Tucows (NASDAQ: TCX) released its Q3 earnings yesterday. You can see the numbers here (pdf), but they aren’t the headline for the domain segment. Instead, it’s this: after many years of owning its a domain portfolio, Tucows has exited that business.

It still owns a portfolio of surname domain names that it uses for its Realnames email service. But it no longer holds a portfolio of domain names to monetize via pay-per-click and to sell on the aftermarket.

It sold the remainder of its portfolio over the past few months. It made a bulk sale of $1.9 million during the third quarter and $1.4 million after the quarter ended. (I believe that GoDaddy was the buyer.)

Tucows CEO Elliot Noss explained the change in the aftermarket business in the latest pre-recorded investor conference call (pdf):

We have owned our own portfolio for a little over a decade now, and it’s been a great tactical business, consistently generating sales in the range of $2 and $3 million annually, with relatively little ebb and flow, and with some years punctuated by a larger bulk sale or two.

Throughout this period, two things were true. We were always adding to the portfolio through the expiry stream and we were always needing to increase the transaction volume in order to maintain the same levels. At the same time, the underlying demand in this segment was declining as the increasing sophistication of SEO and related online advertising technologies reduced the returns on direct navigation domain names. We have all witnessed the maturation of online advertising technologies over this time as they evolved from a relatively blunt instrument to an amazing precision tool that now tracks every element of our life with great accuracy and provides incredibly efficient, if sometimes annoying, results. Through this maturation, the value of domain name traffic has declined to the point where we made the decision, starting a couple of years ago, to first reduce our exposure to this segment, and  finally, to exit it completely. We do want to note that the value of a premium domain name, as a name for a company itself, has never waned — it’s at least what it was when we started this exercise –and might even be up over time. Despite the fact that premium names was the segment of the market that we focused on, the value of leads was the primary driver for the health of this segment.

Tl;dr: Direct navigation and domain parking went to shit, which has dramatically changed the domain name investing business.

There’s some good news for domain investors in this announcement. Investors were annoyed that Tucows would cherry-pick expiring inventory for its own portfolio. Now it’s sending all of it to GoDaddy Auctions.

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