Why domain marketplaces deserve 20% (and if you disagree, no one forces you to use them)
Thursday, December 13th, 2012
If you don’t think domain marketplaces deserve their commission, you’re welcome to move your business elsewhere.
Whenever I write about the two big domain marketplaces, Afternic and Sedo, someone inevitably gripes about the 15% to 20% commissions they charge.
Let me paraphrase the common complaint:
“All they do is list all of these domains, and transactions just happen. They don’t deserve 20%.”
It’s true that the incremental cost and effort to a marketplace of selling another domain is basically nil.*
But that’s because they’ve created an active marketplace. Let me make a couple points.
1. It’s really hard to create a marketplace.
Afternic and Sedo didn’t just magically get an active marketplace with buyers and sellers overnight.
Think of all the other companies that have tried and failed to create a marketplace. If it was so easy to create an active market, then many of these new marketplaces would be successful and would have pushed down commissions overall.
Sometimes a new market comes online and one of its big selling points is supposedly commissions.
But until you have an active market of buyers and sellers, it doesn’t really matter that you have low commissions. ‘Cause you have no sales.
This isn’t limited to the domain industry. Created a marketplace anywhere is difficult. Think of all of those eBay wannabes from the early 2000′s. Sellers stuck with eBay because they had a bigger marketplace.
2. No one is forcing you to use one of the big marketplaces. If you think their fees are too steep, you’re welcome to stop using them. That might be more worthwhile than griping about it.
By and large, I’d say domain investors are capitalists to the core. So the complaints about commissions baffle me.
(* as marketplaces move to distributed models, they have to pay their partners a large portion of their commissions. But my arguments are the same whether a purchase happens on one of the marketplaces or at a partner site.)