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

The Cult of Personality

The Cult of Personality

In every industry there are people that we all can be tempted to aspire to be like. I’ve watched some domainers desperately believe that if they follow an industry celebrity then they will achieve the same level of success. Sadly, they get swayed by a personality and completely ignore the results.

When you’re at a conference it’s really easy to get caught up in all the hype and you can fool yourself into believing that everyone is much more successful than you. Let me say from the outset that the great majority of numbers that you hear can be divide by at least three. So don’t panic and just keep your eye on your own key business metrics.

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When you get home from a conference and sit there alone wondering how you’re going to pay your domain renewals, the parties and personalities seem to become a distant memory. All that counts is the bottom line.

So don’t be swayed by the personalities…..dig into your own numbers. It takes a lot of work and skill to understand what is actually going on with a domain portfolio so that you can make sound business decisions rather than an emotional ones.

Don’t get me wrong, I love having a great time as much as the next person and it’s often the personalities in our industry that make it so exciting and vibrant. But business is all about making wise decisions rather than jumping from one miracle cure to another because someone said that the new solution was just so awesome!

Always ask yourself the question, "Who is ultimately who is looking after my valuable assets?" Are they measured individuals that will treat your family’s inheritance with the respect that it deserves or will they party like there’s no tomorrow on the value of your domains?

I don’t know about you but there are some personalities in this industry that I wouldn’t let within a hundred feet of my assets! The short-term excitement of being with these individuals may be exhilarating but remember when you leap off a cliff the fall doesn’t kill you….it’s the inevitability of the ground rushing towards you that does the damage.

Our whole industry is built on numbers. Numbers of people come to our domains, numbers of people click and numbers make up our revenue. Don’t lose sight of the fact that it’s the numbers and not the personalities that we should be watching.

There's a great saying that goes something like this, "Don't speak to the butcher if you want to invest in precious stones....speak to the jeweller." In other words, find the real experts in the industry and get to know them. They are often the ones that are quietly going about do their work.

And ultimately, get inspired by others but don’t aspire to be like them…..just be yourself.

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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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Good Players - Jothan Frakes

Good Players - Jothan Frakes

I’ve been asked a number of times about who are the really good players in the domain industry. I thought that from time to time that I would highlight these individuals that quietly go about their business. They are people that are generous with their time, are absolutely trustworthy and great fun to be around…..in essence they are the heart and soul of what it means to be a domainer.

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Jothan Frakes

I first met Jothan many years ago at a TRAFFIC conference and we talked into the small hours of the morning about the domain industry. During this time I gained an enormous amount of respect for him as one of the most knowledgeable people in the industry.

Our relationship really cemented at the TRAFFIC Downunder conference when he was part of a group of domainers that flew light aircraft back from the Gold Coast in Queensland to Melbourne. I was one of the pilots and it was a great time getting to know Jothan on both a professional and personal level.

Jothan has played many diverse roles in the domain industry but it is clear that he has a real gift for running exceptional conferences. From founding the successful Domain Roundtable conferences in 2006-7, to being intimately involved with DomainFest while it was with Domain Sponsor and now with the largest industry gathering, NamesCon. Jothan has developed a unique gift for conference formats, topics and promotions. Even now he is launching a series of regional conferences under the DomainFest banner – information on the next one can be viewed at doaminfest.asia.

The reason for these successes stems from the fact that Jothan consistently works incredibly hard at whatever he puts his hand to. When you speak with him you have his 100% attention and if he doesn’t have time then he’ll politely let you know.

Jothan has spent countless years attending ICANN conferences and helping raise the domain investor flag with registries, registrars and policy makers. Without his endless lobbying domainers may not have some of the protections over their assets that they enjoy today.

What many people may not be aware was that Jothan was intimately involved with the approval process for many of the new gTLDs. He conducted this extremely confidential work as a contractor for accounting firm KPMG and clock up endless numbers of air miles between the USA and India.

As you may have ascertained from his professional life, Jothan is one of the most connected people in the domain industry, knowing the domainer, parking, registrar, registry and ICANN sides of the business. If you ever need an introduction to almost anyone then Jothan is very likely able to make the connection.

When I first met him, Jothan’s one failing was his desire to help everyone and sadly I’ve seen people take advantage of his big heart. Thankfully, this exceptionally generous attitude has been tempered with wisdom as he’s continued to develop his professional career.

