censors blush while at the same time introducing the nation to a funny-named technology company few had heard of.

In the year after the racy commercial, Go Daddy added 2.5 million domain names to its business, industry sources reported. The commercial featured a young woman who has a "wardrobe malfunction" during her appearance before a "censorship committee."

The company's success is mainly due to marketing at a time when many tech firms weren't, said Andrew Allemann, editor of the Austin-based Domain Name Wire, a Web source for industry news.

"Nobody had heard of them for the most part until they started doing some great, I guess you could call them, marketing stunts," he said. "I don't know if you call the Super Bowl a stunt or not. But I think it was ingenious, after the dot-com bust, to do Super Bowl advertising."

The company showed some market smarts, too.

Go Daddy's roots are in discount domain registering. When small-business owners and entrepreneurs needed their own spot on the Web, Go Daddy sold them available addresses inexpensively.

After deregulation of the industry a decade ago, the company began supplanting big players by charging roughly $10 annually to register domains, much less than the going rate of $35, Allemann said.

"Then, they were able to capitalize on that by figuring out that domain names are a loss leader or a low-margin item, and the way you really make money in the business is not with the domain names, but it's with everything else that people buy with them," he said.

For example, there's a good chance those registering a domain will need a company to host their site, and they will need to buy other services, such a security certificate, to be able to handle sensitive customer information, Allemann said.

"A lot of us make fun of Go Daddy for their shopping cart (on its website) since they try to cross-sell you everything under the sun, but at the end of the day, it works really well," Allemann said. "A lot of people who come to the site to register a $10 domain name end up spending $100."

Because of the higher-margin items, the company was able to pump even more into marketing. And it was able to use its phone support as a way to sell more products. Of its, 3,250 employees, Adelman said 2,000 are in what the company calls its customer-care centers in Scottsdale, Gilbert, Tempe and Hiawatha, Iowa.

When he started more than eight years ago as vice president of strategic marketing, Adelman said Go Daddy had about 100 employees in part of a building at Scottsdale Airpark.

International push

Two years ago, about 85 percent of Go Daddy's business was in North America. But the percentage of revenue the company makes domestically is shifting, Adelman said. Foreign business now accounts for about 20 percent of sales.

"What we are seeing is rapid accelerating in Asia and continued growth for us in Europe, as well," he said. "We're growing pretty fast here, too, but you're going to continue to see us shift globally as Internet penetration continues to rise in those countries in Asia particularly, and as we spend more time there."

Go Daddy opened a data center in Singapore more than a year ago and one in Amsterdam a year before that. Early next year, it plans on opening a customer-call center in Asia.

The company just introduced multicurrency payment options, so it's possible to pay for names and products in euros and British pounds. And about a year ago, it offered AliPay, a Chinese payment system similar to PayPal.

Based on what's transpiring on the Internet, there is plenty of room for Go Daddy to continue growing, Adelman said.

"You kind of feel like everybody's got a domain name, everybody has got a website," he said. "The truth is they don't. There are 205 million domain names around the globe. There are 7 billion people. We haven't even scratched the surface."

Go Daddy boasts 9.4 million customers and says a third of the Internet runs through its servers. It does about 7 billion domain-name system queries a day, Adelman said.

Not without critics

The company's rise also brought it controversy. Go Daddy's reputation in the industry is mixed, said Allemann, whose site does take Go Daddy advertising.

Parsons ignited controversy this year when he went to Zimbabwe and videotaped his hunting party shooting and killing an elephant that he agued was destroying sorghum crops relied on by villagers. Animal-rights activists and others wanted an apology and pledged to do business with other companies.

While Parsons never admitted wrongdoing, Go Daddy altered the video, including removing the AC/DC song "Hells Bells" that played while residents carved the kill.

A move in July to acquire a negative website about its business practices also shows the company frets occasionally about its image.

About the time the new investors were announced, Go Daddy reached an agreement with Insecure .com to transfer the domain NoDaddy.com, a site that featured posts of disgruntled former employees and unhappy customers of the company.

