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Can you make sense of $41.5 million for .Shop?

GMO Registry’s outlay for .shop is difficult to rationalize.

I’m still trying to wrap my head around GMO Registry paying $41.5 million for the .shop top level domain name. .Shop is a monster TLD, but it’s hard to justify this upfront cost for any top level domain name.

I’m not alone. Of the seven participants in yesterday’s auction for .Shop, only two were willing to pay more than $15 million for the domain name.

Clearly, GMO is in this for the long term. Any company that invests $41.5 million plans to be in the business many years from now.

Yet, with short-term results for new TLDs where they are, it’s difficult to figure out how GMO will earn a good return on investment.

Couldn’t GMO just sell a million annual registrations for $40 each? That might be one justification. But that’s much easier said than done.

Every single top level domain name that has over 100,000 registrations has given away domains or charged very little, such as a buck or two.

Additionally, every one of these top level domain names has only boosted its numbers by getting speculators to buy their names.

GMO has different plans for .Shop. It plans to forbid the purchase of .shop domain names for the purpose of selling them. It could create a loophole or two in its final terms, but this will dramatically reduce demand for .shop domains.

Additionally, the company hopes to work with registrars to offer additional services on top of the domain name. Think Shopify or BigCommerce subscriptions, and suddenly the monthly revenue per domain can be much higher.

But registrars have been hesitant to offer additional registry-offered products with domain names. They’d much rather sell their own e-commerce platforms and hosting.

And this begs the question: Would you rather own .shop or have .store and millions more to invest in marketing? I don’t know how much .store sold for. But it probably seems like a bargain compared to .shop.

In its application, GMO says that it “anticipates that a significant number of business owners who are currently operating under domain names registered in existing TLDs will switch to using a .SHOP domain name as their primary online identity.”

This is doubtful. The company might be able to convert some companies with bad .com domain names to .shop, but history tells us they’ll have to count on new registrants, not ones switching from .com. (Note that GMO Internet, an affiliated company, paid $6.8 million to buy Z.com for its global expansion.)

A lot of new TLD applicants have privately questioned people paying even $10 million for a top level domain. I wonder what they’re thinking about $41.5 million.

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  1. Colin Campbell says

    Andrew,

    Clearly .SHOP is a top name. I think it has value based on the fact it appeals to ecommerce sites allowing them to charge a lot more than most TLDs. I wonder though at $41.5 million, following .APP at $25 million and .law at $19 million if we aren’t in some kind of bubble here. .CLUB arguably the most successful to date paid only a fraction of what these companies paid. Did we get a bargain, did they over pay, or is it somewhere in between?

    Colin

    • Andrew Allemann says

      When you bought .Club there was a lot of risk because new TLDs had not launched yet. No one knew what initial demand would be. You’ve made something great out of it, but the purchase price of the domain was your smallest expense. Had .Club fallen into the hands of a company that wasn’t prepared to spend millions to market it, where would it be? Even with all of this marketing, I suspect you’re still facing substantial risk and working hard to overcome it.

      For .shop, I wonder if the financial models were thrown out the window during the auction. I wonder if GMO looked at sunk costs and decided it would win at all costs. I also wonder if the other bidder that drove up the price was Amazon.

          • Pete says

            HI Andrew, This is what I gleaned from their website (Aug 2015)
            Minds + Machines Group Limited (AIM:MMX), the publicly quoted owner and operator of Internet top-level domains, is delighted to announce that it has won the auctions for .law and for .vip. The Group has also gained in aggregate cash of approximately $6.2 million (£3.8 million) from withdrawing its applications to .design, .flowers, .group, .realestate and .video in private auctions. The net cash to the Group includes the amounts paid for .vip and .law, and is also net of auction fees and refunds that the Company receives from ICANN for withdrawing applications.

            The Company also participated in the ICANN-sponsored auctions for .vip and .tech, in which it purchased .vip for approximately $3.1 million, and lost the auction for .tech. The auction for .tech was sponsored by ICANN, and hence the Company did not receive funds from the winning bidder of .tech, as happens in a private auction.

            Cheers Pete

  2. Jason says

    Trying to make sense of the price myself. According to GMO Internet, Inc (Japan), they (entire company) have capital assets totaling 880/billion Yen (from 6/30/2014 figures). In today’s currency, it’s approx $74/million USD.

    http://www.gmoregistry.com/en/group/

    Trying to rationalize spending nearly $42/million on this extension is hard to fathom. I know it’s their 25/year anniversary but clearly they must have a road map for the next 25/years and it’s clear focusing that around .shop.

    Would you consider this investing…or…gambling?

    • Ryan says

      I always thought .club paid about $5-7M, they put a lot into marketing.

      .shop paying $41M, and during this time we have alot more names to roll out, will it be buyer fatigue, or just overkill.

      Most major retailers are happy with what they own, in order to get any sort of return they need to have some serious premiums, and renewals on them.

      When that $41M is spent, everyday that goes by is a loss on that money.

      When is to much, really too much

    • Richard Funden says

      880 billion yen is more like 7.3 billion usd, actually. So you are a few digits off. Suddenly, 42m sounds more like chump change.

  3. Pete says

    I am sure they have some premium sales already lined up, coffee.shop, money.shop, theloan.shop, gold.shop, etc etc …….

