Flood of Domain Supply Changing Dynamics of Market
By Conor | April 8, 2008
I want to comment on the recent flood of domain names to the market. I do not have any statistics to justify the increase in domains for sale or sold, but the sentiment is surely there.
- Elliot has acknowledged an increase in pace for selling his domains as he finances larger ventures.
- Rick Latona has been selling like wildfire at discount prices as he rebuilds his portfolio.
- Frank Schilling has discussed strategies and the theory of selling as he sees sellers grow.
- And most importantly, Rick Schwartz has said his goodbye’s to the industry based on his concern in 2008 and sold strong domains such as widgets.com.
From my view it does seem like more and more names are becoming available. I think this is good for the market. In the same way that the Fed needs to let the recession play out, as I discussed in “Bailout Bubble“, a fire sale of this sort will be good for the domain industry.
The problem with the industry is that too many of the quality domains are in domainers hands rather than the primary content providers ownership, primarily companies and publishers. While many domainers can add value to these domains, the majority have been trying to monetize through PPC parking services. As the PPC model goes to the wayside, so do domainers business models. This will bring about a change in the domain industry.
The options for new business models are few.
- Adjust portfolio to lower earnings expectations - This will be the first instinct of domainers. This way they can continue with what they know. They will need to accept the fact that earnings will slowly decrease and the fact that domains will trade on lower P/E multiples, decreasing two factors of the P/E formula. The weak, long tails of the portfolios will be removed and the remaining domain markets will balance themselves out at lower prices.
- Develop - This is the route Rick and Elliot are generally taking and is the most logical solution for high quality domains. There is nothing wrong with this business model other than the fact that most domainers do not have the time or capital to develop all of their domains. So, the question remains of what to do with the other domains.
- Lease - I foresee large growth in the domain leasing market going forward. Domainers are sitting on assets they do not want to part with. At the same time they cannot make money in the same manner that they did previously by parking and PPC revenue. What would you do as a property owner if you had several houses, wanted to keep them all, yet realized you would not have the time to use one of them for the next two years? Rent it out!
The domain leasing business has many obstacles to overcome. The Snowe Bill presents a definite risk to any domain user, whether it be a company or just a domainer that has it parked. My understanding of the bill is not perfect, but I think there could be risk if you were using the domain as a business yet could not prove enough history with the domain because you were not the true owner were any UDRP or Snowe Bill snatching to come about.
The domain leasing industry is in its infancy at best. As Jeff Schneider likes to point out, it is possible that domain owners are really leasing property from ICANN. Whether this secondary leasing will cause legal and business troubles I am not sure, but from a logistics standpoint, leasing makes sense.
The improvement of the Internet relies on more quality content residing on the best property available. To get this content, businesses, the experts in their own fields, need to be more and more involved. Domain owners should leverage this void by providing businesses access to the correct domains. Consulting and other development services can be provided by the domainer to improve their experience, similar to running an apartment complex. This is what geodomains and directory sites already do to some extent. They are just leasing out web page space rather than the entire domain.
I do think this strategy could work for domainers over time, but it will take some work. To begin with, leasing is not an automated process yet, so domainers will need to approach the business owners directly to generate leasing interest. Hopefully, in time, someone will automate the process and create an online exchange for these transactions to take place more fluidly.
Topics: Domains |
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April 8th, 2008 at 6:26 pm
Cool post - Interesting perspective
April 13th, 2008 at 8:23 am
Thank you for the post and presenting an interesting viewpoint. I too believe that PPC model will decline and an alternative such as mini-sites or leasing will take its place.