Rapid trading of domain names might reduce their value.
We’ve seen a new phenomenon in domain names in the past couple years: domain names that get around.
Chinese investors have piled in and helped turn short domain names into tradeable commodities. Some domain names have been traded multiple times within a year (sometimes within a month!).
So here’s a question that’s been on my mind lately…
Are domain names worth less if they’ve been traded between lots of owners?
I think they are because it complicates their chain of custody.
If a three-letter domain name has been owned by the same person for ten years, there’s a pretty good chance there aren’t outstanding disputes involving the domain name, such as a domain theft claim.
On the other hand, if a three-letter domain has multiple owners in historical whois records, any one of these transactions could have been a theft or illegitimate transfer. As a potential buyer, you might need to contact each of these previous buyers (some of whom might not speak your language) to make sure the domain isn’t stolen. This adds a transaction cost.
I also think that a domain name that has been transferred to eName at some point in time also raises the transaction cost. There was a time when it seemed like we were reading about multiple alleged domain thefts each month that involved domains transferred to eName. To be sure, there have been lots of legitimate purchases that result in a transfer to eName. But there have been lots of allegedly illegitimate transfers as well.
I believe anything that casts a cloud over a domain name’s ownership history reduces its value, and this includes multiple transfers…even if they are legitimate.
thelegendaryjp says
My experience, once a name has a reported sale price attached to it, try selling it to another domain, not easy! End users are a different story of course but domainers do not enjoy paying more than the last guy, truth.
Andrew Allemann says
That’s a good point as well, if a domain sale has been publicly reported.
thelegendaryjp says
It’s true as a domainer you look at past sells, see the one you want, see what was paid for it (taking years into account of course and factoring appreciation) and there is something that makes you stop. Is it because that domainer has been hawking it for X years and cannot get more so why would I as a domainer pay it, perhaps? Especially if you flip for a living. All of a sudden you find it listed X number of places and your taste for the name disappears or at leats it should lol
Now in saying all this how the Chinese buyers look at it may be another story, time will tell.
Ryan says
If you look at what Chinese have done in real estate in foreign areas, you can contribute the same similarities to domains.
Chinese buyers who are not actual domain users, have no emotional attachment, it is purely a margin for them. I actually had a interesting conversation with a domain broker back in the hey day who told me he just wants to make $X amount per domain, and he is out.
They were using a very tight set of criteria, and in, and out strategy.
They will be seeing their fair share of UDRP’s from corporate trademark holders in the coming years, and will be left scratching their heads to WTF just happend.
Ivan Rasskazov says
Presuming domain sales will continue to see increased liquidity in the future, repeat transactions will likely increase as well. We should get to a point where high turnover of a single domain may raise analytical questions, but not discomfort.
IR
Joseph Peterson says
“I believe anything that casts a cloud over a domain name’s ownership history reduces its value, and this includes multiple transfers…even if they are legitimate.”
If even 1 single person sees less value in X or can rationalize backing out of a deal to buy X, then X definitely has less value simply because 1 potential buyer is reluctant to buy it.
Some domains have only a small number of potential buyers. So 1 person’s reluctance can have a HUGE effect on the asset’s market value.
In the case of Chinese-style liquid domains, the number of potential buyers is quite large. So 1 person’s reluctance has far less effect, perhaps even shrinking to insignificance.
The real question, then, is how many potential buyers perceive the situation as you do, Andrew. Perhaps only a minority of potential buyers care about due diligence. Then most buyers won’t even see those repeated domain transfers – much less worry about them.
Any buyer’s trepidation has some effect on market value / liquidity. But it’s an open question how much trepidation there is market-wide and how much effect that has. You could try to measure that in a poll, actually.
Yes, liquid domains are traded frequently, which may be cause for concern … for some people. But any one buyer’s reluctance matters far less in this sector than it does in other domain categories.
So my hunch is that – if we’re looking for domains where perceived risk has a strong effect on market value – we should be looking at other domain categories and/or other kinds of risk.
For example, perceived market volatility can make some of us reluctant to jump into the Chinese market. Perceived lack of liquidity, meanwhile, affects wholesale prices in other areas. And certain domain names are avoided due to the risk of UDRP / RDNH. These other factors can have very pronounced effects on market value.