  4. John says

    I’ll be frank with you, Andrew. While I think almost all of the high pricing I’ve seen for new gTLDs is a really sad phenomenon that virtually kills their chances for success, I can honestly say that I think .shop may possibly be able to squeeze out an exception. It’s still a risk, but it’s not inconceivable to me that enough customers can be persuaded to pony up $1,000 or so for a lot of .shop domains; on top of that, probably a lot can be persuaded to pony up a substantially plurality of $1,000’s for some of the best of the best keywords.

    Sustainability annually, however, is another question mark altogether.

    For what I consider to be among the 2 best of them all, however, .Gold and .Club, I’m sad to see that .Gold is so dissuadingly expensive. Were it not for that, i suspect it would be extremely popular, successful and would fly off the shelves so to speak, as people discover it and realize it’s many uses both LITERAL, FIGURATIVE (especially), and even just for personal and family names of which I suspect there are a lot of people with the surname “Gold” worldwide.

    Same goes for .money, a bit long, but still good and probably a winner if it weren’t for the price. Same also goes for .online, too expensive.

    In terms of Marketing 101, .Club definitely got it right by making the pricing “affordable” and agreeable for basic registration. So I would say .shop *may* turn out to be an exception, a very rare exception. Some of the best ones will probably languish with extremely low total reg figures due to alienating pricing, however. But I believe things could be so different were it not for that, along with a dose of promo.

  5. Acro says

    Corporations outlive individuals. This is a long term investment (think 20-30 years.) that far exceeds any short term projections. Do I understand it? No. Do I accept it? Yes. Maybe the next one will exceed $100 million.

  6. GRISS says

    Well Done! And then comes .shops and .store and .stores and .boutique and tomorrow .retail and .retailstores and surely to come is .mall and of course .malls and so goes on ….Good Luck guys !

    • Ryan says

      Don’t forget .shop translation in other languages outside english, let’s get real this is man made demand, with unlimited supply. No market for it, other than a few guys who still get hard over a good .mobi

  7. Andrea Paladini says

    As I have already said many months ago on DomainPicks.com, IMHO many of those newGs will fail, just a few will survive, as we are expecting a lot of failures among the so-called Unicorns and all those start-up which have a poor or not sustainable business model, with no competitive advantages … it’s cyclical … it’s fools’ money … good luck!
    Those who thinks that selling junk names (not the real junk, that’s useful indeed) is a sustainable business model don’t understand how that works or they are biased because of their conflicts of interest …
    @ Acro: corporations are made by/of individuals, and, as said Keynes, “In the long run we are all dead” … 🙂

  8. Elimam says

    Looking at it from the perspective of a registry, the economics don’t add up.
    But, GMO is a huge player here in Japan. from domain registration, to datacenters, to payment processing, to broadband, you name it. It is unlikely that you can access the internet here in Japan without using one of their services.
    I would expect they are banking on the extra services that can be bought with the domain.
    For the price of the .shop domains, I would expect it to cost no more than ¥980/yr (about $8)

    • Ryan says

      What do you mean $8, if they sell 1 milion names, they might be luck to recoup their costs in 10 years, and that is a best case scenario, I don’t think there is any GTLD that has 1 million users that were not acquired without the use of free, or $1 domains?

      • Elimam says

        yes, exactly my point.
        if we look at the purchase as it’s only a registry business, then yes, you are right. they will need years before they can recap their investment.
        it’s a strategic investment, with bigger ambitions.

  9. Steve says

    I don’t feel .shop is worth $41 million, but I admit it does have potential. I have no GTLD dogs in this fight (pun not intended), but these are the best GTLDs in my opinion, besides the brands (.google, .sony, etc)

    In order:
    .app (Google will monetize this one through deep linking – well worth $25 million
    .shop
    .bank
    .insurance
    .law
    .legal
    .cloud
    .club

    As far as marketing goes, I’ve been impressed with the .CLUB team. They should be commended on doing an outstanding job of pitching their value proposition. I feel many GTLDs will fold, but .club and the ones I cited above have staying power.

  10. Clint Cupido says

    I think that the time for us to second-guess big industry players on the amount they spend in this industry has long passed.

    Looking back at when insurance.com sold for a premium, I’d bet that a similar conversation took place on a platform much like this one. Today though (as crazy as it may have sounded back then) domains are being sold for equally impressive amounts, much easier.

    Whether it’s a game plan of theirs to sell added services, to sell it at a premium, or even to perhaps resell it at a later stage to competitors (not entirely impossible to imagine), etc., the fact remains that a value has been put on the asset (which is exactly what value is, perception).

    The reality of it all is that there isn’t really a price that is considered “too much” when you’ve got a plan for it – it will gain in value over time (and looking at what the industry in general has been doing of late) I’d say it’s money well spent.

    Besides, who are we to question a company who has thus far built themselves up to be one of the largest contenders in the “everything internet” market. I say “we’re living in exciting times”.

    • PalmBeach says

      Domainers will not be welcome in the gTLD space. .SHOP application reads:

      Registration of a .SHOP domain name solely for the purpose of selling, exchanging, trading, leasing the domain name shall be deemed as inappropriate use or intent.

  11. .shopman says

    Perhaps in January 2016, it might have been difficult to rationalize but I bet a lot of guys who dismissed GMOs “outrageous” .shop investment will take their words back in a year or two. Currently at 110,000 after only 90 days on track to hit 500,000 by the end of 2017 with global marketing campaign. Assuming they retain that, that is already more than $15 million in annual revenues. GMO wanted .shop at any cost and they are going to recoup their investment.

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