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20 January 2006
Sex Sells! Sex.com nabs $14m
Red Herring

Putting to rest any doubt that sex sells, the domain name sex.com was sold this week for $14 million, making it the most expensive domain name to be peddled in recent years.

The lucky buyer was Boston-based Escom, a company that keeps a low profile but runs a variety of racy adult entertainment sites.

The sale marked the end of a decade-long saga for Gary Kremen, who registered the domain name in 1994. Before Wednesday’s sale, Mr. Kremen faced a five-year court battle after he sued Stephen Cohen, the man who stole the domain name. Next came a court verdict in 2000 that awarded Mr. Kremen $65 million.

But his troubles weren’t over. He had to embark on an international manhunt in Mexico for the domain-name thief and he even offered $50,000 for information on Mr. Cohen’s location.

Mr. Kremen declined Friday to confirm the specifics of the deal, but said he’s happy to have finally found what he believes is the right price for the property.

“I have had good events happen before but this is really nice,” said Mr. Kremen.

The sex.com domain name is valuable for its potential to attract a large online traffic known as type-ins or Internet users who intuitively type the URL sex.com when looking for content related to pornography.

The Accidental Pornographer

Far from being an XXX tycoon, Mr. Kremen stumbled into the business. Kevin Blatt, a business broker in the adult entertainment industry who has known Mr. Kremen for a few years, said he’s happy Mr. Kremen has at last been able to sell the name. The reason? He says Mr. Kremen was a misfit in the adult entertainment business.

Mr. Kremen holds an M.B.A. from Stanford Business School and has degrees in computer science and electrical engineering from Northwestern University.

“He’s been miserable for a long time in this [adult entertainment] business,” said Mr. Blatt. “A lot of people just don’t get Gary. He’s a very smart guy and adult entertainment isn’t what he wants to do.”

Mr. Kremen registered the sex.com domain name with registrar Network Solutions in 1995 along with a bunch of other names like match.com and auto.com.

“I had no idea that sex.com could be so big,” he says. “I was able to get the idea of online matchmaking but I just didn’t get the idea that anyone would look for sex online.”

Mr. Kremen sold match.com a few years ago to for a reported $6 million to Cendant, which flipped it to Ticketmaster for $50 million.

The initial plan for sex.com was to develop it into a sexual education site, he said.

“I thought that’s where the money would be, a site where you could educate users about safe sex,” said Mr. Kremen.

Fighting for His Name

But less than a year later, before he could get working on the web site, he found that Network Solutions had wrongly transferred the online property to Stephen Cohen, who fraudulently obtained it.

Mr. Kremen spent the next five years working to get his domain name back. He sued Mr. Cohen, Network Solutions, and subsequently VeriSign, which acquired Network Solutions.

“Why did I sue Cohen? He just pissed me off,” said Mr. Kremen. “I offered to settle it for $50,000 but he said you never owned the domain name, which is not true.”

In November 2000, Network Solutions was ordered to return the domain to Mr. Kremen and he was awarded damages of $65 million from Mr. Cohen. He would see only a fraction of that money. Mr. Cohen fled to Mexico and was ultimately arrested in October 2005.

As part of the damages, Mr. Kremen said he received a $6-million home in Rancho Santa Fe in San Diego County where he now lives. In a way he just lucked out, he said.

“I didn’t realize that there was a lot of money in the adult online industry till 1998,” said Mr. Kremen. “But when someone told me Cohen was making a million dollars a week on my domain name I couldn’t give up. I am a capitalist, that’s what our society here is about.”

The Right Price

Over the years, Mr. Kremen has turned down a number of offers for sex.com.

In July of last year, Mr. Blatt said he went to Mr. Kremen about a Japanese venture capital company that was intent on buying the domain.

“They felt it was the best brand name they could buy in the market place,” said Mr. Blatt.

The offer was $5 million, all cash. Mr. Kremen turned it down. “I knew I could get more,” he said.

Though he is wary about getting into the adult business again, Mr. Kremen said he is open to the idea of doing business. But he said it will only be with people he can trust.

“There are a lot of kooky people out there,” he said. “There’s a lot of money in the adult entertainment industry, but there are also a lot of shady characters.”

As for the money from his latest deal, he said he will donate some to charity, especially to an organization called IP Justice, which is a San Francisco-based nonprofit that fights for a balanced intellectual property law in emerging countries.

He will also make investments as a venture capitalist. He could scale up his company that sells advertising to companies in the adult entertainment industry that find it difficult to buy it directly from search engines like Google.

“Google doesn’t focus on the adult business. There are customers there and I could start a business to help them,” he said.

 

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