A spokesman said on July 8 NoDaddy.com posted a site-closure message. A week later, the site was taken down and the domain was transferred to Go Daddy. The next day, Go Daddy became the registrar for NoDaddy.com.

Allemann said the company has drawn fire from customers for locking down domain names after changes are made to records that contain contact information of the domain owner.

"There have been complaints about it being harder to transfer your domains out of Go Daddy to a different domain registrar in certain circumstances, which are valid complaints," he said. "That's frustrated people a lot over the years. They say it's because they want to prevent domain theft and it's a sign that someone is trying to steal the domain. It's also something that people can get fixed if they need to. It's just they have to complain."

Still, Allemann says most of the complaints surrounding the company revolve around Parsons and what some perceive as sexist advertising.

"Some people will tell you they use pretty aggressive sales tactics," he said. "It's the same thing you're going to hear about from any sort of services company like that, I think."

'Cloud' on horizon

The millions that Go Daddy will receive in equity is expected to create a sweet spot for the company in the rapidly growing field of "cloud computing."

More and more companies are storing data and applications on remote servers, known as clouds, instead of desktop computers. Cloud computing makes digital information more accessible and frees companies from the expense of maintaining data on their own computers and servers.

Melanie Posey, a telecommunications and Web hosting-sector analyst at IDC, said Go Daddy informed her of its plans to use the investment to bulk up its new Instant DataCenter service.

The new product allows customers who want to build hefty e-commerce sites to control the number of servers they need without having to purchase expensive rack space from hosting companies or data centers.

Go Daddy's idea is to let customers easily create and configure their own private network of servers while allowing them to balance the traffic load or shut them off if they're unneeded. By using a control panel, customers would be able to give themselves more or less horsepower depending on how popular their site is.

"They can go in and actually increase the size of the server because it's a virtual server," said Flavio Andrade, product-line manager. "In a dedicated server, growing the size of the server means taking the server down, putting in more memory and replacing the processor with a more powerful processor."

Posey said the product is meant to be an alternative to similar services provided by Amazon.com and a company called Rackspace.

"Rackspace is a little bit easier to use than Amazon . . . but their offerings are a lot more limited," Posey said. "With Amazon, you can get every possible feature . . . but the user interface isn't all that intuitive and you don't really get that much support with the service unless you pay for it. What they're trying to do is come up with a cloud offering that sits right in the middle of those two things."

To be successful will require a lot of up-front investment for infrastructure and software development, Posey said.

"For Go Daddy to go up against Rackspace and Amazon, the big guys in the market, it's going to take bit more investment than just cash from operations," she said.

The company also recently announced a next-generation Web-hosting product called 4GH. It is also set up in a cloud environment that will be supported by several servers.

Under the current shared-hosting model, many customer websites are housed on a single server, meaning if it experiences issues, it affects everyone on the server.

For example, if one server goes down, all customer sites on the server go down with it.

Cost of capital

Allemann figures Go Daddy's new financial partners will be very focused on the bottom line.

"They're in there for one reason, and that's to make money," he said. "Go Daddy has always wanted to make money, but to the extent that it was making significant cash flow or profits, it was kind of up to Bob (Parsons) what he wanted to do with that. Whereas now, there is really only one thing that matters, and that's the long-term value of the company and the money it makes."

He also wonders what will happen to the 36 Go Daddy employees Parsons says will each receive checks for $1 million or more when the deal goes through.

"It will be interesting to see what sort of incentive those people have to hang around," Allemann said, adding some will likely reinvest in the company and others may be interested in moving on to startups.

"It's essentially like going public," he says of the private-equity partnership.

Posey doesn't expect much of a culture change.

"This is how they've kind of made their name in the market," she said. "Say what you want about the Go Daddy girls, the Danica Patrick thing and everything else; it's worked, right? Even if you think it's not professional, whatever that means, you're not going to say no to the money. So who cares?"

by John Yantis The Arizona Republic Aug. 7, 2011 12:00 AM




Go Daddy looks to expand globally

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