The tiny Pacific Islands nation of Tuvalu, population 10,444, has survived for years by selling stamps and fishing licenses, and by collecting foreign aid. But thanks to an alphabetic quirk, the country has been the target of an Internet bidding war as companies compete for the right to sell Internet names and electronic-mail addresses ending in Tuvalu's country code, .tv.
The deal went to a company backed by Idealab, the Pasadena, Calif., Internet business incubator responsible for online retailer EToys and free Internet service provider NetZero.
Idealab's start-up, called DotTV, recently agreed to pay Tuvalu (pronounced too-VAH-loo) $50 million in royalties -- or about three times the country's gross domestic product -- over the next decade so it can sell electronic mail and Web addresses ending in ".tv" instead of the ubiquitous ".com."
Idealab figures that DotTV can make hundreds of millions, and perhaps billions, by selling Web sites such as "www.Law&Order.tv;" and "www.ABC.tv." Networks and TV programs are primary targets, but DotTV expects .tv to appeal to a variety of organizations and individuals.
The company thinks that most of its .tv names will sell for several thousand dollars apiece, but some could go much higher. The record price for an Internet address is held by Business.com, which was sold by a Texas company last year for $7.5 million.
Some observers doubt that DotTV can create an instant gold rush for .tv Web addresses. "What people have gotten used to saying, hearing and typing is '.com,'" says James Korris, executive director of the University of Southern California's Entertainment Technology Center. "For most people, 'dot-com' means a Web address. With all due respect to the people of Tuvalu, I'm not sure it's an idea that's going to take."
What is clear is that DotTV's minimum payment of $1 million each quarter to Tuvalu makes this the nation's single-largest source of income. The country expects to spend its windfall on health, education and transportation.
"We were very, very, very poor, but now we are getting some money from the marketing of assets like .tv," says Koloa Talake, a 60-year-old member of Tuvalu's parliament, who helped negotiate the Idealab deal and holds a seat on DotTV's board of directors. But, like most of his countrymen, he has never seen a Web site.
Tuvalu is a collection of nine atolls halfway between Hawaii and Australia that together are a little larger than Los Angeles International Airport. The Polynesian country, which gained its independence from Britain in 1978, has no natural resources except fish. With poor infrastructure it attracts fewer than 1,000 visitors each year. "The Lonely Planet" travel guide hails Tuvalu as a place to "sit under a palm tree and never be bothered by anyone."
Each of Tuvalu's islands has a hospital, but the government couldn't afford to staff all of them until the .tv deal came through, Talake says. The .tv money will also pay for classrooms, training for teachers, roads and more frequent ferry service to Tuvalu's outlying islands, which can take two days to reach, Talake says.
"We are very lucky to strike such a deal," Talake says. "We will be able to build things we would otherwise not be able to build. I know there are some countries here in the South Pacific that are very jealous."
This isn't the first time Tuvalu has tried to profit from technological resources. In the 1990s, it struck a deal to let a Hong Kong company use phone numbers for a 900-number business. But officials in the Christian nation moved to cancel the $1.2 million-a-year contract after they discovered that the numbers were being used for phone-sex lines.
Government ministers suspected .tv could be a bigger gold mine. They rejected several other offers before accepting a $50 million deal from a Canadian entrepreneur in 1998. But he was unable to make the payments he promised, so last year he recruited Idealab to get involved. Idealab then created DotTV. (The entrepreneur, Jason Chapnik, remains on the company's board.)
DotTV Chief Executive Lou Kerner is confident he can succeed where Chapnik failed. He has assembled a board of advisers that includes former Universal Studios Chief Executive Frank Biondi; former E! Entertainment Television Chief Executive Lee Masters; and Jim Chabin, president of the Academy of Television Arts and Sciences. He struck a series of deals with partners he describes as big-name entertainment companies, although he is not ready to reveal who they are. And in a test this month, he says he sold 200 Internet names ending in .tv for a total of about $250,000.
"It's the most recognizable two-letter symbol on the planet," Kerner says. "When you marry 'dot' with 'TV,' you become something very meaningful [on] the Internet."
Besides, he says, "everybody knows the problems with '.com' -- it's cluttered, it has no cachet and it's difficult or impossible to get the name you want."
The rush to reserve names ending with the popular .com has been overwhelming. More than 8 million .com names have been registered, compared with 1 million names in .net and .org combined, according to Network Solutions, the company that keeps track of registrations.
The .com was designed for companies, .net was reserved for Internet service providers and .org was meant for nonprofit organizations.
To create more space for Internet names, entrepreneurs have begun persuading countries to let them sell names ending in their country-code suffixes. Tuvalu's South Pacific neighbor Tonga was the first country to agree to do it in 1997, though its .to code isn't as catchy as .tv.
Moldova, a former Soviet republic, gave a Florida company the right to sell Internet names ending in its .md to physicians and hospitals for $299 a pop.
After signing up about 20,000 names in two years, the Florida company, Domain Name Trust, sold the franchise to Atlanta-based MedAscend for $10 million.
"Depending on which story you want to believe, there's going to be somewhere in the neighborhood of 100 million to 150 million [names] registered by 2003, but everything in the English-language dictionary has been taken," says David Sams, a Beverly Hills entrepreneur. Others believe that plenty of room is left for names ending in .com.
Richard Forman is chief executive of Register.com, a New York company that registers Internet names with the traditional .com, .org and .net suffixes. He estimates that with 400,000 words in the dictionary, potentially 160 billion combinations of two-word Internet names exist.
It all sounds good to Tuvalu. Most of its residents are subsistence farmers and fishermen who have yet to log on to the Internet, because it is available primarily to the government and businesses.
"A lot of people have heard about it," says Talake, "but not many understand it."