A look at how Dark Blue Sea values domain names.
Dark Blue Sea (ASX: DBS.AX) is one of the world’s largest holders of domain names, with over 550,000 domain names in its portfolio. It’s also a publicly traded company, which helps us peer in to see how the company works.
Only a small percentage of DBS’ domain names are profitable, in that domain parking revenue covers the approximately $7 per domain it costs for annual registration. The company holds on to many of these unprofitable domain names with the hope of selling them to end users. It views domain names as an insurance contract, according to its latest annual report:
The domain sales component is actually a chance of being sold at the offering price. This chance of being sold is similar to an insurance contract – there is a small chance of getting a big payoff.
That may sound more like a lottery ticket than an insurance contract, but DBS uses data to help find the winners that are most likely to payout. It has tens of thousands of domain sales to use as comparables, and uses search data to find domains with likely type-in or end user value. It also has sales data from its own domain sales — data that it doesn’t share with anyone else. It views this secretly held data as a competitive advantage, while its competitors such as Name Media hand the data over to sources such as DNJournal. (Name Media has an incentive to do this since it wants more domain owners to list their domains with its sales channels such as Afternic.)
In addition, the collection of the data related to the domain pricing characteristics, contributes further potential domain names that are suitable candidates for secondary market sales. Putting all this data together has enabled us to create a Domain Name Universe – a comprehensive list of domain names that can be broadly ranked in descending order. Those domain names ranked above a certain level are suitable for Dark Blue Sea to own and generate a financial return. Sifting through lists of domain names from the Domain Name Universe, we often find many suitable new domain names that are not registered. This is one of the main ways we find new domain names to buy.
All of this number crunching gives DBS a competitive advantage over the every day domainer. DBS is able to hand register domain names that it believes have value. The company sums up its advantage:
Looking through the Domain Name Universe, most of the better ranked domain names will be registered. However, as the value of domain names is not widely understood, many thousands of potentially valuable domain names are not renewed by their respective registered owners every day. So there is a regular supply of new names to review. This is another one of the methods we use to source new domain names.
This process isn’t 100% accurate, as it appears the company has started to let some of its domain names go in expired domain auctions (although reaping a high percentage of the sales). Or perhaps the company has updated its data models and is letting go of domain names that aren’t likely to sell.
Should you hold onto your unprofitable domains? Here’s how DBS would look at it. You should add your annual parking revenue to an weighted sales price of the domain name:
A (simplified) example may be illustrative. A domain name, which earns $5 in advertising revenue, is listed for sale at $500. It costs $7, paid up front, in registration expenses. If there is a 1% chance of that domain name being sold in the next year, (on average) we will generate revenue of $10 ($5 + 1% x $500) less costs of $7 for a profit of $3 on that domain. This is a (gross) return of approximately 40% on the $7 outlay. More generally, for each domain name, we need to model all of these components both in the first year (if we don’t yet own the domain name) and into the future. This is where the data is helpful.
Whenever you register a domain name, you probably think there’s a good possibility that it will sell. But consider what percentage of your portfolio you actually sell each year. It’s likely small — maybe 1% or 2%. I think this is a great way to look at domain values, and to make decisions to hold onto domains that aren’t covering the $7 renewal fee.
SA says
It’s not that people aren’t buying it IS that people aren’t selling as in agressively promoting and educating the end user community.
One person whom I respect has an approach that if you bring down prices that people will buy. I respectfully disagree and use the following example.
Rap.com is a landing page. Any creative domainer or entrepreneur knows that even if someone in the Rap industry bought the name for $50,000 that they could easily recoup that investments in days if not months with the right mix of products and celebrity involvement.
So why is Rap.com not in the hands of an end user? The end user doesn’t see the potential that I and I suspect other readers here can see.
Once they can make the connection or once we as sellers help them make the connection between a good generic and profitability I can assure you that price will be no issue and that the transaction will get done.
Passionately evangelizing domain names and educating end users about their value is the cure for slow domain name sales IMO.
David J Castello says
Right on the money, SA.
Stephen Douglas says
I am a big DBS Fabulous fan. However, several years ago, i had a problem with domains I was gathering and storing in their “shopping cart”. I put about 200 domains in there, deciding whether to buy, and figuring my budget to buy. I also tracked them to see if any were being picked off by other domainers so I could see if my “value picks” were on the money. I saw 20 or so domains every month out of the hundreds I selected get picked off. I took the time to find out who was buying them. Surprisingly, I found that at least four or five of the domains I selected and left in my Fabulous Shopping cart were actually purchased by subsidiary companies owned by DBS. I called them on it, and they convinced me it was just a coincidence.
Obviously I believed them since I use them and rate their services highly. However, my warning to any domainer is “don’t leave domains you want or are considering in a registrar’s shopping cart”. You never know who is tempted to buy what if they see your intelligent reasoning. Either buy the domain or delete it from the cart (although even deleting it may not clear it from the database).
A good domainer should be able to search for a domain OOTB, and buy it immediately if it’s available, especially if their gut and head say “good buy!”
