From expired domains to live domain auctions, auction-fever helps some domains sell for above-market prices.
Take a look at some sales on SnapNames this year. SnapNames, a leading expired domain marketplace, auctions off domains to the highest bidder:
Now take a look at these domains that sold during a live auction at the TRAFFIC conferences this year:
Are these prices the fair market value for these domains? Perhaps. You might say that an auction determines the perfect market price for a domain name.
But science and psychology tells us something different. It’s called “auction fever”, and it sucks bidders in. Have you ever bid on an eBay and set a maximum price you’d be willing to pay, only to surpass that amount? I have. And I’ve done it in domain auctions too. I say “I’ll bid $500 for this domain, not a penny more”. But then when someone bids $501, something happens to me. First, I think that if someone else is willing to bid over $500 then it must be worth that much. Second, I hate losing, and I don’t want some anonymous domainer beating me. So I bid more.
I’m not alone. Here’s a great article about how auctions often result in irrational prices.
Want to create a high-profit auction? One strategy is to create “auction fever” around your sale by generating lots of hype, having strict rather than flexible deadlines at the end of auctions, and making sure winners and losers are visible to participants, says Harvard Business School professor Deepak Malhotra. “These might all increase the likelihood of overbidding due to auction fever.”
There are a number of times that a SnapNames auction comes down to two bidders. These two bidders fight each other, boosting a domain from $5,000 to $20,000 until one bails out. What would have happened if one of these bidders was on vacation? Or if one decided to focus on another domain? The final price might be $6,000 instead of $20,000. So what would you say…the domain is worth $6,000 or $20,000?
If you were to take a domain on SnapNames and sell it in a different environment, such as a negotiation on Sedo with one other party, nine times out of ten it will sell for less. I’ve often thought it’s a shame we can’t add our existing domains to SnapNames to be auctioned off as we would be able to sell our domains quickly and for more money than other venues.
Live auctions create even more excitement. Consider the live auctions at TRAFFIC conferences. If you had those same two bidders from SnapNames, and now put them in a room looking at each other along with several hundred other domainers, you can bet the price will go even higher. They don’t want to lose — certainly not in front of all those other people! Let’s face it, domainers have hubris. We don’t like to lose.
I’m not saying you shouldn’t bid in domain auctions. On the contrary, I think this is a great way to get some of the best available domains. I’m saying more of the opposite — when you can sell your names in an auction, you should take advantage of this opportunity.