Blogs about the domain industry and the various players and companies within it.

Part 2 – How China’s Looming Debt Crisis Will Impact Domains

Part 2 – How China’s Looming Debt Crisis Will Impact Domains

This is the second article in the series on China. Click here for part 1.

Off the back of all of the China debt crisis, what’s going on in the domain industry? For the past year many western domain investors have been scratching their heads as they tried to work out why the Chinese were buying up all of the 4 letter/number domains.

Escrow.com

Other than a few reasons which were largely due to mysticism and numerology there was no sustainable underpinning of the value of many of these domains. In short, it was spectulation run mad that rapidly pushed up the prices.

Despite the underlying values being questionable there has been a rush by many western domain speculators to register short character domains. The total goal was to then sell these domains to Chinese investors for inflated prices. While some people have made money, many are in the process of losing their shirt as the giant global ponzi scheme comes crashing down.

I recently spoke with a Chinese investor that has over $50m to invest in domains and she indicated that they are putting just about everything on hold to see what’s happening with the market. The domain industry has just experienced a bubble fuelled by cheap money that was looking for another asset class to invest into. The rule of thumb for bubbles is to get in and get out really fast so if you're holding any of these domains then it may be a long time (if ever) before you see a return.

As an example, a number of months ago I sold a whole lot of 4 letter dotcom domains to a Chinese buyer. I recently checked the market and you couldn’t get half the price for those domains now.

I have been upfront in saying that while the cheap money is available then in my opinion sell. It’s not often that you get opportunities like the one that has just past.

What’s really interesting is that many of the Chinese registrars are the companies that are moving massive numbers of the new gTLDs. As an example, registrar west.cn has sold 27.3% of the .xyz domains (1.13m). Congratulations should be made to Daniel Negari and his team as they really tapped into the Chinese market as a place to sell the .xyz brand in a big way.

Likewise, .CLUB has managed to sell over 60% of its domains to Chinese investors. It’s clear why Collin, Jeff and the team have been clocking up the frequent milers to China and back! Like a number of the other new gTLD registries they seized upon the boom time in China as a way to move their stock. It was a fantastic move!

The question that needs to be addressed is what will happen to the new gTLD market in a Chinese bust? Clearly renewals will evaporate from domain speculators and new registrations will return to much more modest levels. But is this really a bad thing?

What the Chinese boom has done for a number of the new gTLD registries like .CLUB and .XYZ is provide a massive injection of capital at a time when they most needed it. A Chinese bust will not be catastrophic for these companies as they've also been focusing their efforts in other parts of the world and in particular end users.

In the next article in the series I will go through what I think is a good domain strategy in the event of a Chinese economic collapse.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Part 1 – How China’s Looming Debt Crisis Will Impact Domains

Part 1 – How China’s Looming Debt Crisis Will Impact Domains

I’ve been concerned about China’s debt levels for quite some time and the impact that a Chinese economic meltdown may have on the domain industry. After returning from a week’s vacation I decided that it was time to start digging into the data and piecing together a number of anecdotal data points.

Escrow.com

It didn’t take long to discover that just about every major investment media source is concerned about China’s debt problems. Back in October 2015, The Economist had a little chart with the title, “Still Bingeing”, that outlined China’s total debt as a % of GDP. The chart can be viewed below

China bingeing on debt

On the 22nd Feb, Bloomberg News had a headline announcing that China’s debt will peak at 283% of GDP in 2019. To put this into perspective, the USA debt to GDP ratio is 104%.

Having a debt ratio of China’s magnitude is scary to say the least and many commentators suggest that this is only sustainable as long as China is able to maintain a GDP growth of greater than 6%. The problem is that the Chinese economy has not been growing as fast as the increase in debt levels.

For example, the country’s banks extended a record $US385 billion of new loans in January. Bloomberg news stated, “The increase in debt could pressure the country’s credit rating, Standard & Poor’s said on Tuesday, less than a week after the cost to insure Chinese bonds against default rose to a four-year high.”

The first problem is the Chinese economy is slowing down and is being propped up by massive injections of capital in the form of debt. So called state-owned “zombie” companies are being constantly bailed out rather than put down. These companies can repay the interest on loans but not the principal which just exacerbates the problems.

The second problem is the Chinese fuelled real-estate bubble collapses. Beijing and Shenzhen are up by more than 700% since 2000 and this has driven Chinese investors to look at high end top coastal cities in English-speaking countries. For example, Sydney, Melbourne, Auckland, Singapore, San Francisco, LA, Vancouver, New York, London….

The Chinese real-estate market has been falling for over a year and investors looked to the stock market, driving it up by over 160% in mid-2015. Dumb money entered the market and within 2.5 months the Shanghai Composite Index fell 42%.

The Shanghai Composite Index

The Chinese government has been trying to prop up the market ever since by buying hundreds of billions of dollars in stocks. This is an artificial way to keep the stock values from collapsing but ultimately the companies will be devalued to their true worth.

Some commentators are suggesting the index should fall by as much as 80% and sit around 1,000. Just watch the fall-out in the international real-estate markets when this happens!

What’s really interesting is the “non-performing loans” have jumped by over 50% between Dec 2014 and Dec 2015. “Non-performing loans” are loans where the borrower is defaulting. It will be interesting to see if the Chinese banking sector is healthy enough to handle waves of defaults. As 2008 proved the USA banks weren’t up to the challenge.

