China’s hunger for domain names has lifted all boats. What happens as the tide recedes?
There’s no doubt that China has had a profound impact on the domain name industry over the past 6-12 months. Chinese buyers have enriched people with short domain names and also boosted revenue at domain name marketplaces and registries.
How big of an impact? Take a look at these two slides:
The first image shows how much business Escrow.com receives from China. The second shows that over half of Domain Name Sales’ sales revenue last year came from China.
China has similarly boosted the fortunes of NameJet, SnapNames and Sedo.
This is awesome and was certainly a mood-booster at NamesCon this year.
But what happens if this dries up? Or when it dries up.
Even without a fall in domain prices, there’s only so long that trades will go through sales platforms. Joseph Peterson has written about how domain names popular with Chinese buyers are dropping with less frequency; Buyers are not purchasing them directly from owners.
Ryan says
I think that figure has to do with selling that large block of .link or .click NNN’s?
2% of leads, and 44% of sales is just bad data.
Andrew Allemann says
They certainly sold some blocks of names, but I think it’s still indicative of their results. Any lead on a 3 letter domain would have a high propensity to sell.
shanecultra says
Even more important. What happens if you were a person or company that didn’t make incredible money during that time? If you missed out on one of the golden ages of domaining (even if it only lasts a year) then you missed out on a chance to make tens, hundreds, or millions of dollars. Rather than worry about when it ends, worry about how the people that reaped now have more cash to weather storms or reinvest in short and one word dot coms and have a huge financial advantage over those that didn’t.
JZ says
unless you are already rich and own NNN.com’s then most people won’t be making much money…where is the big money? in regging 7N.com’s? the chinese will only buy at reseller prices 99% of the time so where is the money? unless you were smart or lucky enough to get in before the chinese started buying chances are most people won’t make much of anything. i get emails daily from the chinese but their offers are pitiful. sure if can turn $30 into $1500 is good but nothing to write home about. the main people making money off this already have lots of money, like frank shilling and his 2mil deal.
Ryan says
You are absolutely correct.
All the big China players already over pay on the daily auction drops daily, they do not blink about paying $69 for reg fee domains, and will pay into the thousands for the ones they want.
4L chips so to speak sell more on auction drops, then they do for fixed price, or brokerage house listings.
If you want to dick around and invest $2K, to make $50 go right ahead.
These Chinese know what they want, and if you don’t already own it, don’t bother chasing it, you will just lose.
I sold about 40 chips last month, to some person from China that had a domain banker email, it was a nightmare, no communication, their whois info didn’t land right, they wouldn’t communicate with escrow, in the end it got sorted out 10 days to late, but whatever it wasn’t easy.
A lot of activity was western domainers chasing the Chinese domainers to the domains when they were rising, when they started falling, and flat lining, those western domainers are now trying to break even.
Domain Shane is all rahh rahh the only guy who was at the party, but didn’t get laid, he keeps hyping it because he needs those click commisions.
You are not going to beat the Chinese at their own game, unless you are already holding such domains.
Good luck
Joseph Peterson says
@Shane Cultra
Gloating about a buddy’s success rather than one’s own is as obnoxious as it is pitiful.
The question here being discussed by adults is how the domain industry will adjust to declining revenue (or non-growing revenue) from China. Those of us who work full time in the industry are interested in that question.
Todd says
Chinese investment unarguably boosted revenues for DNS, NJ, GD, SN, Sedo, and other sellers in 2015. When these sellers run out of short domains (NN NNN NNNN NNNNN LL LLL LLLL), the Chinese will be long gone.
@domains says
Let’s not forget China is a country of almost 1.4 Billion people (bigger than USA, Europe and Canada together) that really started becoming visible on the domain scene in the past year, with a population that has generally been increasing its wealth for the past decade or more. They are after the short domains that have always had value, and pushed a little more into longer domains (LLLL, NNNNN) that previously didn’t have much value. They’ve also pushed into domain extensions that used to be less valued (anyone noticed short .co, .biz, .me have been rising?). The short number and letter strings that have meaning in China just don’t have enough supply in .com alone for everyone that wants them now (this was mostly true even before China showed up).
The domain industry appears to be growing and developing in China, and in some ways appears even farther developed than outside China with many sites dedicated to keeping track of sales and figures.
