What will drive the long-term value of short domain names?
I’m ecstatic that Chinese buyers are snapping up short domain names. It’s great for the resale market, it’s great for registries (new and old) that are suddenly selling lots of registrations, and it’s great for the registrars.
But I also give pause. After all, there are basically two things that give a domain name value: traffic and resale potential.
Some of these short domain names get traffic. But not hundreds of thousands of them do. And domain traffic isn’t worth what it once was.
That leaves resale potential as the main underpinning value of short domain names. Resale value can only be driven by the domainer-to-domainer market for so long. Ultimately, it has to depend on end users willing to pay a premium. We’ve learned this lesson from history.
There aren’t many end users willing to fork over 6 figures for a three letter .com. Even if a company is willing to pay $150,000, you’d have to sell a lot of domains you bought for $50,000 in order to cover your inventory.
Perhaps domain names are a store of value for people in China. Perhaps they are used to move money around. This is reasonable in the short term, but I question how this will work in the long run.
Domain name investor Sahar Sarid posted a comment on Facebook this morning, opining that the number of new listings of “long short” names will ultimately hurt that market, but shorter names will continue to hold value as long as many are held off the market:
How domain bubbles burst? It isn’t because the market is flooded by new owners wanting to unload but it happens when new listings that comes in the same pace we see today (expired or not) don’t attract buyers anymore. It happens because people either stop believing in the commodity or moving their dollars to other categories. It will happen on most of the 6N+ domains. 5N still have a great chance to get to the $ 10K per domain level in next year or two mostly for the fact that many are help by few who smartly won’t inflate the market with inventory and place them slowly into the market. That won’t be the case with 6N or 7N and other categories as the registrations aren’t controlled by few and everyone is already looking to cash out. Market will be flooded therefore won’t be able to sustain price. IMHO.
Do a relatively small number of people hold all of the 100,000 five number .com domain names? If so, will they artificially constrain supply in order to prop up prices?
That might work for a market in which one entity controls nearly all of the inventory, like with diamonds. But even the OPEC cartel for oil splintered. There are too many owners with different goals and time horizons.
Those that have been in the domain name industry for just a few years remember there was a run on four letter domain names for a while, followed by a steep drop.
Ultimately, fundamentals must underpin any tradeable asset.