In the next article in this series I will apply this background of information on China to the domain industry.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Fallout From the DN.com Disaster

Fallout From the DN.com Disaster

One of the most important things that any escrow business needs to do is keep up and running for its customers. The whole essence of being an escrow company is that you are the trusted partner between two or more organisations that don’t really know each other. Providing an escrow service is all about doing trusted transactions.

It just so happens Thursday last week the Chinese escrow company DN.COM was taken off the air by the Chinese government. Clients who were midway through escrow transactions had no way of finding out what was going on and large sums of money were left in limbo.

Eventually, DN.com sent out an email that indicated the problem was caused by a change in the entity of the business.

dn.com email

I must admit that there is a frightening chain of events that really strike at the heart of being an escrow business. For a start, escrow is all about being really careful with other people’s money….and as I said in the opening paragraph, it’s about trust. It’s all about being very detailed, focused and losing sleep over a rounding error in a transaction.

To have the business effectively shutdown by the government shows that it's everything but focused on the details. It makes you wonder what else is being forgotten along the way in any escrow transactions….which brings up another point.

How do you become an escrow agent in some of these jurisdictions? In most western economies, escrow is a serious business that is highly regulated by the government to ensure that all parties are protected, even in the situation where there is a failure of the business.

My understanding (and I could be corrected) is that these types of controls are not in effect in the Chinese market. What this means is that funds transferred to a Chinese escrow agent may be used for working capital, rather than being held in trust. If for any reason the business struggles, then the funds used to pay for goods may also be used to prop it up. The business may choose not to do this but there is no governing body that they are accountable to as an escrow agent. This effectively means the business is actually NOT providing any escrow but IS just a middleman swapping money between parties.

There’s a really good reason why Escrow.com spends an absolute fortune on compliance. As well as being legal, this process provides buyers and sellers with the confidence and trust that their chosen escrow service is looking after their transactions.

Now here’s where the whole DN.com business gets really nasty. It just so happens that a scam website dnd.com created a mirror of the DN.com website (prior to it going down). Google indexed the pages and when it came up in the search listings customers could mistakenly click on dnd.com and think that it was DN.com. They would then enter their username and password into the scam system…..I think you get the rest.

dnd.com scam

So whatever you do right now, if you are a customer of DN.com…..update your password! Also, if you use the same password elsewhere, first of all hit your head on your desk a number of times and repeat, “I’m an idiot” each time. Then go and update all of your passwords at any financial institutions so they are different.

To be very clear....I don't have anything against DN.com and I find that it's terrible that a disreputable organisation decided to take advantage of their predicament. At the same time, DN.com's problems were ultimately of their own making.....hopefully they've learned a few lessons so this doesn't happen in the future.

As a side note, I’m very selective about who I let sponsor my blog. The reason why I’m proud to have Escrow.com as one of my sponsors is because they’ve developed a high level of trust over many years by making sure they are compliant to all governmental authorities. I know who I use for my escrow….

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Domainers Meet Dubai

Domainers Meet Dubai

On April 23 & 24, Domainers Meet, will be held in Dubai. It’s really shaping up to be a great event with speakers flying in from all over the world to share their intimate knowledge of the domain industry.

Escrow.com

I have the pleasure speaking on, “Domain Name Yesterday, Today and Tomorrow”. It’s a really broad topic and provides a huge amount of scope to really take a look at the history of domain investing and what the future is likely to look like. I must admit that I’m really excited about the conference and I’m looking forward to meeting a lot of new domain investors from that area of the world.

DomainersMeet Dubai

The conference is being held at the prestigious Radisson Blu Hotel, Dubai Deira Creek. Dubai is noted for its incredible modern architecture and some of the pictures on the Radisson’s website look absolutely stunning.

If you haven’t booked your ticket to Domainers Meeting in Dubai then I would encourage you to do so. I think that it will be a great event that, like DomainFest Macau, will provide a refreshingly new perspective for domain investors. You can book tickets at http://domainersmeet.com

I will keep you abreast of new announcements from DomainerMeet as get closer to the event. In the meantime, I hop to see you there!

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Freddy Schiwek Launches KeywordDomains

Freddy Schiwek Launches KeywordDomains

Freddy Schiwek, the CEO of Luxembourg based Domain Invest, just showed me his new website keyworddomains.com. It’s an impressive, simple to use marketplace that allows domain names to be bought and sold without any commissions.

Freddy has been involved in the domain industry for over a decade and I have the privilege of counting him as a good friend. Several years ago he took the bold step to raise a considerable amount of venture funding to build a substantial domain portfolio under the Domain Invest brand.

The portfolio now includes single word domains such as jewel.com and short domains like jdm.com….both of which are highly valuable. Whiskey.com is one example of a number of particularly high end brandable domains in the portfolio.

I asked Freddy why he built keyworddomains.com and he replied, “I wanted a website where it was really easy to buy and sell domains and where good quality domains didn’t get lost in the masses of sub-quality domains. The problem with many of the marketplaces is buyers find it difficult to find the high quality domains and this results in the good domains not getting the exposure they need to get sold.”

Since Keyword Domains doesn’t take a commission on sales then in my opinion there is very little downside to setting up and account and adding your own domains to the platform. Although don’t be surprised if any low quality domains are rejected……Freddy does seem to be focused on providing value to potential buyers.

Check out Keyword Domains at keyworddomains.com.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

1348 Hits