My feeling is 2015 was only the start. It doesn’t mean prices will go straight up, or that there won’t be pullbacks or times of stability in prices, but Chinese domain investors are now players on the scene and with all the domain conferences going on in China this year, the amount of domainers and awareness will only grow. Some will get burned by taking patterns and domain length too far, or by exotic extensions, but the days of LLLL.com and NNNNN.com selling in forums for $15 each are gone forever. Is it realistic to think that all the new Chinese domain investors will just go away?
For domains, the demand side of the equation is increasing while the supply side of meaningful short and descriptive domains in relevant extensions is finite.
When China started ramping up their building and infrastructure development 20 years ago, they were moving world prices for copper, oil, lumber, and other commodities. When they turn their attention to something it usually results in significant changes to market dynamics.
Everyone has an opinion but that is the question of 2016, whether the Chinese domain market will hold up. I think calling 2015 a bubble or some kind of market manipulation or money laundering scheme is too simplistic. Time will tell.
Joseph Peterson says
@@domains,
China is big. But that explains little. China was big prior to the surge in purchasing. India is equally big today. Soon India will be bigger. Yet the Indian domain market remains relatively small. While “CHIPs” were trading at $15, China was big. So China’s size guarantees nothing about the Chinese market demand for domains.
Remember, these domains are seldom being used. Mainly they’re being purchased by traders hoping to sell them to other traders at a profit. That motivation to buy domains vanishes once traders no longer believe they can profit from ongoing growth. And once prices flat-line or decline, then the faith in profit loses its momentum. Even in a best-case scenario (i.e. without a market downturn), prices will stabilize. And that very stability kills the speculator’s motivation to invest.
So, in a sense, many Chinese domain investors really will just go away. They’ll drop their speculative bets and exit the market, reducing demand even for more robust asset classes within the Chinese sector. Now, I’m certainly not saying that all Chinese domainers will disappear; they won’t. Market demand for LLL.com and NNNN.com domains isn’t going to fall below its pre-Chinese-surge values. Actually, I expect market value will settle above that, even in a downturn.
Furthermore, in such a closed system, it’s a mathematical CERTAINTY that the average transaction will not profit. We’re looking at a zero-sum game. That reality has been masked by the fast pace of growth, but such growth is unsustainable. Domainers holding their Chinese-style domains for a year will begin to sell at a loss once growth slows beneath 17.6% anually. It’s a bit like the movie “Speed”.
Thanks to commissions, domain traders begin to lose money even before prices flat-line. Even in such a growing market, the average person will sell at a loss.
It’s important to note that intermediaries such as market places, brokers, and guys earning affiliate commissions will continue to make money from transactions even if the seller eats a net loss. So the viewpoints they express will reflect that motivation.
Max Menius says
I mostly agree here with Joseph’s statement:
“So, in a sense, many Chinese domain investors really will just go away. They’ll drop their speculative bets and exit the market.”
There was a lot of Chinese money pouring in with no real plan or reasonable means of recouping their investment. A bubble. Kudos to those who were in the sweet spot and made money, but there was no strong rationale at play. Sort of akin to momentum buyers chasing a stock they don’t really understand.
Over the long haul, prime generics still possess the best value and investment opportunity. The next few years in domaining will be extremely interesting imo.
Todd says
Saying “Chinese domain investors really will just go away. They’ll drop their speculative bets and exit the market” makes no sense. By exit, do you mean they will drop their domains or do you mean they will sell them back to the rest of us at a discount? (HA! I wish they would do that with the homes they purchased in my neighborhood.) Find any short .com domain that has sold to the Chinese in the past year and contact the owner to see how much you can buy it back for. Please post your findings here so those who don’t know already will be more clear on what’s really going on. The Chinese are the high rollers who play the $5000 slot machines while the Americans/Europeans stand in awe of the $5 machine and most can’t even afford the buck machine.
The facts are, the Chinese began closely analyzing the U.S. real estate market in the 80s. They decided to invest heavily in Los Angeles, San Francisco, Seattle, New York City and Boston. They have continued to do so every year in these cities for the past 25 years. In 2015, the Chinese purchased more than $400,000,000,000 in real estate in those five cities with 80% being cash sales. Eighty percent of 400 billion is a lot. That’s $320 billion in cash to be exact. No other group spends big money in these markets like the Chinese. Period.