This comment is not to demean any registrar, especially the fine folks at DBS. It’s just meant to teach anyone investing in a high-yield “guess” to either go for it, or remove it from the record.
Chris says
Hi Andrew,
Coming from the corporate publicly traded world, I have a completely different take on what DBS is really saying about domain valuations in their annual report.
Their #1 goal is to maintain shareholder value. There is a big squeeze going on behind the scenes. They are loaded to the gills with “assets” that are really considered (in an operational standpoint) as cost of goods.
Their huge cache of domain names that do not perform on a yearly basis absolutely kill the financials – and I’m sure many (shareholders) are wondering why in the heck they are hanging on to these “assets”.
In my opinion, they are rationalizing and justifying the model to keep the wolves at bay. Much of the rationalization can be duplicated by market data acquired by other means – all of which would never require them to hang onto a mountain of poorly performing assets.
Sure, I understand the lottery aspect of hitting big with a few domains. But let’s face it:
1. They have this data already via Fabulous.com’s customers.
2. If their data mining was effective, then they would be able to identify the winners and trim the losers from their portfolio. The argument for holding a huge portfolio goes out the window.
3. Single digit percentage sales on a huge under-performing portfolio would not be acceptable to me as the ceo.
Just my take. But then again, I have a nose for people writing to cover their posteriors.
Ken says
Spot on Chris. Your nose does you justice.
Stephen Douglas says
Hi Chris,
You don’t know the future of domain monetization if you aren’t up to speed on the new platforms for domain development. A lot of companies with large domain portfolios are seriously considering or already sending “non or poor performing domains) to content building companies, such as WhyPark, Evo Landing, TrafficZ and AEIOU. I think the rapid growth in this area of monetization for domains will surprise you by the end of the year or sooner.
Why? Because 85% of keyword generic domains still don’t get “typein” traffic from the normal PPC monetization model. However, these domains still are too valuable to just let expire. So, either sell, or build. This isn’t DBS “covering their posteriors”, this is just good business.
If any domainer owns domains that don’t perform under the PPC model, but still carry a great brand or generic description for a niche, then buildouts are reasonable, or selling them for a profit is reasonable.
I don’t see anything in DBS’s financial strategy that indicates they’re making mistakes.
DISCLAIMER: I am a Fabulous.com client, and the VP of BD at WhyPark.com.
Chris says
Hi Stephen,
I agree in principle – because we create, own, and operate hundreds of built-out websites. (Parking has always underwhelmed us re: revenue.)
I also agree with you about the value of brandable domains. I guess my argument lies in the whole “valuation” arena. What some people consider brandable, I consider junk. (Visited eBay lately? Afternic? Sedo? NameJet?) I’m amazed at what some people call “premium” domains. I’m confident that you know many fellow domainers who own many domains that are “weak” at best. These names are a drag on their financials and they hold onto them for some future domain monetization event or tool that will propel them to riches.
The dirty little secret is that if you have to build out your site *because the particular domain does not generate type-in traffic, then it proves that the “domain” by itself is really not all that valuable. The content is. (I can hear the shrieks now!)
By definition, people don’t find you via the name – but the content via search results or inbound links.
The reality is that as each year marches on, the Internet becomes increasingly inundated with websites, blogs, social groups, games, virutal worlds, cruft, and more. Some of these sites have great content – and they will and do stomp on holders of lightly developed 2nd tier generic domains in that same niche.
Google considers the Internet a cesspool and they have their battalion of PhD.’s working on ways to skim off the best and leach out the rest. (Read: Poorly developed sites and domains with no type-in value.)
We’ve run scenarios ad nauseum over the years that show us that one developed site in a niche generates un-matched revenue compared to dozens or hundreds of parked or lightly developed domains in that same niche.
And to add insult to injury, it doesn’t really matter what the domain name is for that developed site. The content and the domain name create (to the dismay of the hard-core domainers) a real brand.
I know it’s a very unpopular position to hold! (Spit shield down!) But I thought it would be fun to discuss.
Stephen Douglas says
Hi Chris,
Now, no bullshit here… but you said:
“The reality is that as each year marches on, the Internet becomes increasingly inundated with websites, blogs, social groups, games, virutal worlds, cruft, and more. Some of these sites have great content – and they will and do stomp on holders of lightly developed 2nd tier generic domains in that same niche.”
You also stated that content was more valuable than the domain in most cases where a domain is not performing.
The problem with your assessment is that the domain, in fact, is the BRAND, and should be memorable, preferably relevant to the content. That in itself makes the domain valuable IN RELATION to the content you put on the website. You can’t put up “123Balloonblowing.info” up as the domain name for a website telling how to find great whitewater rafting spots. The logic of that is plain. Maybe “123whitewaterrafting.info” could work with the content, but you’re still looking at a memorable brand to help you bring in and retain customers.
You can’t just build out a site and put content on it and then put a hard to remember, longtailed domain on it and say “what a success”.
If you can prove me wrong, I’d love to see you post three or four of your successful “no bullshit” domains pointing to those websites so everyone can see there’s “no bullshit” in what you’re saying. No disrespect intended.
koki says
you can check domain value from here
http://www.adminstool.com/domain-value