Hard economic times may suppress domain prices, but how good is the buying opportunity?
I’m generally bullish on the domain name market. And I’m excited about the possibility of buying domains cheaper tomorrow than they were a year ago due to the dismal economy.
But there’s a flipside to this story that domain name investors need to think about before jumping in.
The last time domains were a great bargain was after the tech bubble burst earlier this decade. Dot.com companies and speculators dropped their domains. Savvy people like Frank Schilling snapped them up.
That downturn and the ensuing opportunity were very different than what we’re seeing now. People like Shilling saw how much money they could make from domain parking. The fundamentals of domain values had changed. It wasn’t just speculation; there was real income behind it. Also, the downturn was based on over investment (and unwise investments), but was mostly limited to technology with a trickle down effect to other parts of the economy.
It hurt, but at least everyone understood what was going on. I sit here writing this after the stock market dropped another 400 points today. The feds just gave a loan to AIG to help dismantle the the company in an orderly fashion. One of the world’s biggest money market funds “broke the buck”, meaning its value has gone down to owners who look at it as a cash equivalent.
What’s the next shoe to drop? This isn’t as simple as saying “yeah, selling forty pound bags of pet food over the internet is stupid”. It’s “we extended too many subprime mortgages, but that market has tentacles stretching far into the market and we have no idea where.”
With domain parking revenue down, is there another hidden gem for domain names that will create another wave of value? Or is the only value in buying during this downturn to get domains at suppressed prices from anxious sellers? I wish I knew the answer.
Elliot says
The way I look at it is that businesses will still advertise in order to generate sales. Online advertising continues to rise, and more people become active Internet users every day. With job losses, even more people will be online searching for jobs and becoming distracted with other things online. This will bring more money to our space. PPC might be down in the dumps, but good generic domain names on which people can build websites will still be of value. IMO, either buy domain names at great prices to resell down the road or develop (mini sites or full websites). While I am being very conservative with my acquisitions, I am still buying – while at the same time developing my names and adding pages and content to my sites.
Andrew says
I’m with you Elliot. The key is quality. I think chasing domains that are “rare” but don’t necessarily mean anything to anyone (say, nonsensical 4 character domains) is a mistake. Buying domains like FrenchRiviera.com, though, is a good idea 🙂
Rob says
Yes, these are challenging economic times and a few more large companies will probably see their demise before we get through this. In the big picture, though, we are just in another business cycle. And, like all business cycles, the pendulum will eventually swing the other way.
Despite the short-term bumps in the road, I think the the long-term outlook is fantastic for those of us who use this downturn to invest wisely (domains, real estate, etc.)
We are about to close on a large, waterfront house that is about 40% less than what the sellers wanted two years ago. (Now, if only I can find a great generic .com that has seen a similar price reduction :-).
Rob Sequin says
Andrew,
Good article but I’m not ready to believe the the domain market is in trouble.
I have been trying to buy traffic and rev names for a well funded client but have not had much luck finding anything for less than 10x annual revenue. For non-rev names I am making offers but not able to buy much.
I have gotten no sense of urgency from 80% of owners to sell and there has probably always been 20% of owners who have been highly motivated to sell.
I do notice that pro-active sales are down and there is a desire for quality and aversion for medium to low quality.
So, from where I sit, the domain business seems to be stable and quality is king, just like real estate I suppose. Next week’s TRAFFIC auction will be a good gauge of the market.
don says
The interesting part of the traffic conference is that the focus has been on the 3 auctions and great names to be sold, but not much emphasis on pr for buyers outside of the domain community. I think going to the 3 auction format is great for folks looking to buy domains, but will potentially make the buyers a bit more selective and could assist with keeping prices lower.
I dont think you will see any names go for over 500k at this event, but there are some nice priced names in the 10 to 100k range. I also think that more of an emphasis will be placed on domains that can be correlated to online revenue sources as developed sites (the finance names are a good example) versus some of the generic one word names that really have no direct biz correlation other than the type in traffic.
Robert Haastrup-Timmi says
Let me inject my prognosis of the situation as I see it. About a year ago, I wrote an article for Trendirama.com titled “Why Domains Are the Best Investments for Your Future” for anyone who wants to read it, you can click the following link where I still have it since Trendirama.com went down:
http://classifieds.blackworld.com/-1/posts/6_Entertainment_Social/48_Blog_Your_Views_Opinions_/156_Why_Domains_Are_The_Best_Investment_For_Your_Future_.html
I generally take a futuristic perspective to the Domain Industry and to the general global economy in general, and i’m not remotely suprised at what is currently happening on the markets. As far as i’m concerned, this is just the beginning of a massive crisis that will change “EVERYTHING”. Infact, there are those of us who believe cash will soon be trash and gold is where you want to park your money.
