So much for the honeymoon.
Barely three months into his term as chief executive of L.A.-based Oversee.net, Jeff Kupietzky was forced to lay off 38 of roughly 215 workers at his Internet advertising company and slash operating expenses by 30 percent.
He’s also done away with perks such as free lunches for management, complimentary Starbucks and employee massages, saying they were “vestiges from another time.”
“Maybe those kinds of things were appropriate earlier,” Kupietzky told the Business Journal.
The message he’s trying to send is that Oversee is no longer a startup, but a mature company that will face hard choices as the economy constricts. Kupietzky’s first test as chief executive will be how he steers what had been a heady Internet company through that significant challenge.
Oversee’s core business is populating Web sites with advertising, and buying and selling Internet domain names.
The company owns more than 700,000 domain names, such as TireStores.com. The site generates ad revenue when a search sends a Web user to TireStores.com, and he or she clicks on an ad or link there. With every click, an advertiser owes Oversee a small fee.
Oversee also has a broad business built around the domain market. It registers more than 3 million new domains annually for third parties. And Oversee offers a range of services to help domain owners make money, mostly through advertising.
When business was booming, Oversee set up Web sites specializing in mortgages and cell-phone ring tones. But Kupietzky wants the company to pull back from those areas where the company has seen declines, and focus on registering, buying and monetizing Internet domains.
“We’re coming back to the basic strategy of our businesses where we have a leadership position or intend to have a leadership position,” said Kupietzky, who was executive vice president of Oversee before taking the leadership position in November. Lawrence Ng, the former chief executive, became chairman.
But Kupietzky still plans to run specialty sites in areas where he does foresee growth, such as travel. The company’s already expanded LowFares.com to ask users for information about their travel plans, which it then sells to travel companies as sales leads. Oversee plans to do the same with another of its domains, DreamVacations.com.
By zeroing in on its core businesses and expanding into travel, Kupietzky projects Oversee should grow revenue in some of its divisions. But he said that depends on how deep the downturn goes.
“I don’t think anyone could have predicted the degree or speed with which the economy deteriorated,” he said. “And we don’t think we’re at the bottom.”
Could that mean more layoffs at Oversee? Kupietzky called that possibility “a last resort.” But he added, “There are no guarantees.”
The domain market niche has helped propel Oversee from a company that two students started out of a college dorm room in 2000 into a business with more than 200 employees and more than $200 million in revenue last year.
It helped that Internet domains entered a bull market in 2002 after the dot-com crash drove down their value. That led to a wave of buying and selling. Recently, a private company purchased the domain Fund.com for $9 million to $10 million. (Oversee was not involved in that sale.)
But when the economy soured, investors pulled back. And declining spending on Internet ads reduced the revenue domain owners made from their Web sites. This year, for the first time since 2002, the market is projected to be relatively flat, and domain owners could see revenue decline 10 percent to 50 percent, said Andrew Allemann, editor of DomainNameWire.com, which tracks news in the domain market.
“We’re going to see a bit of a hangover this year,” Allemann said.
Analysts already see the hangover reflected in the value of publicly traded domain companies such as Australia’s Dark Blue Sea Ltd. Since November 2007, Dark Blue Sea has seen its value on the Australian stock exchange fall more than 80 percent. The company noted that prospects for online advertising in the United States, where much of its business is generated, aren’t promising for 2009.
But Allemann said Oversee should be able to endure the downturn better than most companies because it has diversified to handle all aspects of buying, registering and monetizing domains.
Oversee also has received $150 million in funding from Oakhill Capital Partners, a private investment group with offices in Menlo Park, New York and Connecticut, giving the company a liquidity cushion.
“They’re one of the better positioned companies, if not the best positioned company, in this space to weather this,” Allemann said.
CEO: Jeff Kupietzky
Founded: 2000 – Employees: About 175
Revenue 2008: More than $200 million
Core business: Placing ads on otherwise vacant Web sites; registering new domain names; buying and selling domain names