The Chinese began closely analyzing the domain market a few years ago. They decided to invest in NN, NNNN, NNNN, LL, LLL, and LLLL. In 2015, the Chinese purchased less than $200,000,000 in domains. To the domain world this may be a large investment but to the Chinese, this is pocket change. 你是没见过什么还没有 (That’s Mandarin for YOU AIN’T SEEN NOTHING YET.) In 2016, we may see $100,000,000 domain investment coming from a single Chinese entity alone.
If you have real estate in San Fran or L.A. or if you have short .com domains, expect appreciation in these assets because of domestic and international demand, primarily from the Chinese.
Joseph Peterson says
@Todd,
We’re discussing domain names here, not San Francisco property. Mixing the 2 only confuses the issue.
Many domainers, not just you – domainers all the way up to Frank Schilling – have pointed at Chinese real estate investment abroad as an analogue to the domain market. That’s understandable. We’ve all tried to make sense of the 2015 surge in various ways, and it’s natural to look at what Chinese investors do in other areas such as overseas real estate and the stock market. But there are some crucial differences that (I think) make this an ineffective comparison:
(1) In real estate, Chinese investors have been actively buying property for decades, as you yourself point out. They’ve been doing so quietly and consistently. At no point did they cause prices to rise abruptly by a factor of 100 year to year.
(2) In real estate, Chinese investors have entered our market on our terms. Real estate is a well established market that precedes them and will carry on with or without them. Whether they’re acquiring apartment buildings, shopping malls, mansions, condos, or houses, they pay prices based on local demand for housing – non-Chinese demand. In fact, they aim to rent out or resell this property to people living in the area. In other words, we’re looking at China entering a non-Chinese market, selling into a preexisting buyer demand from (let’s say) American or Canadian tenants.
The Chinese domain market differs in crucial ways:
(A) Most housing is actually put to use, whereas most Chinese-style domains registered or sold during the recent feeding frenzy will not be used.
(B) Domain market price spikes and buyouts have been worrisomely abrupt.
(C) This 2015 surge in the Chinese domain sector is a phenomenon internal to China. Even though Western domainers have sold to China, this isn’t a case of China participating in a relatively stable Western market.
If what I said makes no sense, then please tell me what’s confusing about it; and I’ll try to phrase things differently. If what I’ve said is wrong, then please refute me.
Todd says
Yes, I said the Chinese have been investing in real estate for decades but it hasn’t been quietly at all, quite to the contrary. They make a lot of noise when you are bidding against them. Yeah, it’s pretty hard to make prices rise 100x considering the already existing value of premier California real estate but they did, in fact, move the entire market. What city do you live in? Are you in a position to pay cash for a home in Palo Alto or Palos Verdes, CA or would that be a bit on the expensive side for you? The Chinese move big markets on a daily basis. The entire domain name market has a relatively value that is tiny and the Chinese knew their domain investments would drastically move prices up. They can read English too and I am certain you are providing them with some laughs.
In domains, like real estate, Chinese investors entered the market on our terms as well but that makes zero difference. What is important is that many domainers, not just you – domainers all the way up to Frank Schilling – claim the Chinese are not developing these sites and you are absolutely wrong. The Chinese develop out a much higher percentage of their domains than anyone else. Where do you make up your information? In ten minutes they can build out a site that generates thousands per day. Yes, they can. They buy the good short names so they can build later. They know all this good “real estate” will be needed later to build on. Is that so hard to understand? It seems natural to me as a domainer. It was a little harder for me to understand as a Registered Investment Advisor but I get it now.
You say, “We’ve all tried to make sense of the 2015 surge in various ways, and it’s natural to look at what Chinese investors do in other areas such as overseas real estate and the stock market.”
I’m not trying to figure out what’s going on. I know what’s going on. You’re the one who can’t seem to figure it out but insists on writing about it. The Orient Express is coming. Get off the tracks.
Joseph Peterson says
@Todd,
You claim: “In ten minutes they can build out a site that generates thousands per day.”
That’s plausible. And you ask me: “Where do you make up your information?”
This is called irony.
But when you say of yourself, “I’m not trying to figure out what’s going on,” there I concede you’re absolutely correct.
