Will a recession hit domain values and underlying pay-per-click revenue?
When TechCrunch covered Oversee.net’s $150M investment (see Domain Name Wire story), the popular blog suggested that a recession could hurt the domain industry:
Buying domain portfolios and domain-related marketing businesses is becoming pretty capital intensive. As long as there is money to be made in online advertising, domainers like Oversee.net will continue to do well. But if a recession arrives and online advertising takes a hit, so will the domain-name sector.
Readers were quick to dismiss the notion that a recession would hit online advertising, and thus domains:
Disagree on the recession point. In a recession marketing dollars will move into measurable, transactional media buys, i.e. online advertising. The efficiency of ROI is the thing. Traditional media gets killed, online suffers from a lack of inventory.
This has been the domain industry’s view for a long time: a recession will drive advertisers to smarter and better converting ads, which fuel domains. But there’s another side to the story, as another reader pointed out:
you guys are forgetting that recession will drive down consumer demand which means search volumn for services/prodcucts will drop (mortgage search terms have dropped)
so even if marketers want to spend more money, they will not be able to. . . matter of supply and demand
That’s a reasonable and fair point. If people aren’t buying big ticket items, searches for “cars” and “camcorders” may drop, thus hurting domain owners.
Who’s right?
Shane says
I’m not at all convinced that marketers would turn to more measurable advertising. I think it’s much more likely that they would instead retreat back into the traditional advertising that they know.
You have to remember that in most big businesses (who spend the majority of the ad dollars), the goal is to not get fired. And the way you keep from getting fired is by always taking the safe route. The Way We’ve Always Done It is the safe route.
Cutting the traditional ad budget to keep the online budget fully stocked is a risky move, and one I don’t think many big businesses would take.
Chris says
Both are right.
However, if you want a taste of the impact, you will need to look at the small mom and pop advertisers. They make up a *significant portion of the available ad dollars and are the ones who are selling crafts, software, ebooks, food, specialty services, niche products, and everything else that floats this entire ship.
I could care less if Ford, Toyota, Merck, Johnson & Johnson, Citibank, and Visa stopped advertising. (Have you ever really click on those ads?)
I would very much care if my musical instruments, crafts, specialty photo developers, specialty foods, and support services sponsors cut back. And they will if faced with a cash crunch.
Martin Edic says
That second quote is mine and it goes on to point out that buyers who are economizing are going to shop online, especially as we see more free shipping offers and higher gas prices. As an advertiser, I’d be moving my money away from traditional media and towards online- even if the overall buy is smaller, we get a bigger piece of the pie.
Steven says
Google’s stock price is a leading indicator for me when answering this question. If search volume would be stable or grow, so would google’s stock. However, google’s stock price has fallen about 12% in the last month on concern of a recession in the US.
Andrew says
Shane, funny that you say that. I just had that conversation with a friend about an hour ago. Big businesses don’t always do what’s rational. They’d likely cut all types of advertising x% or retreat back to what they know and what their CEO knows.
As far as online advertising is concerned, I wonder what the split is between big businesses and smaller ones. The “long tail” is rather large in online advertising.
Shane says
@Andrew: I know. It’s frustrating. I want them to do what makes sense, but too often it’s mostly about self-preservation.
@Steven: Great point. With virtually all of Google’s revenue coming from advertising, certainly their stock is an indicator of where investors think that market is headed — at least in some part.
Nick Wilsdon says
I agree with a lot of the commentary regarding internet marketing and recession. Overall this forms a very small part of the total ad spend of big businesses. One estimate I saw put that at 2%. This well tuned spend has a high R.O.I. so it’s hard to see how they could make many useful cuts from it.
We’re more likely to see cuts in other parts of the spend, which could include domain names. However while end user sales may go down, I can see an increased amount of activity among domainers themselves trying to pick up bargains. They tend to have a long term view.
I remember reading a post by Frank Schilling, where he talked about the dot-com bubble. While others were dumping their assets, he was picking them up as fast as he could.
Robb says
In a recession people will cut back on many things but they won’t give up their internet. People might go online more for fun if they can’t afford a vacation, trip, eating out, etc. I think domains would have to take a bit of a hit in a recession, maybe a good time for those with cash to make some good buys.
David J Castello says
Traditional media (newspapers, magazines, cable, radio) is severly overpriced when compared to the Internet. The only people who still support them are the media agencies to retain their commissions.
A recession may be the final turning point in favor of Internet advertising. With our PalmSprings.com, LagunaBeach.com, etc, we deal directly with local businesses and many of them, especially in the last six months, have been abandoning local traditional media because of the cost. On the other hand, we’ve seen an upsurge in advertisers.
don1 says
Recession, we are in one right now. Media is delaying what is real. It will only help the big companies, they have the cash to push the little guy out when it comes to search engines. Check out the example below they seem to do this in every state. Why care? because companies will start to do this with loans, realestate, and all products.
Example Type in the term california health insurance in google. Does google enforce double serving? You decide. Google to me is just like one big yellow pages, they have the same company put up different ads yet it all directs to the same company or same website in some way. In this example everything seems to lead to ehealthinsurance.com the mother of online health insurance. Is this fair? Of course we are talking about adwords and not naturall serach.
Now how do you think this hurts the local independent insurance agent? Or realestage agent, or whatever profession you are in.
At least yahoo watches this.
California-Health-Insurance-Rates.com
California.eHealthInsurance.com
Adam says
Doesn’t a decreasing supply of consumers who will buy mean that the advertisers will be pumping more money to grab those remaining dollars ? Supply/demand ?
Andrew says
Nick – Frank also said one of those “buying opportunities” may come up again soon
David – I agree, small businesses sometimes ‘get it’ better than big ones. Since I work with F500 companies all the time, I sometimes question their logic.
Adam – perhaps, as long as it’s profitable
All- I started buying U.S. stocks today. If domain prices drop — which I don’t think the premiums will for a while — make sure to have cash on the side to start buying. I fortunately have been holding back some cash to buy stocks when they dropped. Hopefully now is the time.
Bob says
This recession will be unlike anything you have ever seen, not only will it affect domain prices the internet will have to be shutdown but only for about 36 months.
Nick Wilsdon says
@Andrew
Yes I read the exact quote after I posted. Frank suggests there maybe “cyclical opportunities if the economy craters”.
http://www.circleid.com/posts/domain_aftermarket_asset_repricing/
Joel Gilgoff says
Domaining is still in its infancy – and industry does not have a clue as far as generic domain value. I predict continued rapid increases in name value – not based on current revenue but on the value of the name itself.
Johnny B. Good says
Regarding less searches, it appears that uniques are already dropping and thus searches too.
I keep some domains in portfolios that have been locked with the same domains for years and traffic is decreasing from what I can tell – so to me the recession already started.
This is Jan. and things should be rockin’, but it feels soft to me. Wait until this summer – it could get nasty.
What’s going to happpen? I don’t know. It seems all the points made above are valid – so its anyones guess on how companies will react this round.