If you really want to know why, simply ask yourself a very basic question…do you really really believe capitalism in its current format is sustainable for another 100 years? That is where the answer lies! We have now entered an irreversible phase in our modern social economy. Look guy’s, the job losses you see now are never coming back! Why? simply because the internet is now about to enter its second phase of massive growth, and that is where if you are clever as a domain investor, you will make a fortune beyond your wildest dreams!! let me explain:
The types of people loosing their jobs on wall street and in the city of london are generally highly educated and this time those jobs are not coming back, because the environment has now moved towards a new kind of capitalism or euphemistically ..CAPITAL NATIONALISM. Anyways, most of those jobs can now be outsourced to ASIA to put it mildly.
So what are all these clever professional people going to do? and bear in mind a lot of these people still have bonuses or stashed cash! be patient…they will all start turning to the internet for all kinds of business opportunities very soon! The bottom line is, the internet is scientifically the paradigmn that catalyses human kind towards a ONE CIVILISATION ultimately, for those who understand what I mean.
Again, as in the words of Steve Balmer Microsoft CEO, everything you do, see or hear within the next few years will be online, therefore domain investments will be highly sought after, its just that simple! For intance, what do you think the Sony Reader or Amazon’s Kindle will do to books ultimately? therefore should a domain even as abstract as Bookdownload.mobi be valuable? It really all depends on whether you are the kind of person who thinks into the future or are you just buying domains simply because it sounds cool.
Domainers who think like Warren Buffet will come out tops ultimately, regardless of any market condition.
By the way guys, Morgan Stanley is next in line and probably will merge or be bought by the weekend…enjoy the ride and look forward to real business people eventually buying your domain assets. They have to do this ultimately, …because it is their future and your turn as a Domain Investor to make BIG MONEY!
(*notice the term Domain Investor, not Domainer…there is a difference.)
Andrew says
Rob et al: I do think the domain market is doing better than the stock and real estate asset classes. I also think that people are going to “re price” their domains more slowly than stock and real estate is being repriced. But I think we’ll find some desperate sellers offering really good deals. The catch is we’re in an inefficient market, making it difficult for those desperate sellers to connect with people like Rob who have buyers on the line.
FYI, if anyone has quality domain names they’re willing to sell at a multiple, I recommend contacting Rob.
MD says
There are too many players in the game to let good names slip away too cheap. But good opportunities will open for sure.
Curtis says
Interesting thread… mostly because I am selling my name at the Traffic auction in the 100k price range (deposits.com).
We’ll see what affect current market conditions have on the activity of my potential sale and overall (and more telling) the success of this event.
Andrew says
Curtis – at least people are more excited about “deposits” these days than “credit default swaps” 🙂
Scott Alliy says
Listen to the story about a man named Jed. Poor moutaineer barely kept his family fed (sound familiar to many domainers?) then one day he was shooting at some food and up thru the ground came a bubblin crude.
My point after what I hope those 50 somethings among us got a good laugh is that like the bubblin crude our long awaited returns on investment is imminent.
I agree with Rob that those educated people that have been misplaced will soon start foraging for opportunities to replace their jobs and lost incomes.
What has not been mentioned yet and what may surprise domain investors who are the benefactor of sales yet to be revealed is how and why those sales will occur.
Let me give just one example of how somebody would purchase your domain name for reasons that you probably never considered but hey a sales a sale!
Take the small cap companies. The thing that drives investment (err legal gambling)in these gems of companies is specualtion and hope.
So your name could be just what the doctor ordered for the small cap business to use to entice investors to throw cash their way and get on board before the new site they plan to build around their new domain name (formerly you domain name) explodes and leaks oodles and oodles of greenbacks for the company and of course those lucky few (hopefully many as far as the company is concerned) savvy (sure they are) investors.
Interested to know what other possible sales scenarios that domain owners see that other domain name owners may not have considered.
Curtis says
Thanks guys, I am realizing my name is not one you can easily appraise based on current revenue or hits as it has pretty much been unused (not even parked) until very recently.
For that reason I do not know what to expect, or under what scenario someone would be interested. A sale is a sale, and only the auction can really answer the current worth.
Yes… any other scenarios you can come up with for “deposits.com” would be very interesting to hear about.
SammIAmm says
I saw this mentioned on http://www.SubliminalMessages.Com and would like to add my thoughts. Some are pointing to recent auctions and saying “Look, prices are lower!” Their logic flaw, though, is that the domains that are being auctioned now are garbage compared to those that went a few years ago. Previous auctions consisted of single word premium .COM, whereas the new batches consist of crapolla .MOBI., .NET and even worthless .ME tlds. Also, many of the .COM’s that are listed consist of two and three words. Often, the adjectives don’t even compliment the noun naturally as in the case of PurpleCow. Is there really any surprise that the overall domain sales are much less?
In truth, generic .COM prices have gone nowhere but straight up much faster than any stock, bond, oil or precious metal. After 13 years, however, the good ones have ended up in institutional hands and are no longer being sold on the auction market. Investors and auctioneers are trying to make markets out of the garbage tld’s mentioned before, but the indisputable fact is that .COM is king. Period. Anything other than a .COM will prove to be a waste of money.
Joe says
I agree with you that .COM is where it’s at. They are truly precious .COModities. All the other extensions are garbage 2.0; and, when ICANN’s current vanity extension proposal goes down in flames, there will be a huge landrush to own a good, easy to remember domain which ends in .COM