Ivan Rasskazov says
Population size is important, but it is not a sufficient investment thesis. You can look at the Chinese failing to develop internal consumption as an example. For many years the investment industry believed that post 2008, China was going to keep improving incomes and internal consumption would develop thus “saving the world” from the post 2008 global economic slowdown. That has not happened. In fact, Emerging Markets have failed to adequately develop as anticipated. That doesn’t mean nothing good was accomplished in the meantime, but it does caution us at extrapolating too much from population size.
For example, sudden change in internet or registrant regulation in China could completely grind domain ownership there to a halt. Thus, political and regulatory climate can be a more important factor here. Also, $10 renewals are still an expensive proposition for someone who is making $1,000 per month and has to worry about rising costs of an industrializing society. (This doesn’t even consider brokerage acquisitions that carry higher fees at first as Joseph pointed out).
Is China going to go away completely? No. Things rarely ever disappear, but the pace does feel unsustainable at this time.
Who is next is an interesting question. Do we see a resurgence in developed markets? (North America/EU)
michael ehrhardt says
cambrian explosion…
Jeff says
Excellent discussion!
vicace says
china does have a large internet user base.. so normally it would also return a large domain name registrations as welll. good article.. thank you for posting
Andrew Allemann says
There are some valuations from this boom that probably aren’t reversible. I think 3 letter domains have all increased in value — when a U.S. company tries to buy one from someone in China, they will be quoted a high price. This will become the new norm.
As for, say, 6 number .com’s, their continued valuations are entirely dependent on China. No one in the West really cares about them, other than to flip for a profit.
Zhang YaChuan says
Seeing so many “they, the Chinese”, I figured sharing opinion as “we the Chinese” for a change. But on a second thought, although the Chinese domain investment circle is not too big, still big enough for me better not to represent as we. So my opinion would mostly stay as of an individual Chinese domainer:
There are meetings, gatherings all year long here, plus convenient socializing apps like qq and wechat, so domainers are well connected here. The domain types big players here deal with are Pinyin besides the short number/digit ones. Depending on meaning, a two-word pinyin could sell from six to eight figures in CNY. And it’s quite transparent how many of each type of domains one famous investor has. We hardly reach out to end-users directly, but once we do, the chance is rather high. Because it’s the relation working. For what I see, this business is still on the rise, because there are not many products can be as convenient and profitable as domains. It says, domaining is the most safe and worry-free investment. Sounds very much like a hype, but please go ask any Chinese domainer you know, has she/he heard any bad news like those lost money in other investment areas like stock market. People can afford the registration fee if the hand hand-reg’ed domains didn’t get sold. If it’s bought as a premium, then it’s always a premium without your extra work to market. It’s easy to flip.
China is still developing, companies are founded and closed, but domains don’t go bankrupt as the company. New ones are still in majority, either companies or domainers. But good resources are limited, in addition, only a handful of TLDs with MIIT license(http://www.miit.gov.cn/n11293472/n11295276/n16735878/16866521.html) are allowed to use Chinese servers, so the choices are limited too. After the just finished CNNIC meeting, we know it’d be harder for other TLDs to go in China market. That leaves only the TLDs on that MIIT list can be invested and used here. The new extensions are a lot cheaper, either hand reg or premium, but seeing their development and crazy increase, people begin to recognize and put hands on. Interesting thing is that, I’ve seen big players being arrogant and sniff at new TLDs half a year ago, and now they themselves start to waving newG flags.
It’s always about the end-users, whichever the TLD is. You see Godaddy slipped to the third biggest newTLD registrar, beet by Chengdu West and Alpnames, .com will not fade here soon, and now there come the new TLDs like .top, .xin, .wang, the market here has never been this booming, although it’s cooling down a bit, people are cashing before Chinese spring festival. Let’s see if I’m right about the booming after Spring Festival in February. Happy new year all!
Ivan Rasskazov says
Thank you for adding your perspective as a Chinese domainer and market observer. I think it is safe to say, at least in my case, the West does not always have a good grasp of the internal workings of markets in China. This is in part due to cultural differences and in part because it is harder to know where to find accurate information. Thus, we fall back on general analysis we employ in other industries. If something rises rapidly, it has the tendency to drop rapidly as well.
In your view, how far can price appreciation reasonably rise and what risks do you foresee from possible regulatory changes (or environment as a whole)?
Happy New Year!
Zhang YaChuan says
Likewise, we also buy English domains sometimes trying to sell to the West, and many of those domains would be quite stupid in the native speakers’ eyes – cultural difference. Language is the biggest problem. Big players don’t speak English, as China is spacious enough. If you see they reply your inquiry emails in English, that’s likely written by their college graduate assistant.
“If something rises rapidly, it has the tendency to drop rapidly as well.” agreed. But domains here don’t rise that rapidly, instead steadily. Premium .com domains generally have a fixed increase rate by 18% here in China, leaving enough profit to offset inflation and beat bank interest rate. So you buy a good name for 100k, you know it worth at least 118k next year. Big sales reported are not always real.
Good domains are usually held in hands of years’ long professional domainers. Very often, deals happen within the domainer circle. Some types are traded like commodity, by amount, eg, 4/5/6digits, 4consonants. There is no directly related law for domaining, a real name verification tops, but it doesn’t affect in a bad way at all. I don’t see any other alternative investment direction big Chinese domainers could shift to in at least the next 5 years: stock market is abnormal, and bulk commodities plummeted. real estate is a bubble, physical stores are harder and harder to sustain because of high rent fee. Online businesses are dominated by BAT, and many IT startups can’t survive for three years because it takes a lot of money to promote a new service here in search engines results, in APP stores, online shopping pages, mostly the first ones are chosen – all about ranking. Chinese care about that very much, so we see the biggest this, the tallest that and the most etc etc. Speaking of which, I think that’s one of the reasons the extension .top is so popular here, beats even Pinyin .wang(king & web). One tip here, if you need to do business with Chinese companies, saying your are a top one in what you are doing(even your town) should help get you taken more seriously.
Steve says
Awesome comments! Thanks for adding a first hand perspective.
Do you think Chinese companies and individuals wanting to reach outside of China should be using a .com, .net or .cc as they seem getting the highest bids in some of the aftermarket auction sites and have been around for many years?
Most business’s operating outside of China and wanting to reach in should possibly consider the extensions you referred to especially .cn. There are risks with a cctld run by a government that has many rules regarding it’s use though.
Happy Spring Festival to you!!
Zhang YaChuan says
Currently still the .com. Many wouldn’t give a glimpse to the other tlds whatever they are. .cc is played by a small group of pure investors, with hardly any enduser, similarly cases are .gg and .tt. Chinese like it double and double means good and auspicious. But these extensions have no MIIT license, so it’s a no for long term investment here.
.cn is ok, but is not played by major domainers. Because of an action by the operator years ago, almost no domainer deal with it anymore, leaving only the website builders. For businesses wanting to reach in China, I think as long as the domain is not too difficult, for example very simple and short word or digits should be fine, but sullivanandjohnson.enterprises would be like mission impossible for many of the Chinese.
Steve says
Thank you Zhang for your honest comments. So .com is still King? That is good if that is the case.
I do get many inquiries for short LLL.cc names, almost every other day so it must be from pure domain investors. Even 6N.cc’s are going for hundreds of dollars with the right number combinations at Pheenix auctons.
Also your comments regarding .cn are very interesting. Yes there were problems managing .cn several years ago but it seems to be better now. I have several idn.cn names which I was hoping would be used in China.
When you travel around China and see advertisements is it in .com names? .com was not on the list of approved extensions you mentioned. Are they allowed to be displayed in China or does the firewall block them?
Thank you again very much for your advice!!! Very helpful!
Zhang YaChuan says
Yes, .cn is getting better.
In China, .com websites have no obstacle at all, though it’s not licensed by MIIT. However the policies change, Verisigns special situation will be considered as .com have been around from the every beginning. I think every Chinese that knows what a website is knows a domain name usually ends with .com. So don’t worry it’s market in China.
But there is also a thing can’t be ignored: since the new extensions came out, the domaining environment changes, even if .com is considered king – old king more properly, the new extensions are rising new power, young and available. The website domain names are no longer in .com’s monopoly.
Steve says
What extensions are you investing in?
bladel says
High-value Domains as Capital Flight?
chrisco says
Any suggestions on best way for a private seller (me) to market these names to Chinese buyers willing and able to pay $XX,XXX? Thank you, Chris
20009.com
420.vc
yum.nu (“nu” means “now” in Swedish and is very popular here)
p2pal.com