Personally, I count Jothan as a great friend with whom I have complete trust and confidence. More than all of these things, he is a down to earth fun person to be around that always has a great joke (seriously, he has some really good ones!) and a welcoming smile. I have had the privilege of meeting his wife and the three of us have had way too much fun together!

These are only a few of the reasons why Jothan is in my “Good Player” list. No matter how busy we both get we always make it a point of catching up at conferences to swap stories and learn from each other. He is the quintessential “Good Player” of 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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Critical Insights Into the Domain Industry – Part 5

Critical Insights Into the Domain Industry – Part 5

Check out the previous articles in this series on the domain name industry.

We now need to leap forward in time to 2014 when the first new gTLDs were launched. What does this mean for domain investors that has adopted a sales model? How will the price of .com domains be impacted by the new gTLDs?

I personally believe that the prices that .com domains receive for the stock-turn-model of selling domains will be maintained as the demand from the renewed interest in domains offsets the effects of a massive oversupply. As time goes by and the new gTLDs become more mainstream the prices of the .com domains and all other extensions will fall. If you’re a cash constrained small business why spend $1500 on a domain name when you can pick up something very similar for $10?

Escrow.com

This would suggest that if you have adopted this business model for your .com domains then brace yourself for a decline in sales prices. I should say that this excludes the top-shelf single-word generics.

After the initial flurry of interest in the ngTLDs it will take around 7 years until we start to see them selling for prices at the current levels. What it does mean is that an investor buying today will need to factor in the renewals for 7 years before they can even start to see a return on their investment.

So if I’m buying a portfolio of ngTLDs for $10 each then I need to work my ROI around 7 years of re-registration fees before I can hope to sell them on a stock-turn business model of 1-2% per year. I would consider any sales prior to this time frame as an element of good luck. It should be noted that most of the domains will not have any traffic and this will contribute to the depress demand.

For many of the ngTLDs I’ve seen investors enter the market and snap up a lot of the quality domains. This surge in investor demand will have the impact of increasing the length of time for a ROI to beyond 7 years as the general public won’t see the gTLD being used by real businesses.

We saw an example of this behaviour when domain investors purchased the majority of the great generic .eu domains. It took years for .eu domains to be seen in traditional advertising. The length of time meant that many domain investors dropped their investments as the hoped for pot of gold didn't materialise quickly enough.

The renewed interested in the domain market has meant that many new investors have purchased large portfolios of domains and have not considered the sales time horizon. This is a big mistake. I would not be surprised if a lot of domains begin dropping in 3-4 years as investor cash reserves run dry. In fact, I’m banking on this happening and sitting on the side lines, cashed up and waiting for the opportunities to fall. The goal of every investor should be to hold an asset for the least amount of time as possible prior to selling that asset.

Let's explore what I'm mean from a very high level. Each year there are roughly 1,000 domains sold above $10,000 each. If we were to ignore the portfolio “quality” argument (ie. single word generics etc.) then the odds of selling a domain over $10,000 is roughly 0.0003%. Think of it as 1,000 divided by 300 million domains. The maths could be out a little but I don’t believe that it’s out by orders of magnitude.

If 0.0003% is the average figure then on a normalised distribution of quality then with great domains constantly getting offers domains at the entreme ends of the curve will rarely, if ever, receive meaningful offers. So if you do get an offer then my advice is to sell immediately.

What is amazing is that despite the decline in the PPC landscape it is still 2-3 times bigger than the total sum of domains sold each year. The difference between domain traffic and selling domains at the top end of the market is that domain traffic is monetisable now and it will ALWAYS be valuable for advertisers. An individual domain is only valuable to a small select group of businesses.

Let me return to the ngTLD market. Over the next few years there will be three successful business models adopted by the various registries. The first is those that have scaled vertically (eg. .club) and have poured all of their resources into making the single extension fly. The second is those that have scaled horizontally (eg. Donuts) and have several hundred ngTLDs under the one administrative structure. The third business model will be for specific market niches (eg. .cpa) which will adopt the extension as part of an overall global brand.

The balance of the extensions will either barely succeed or fail. Those in this camp that realise this first will be able to sell their businesses/contracts to one of the three successful models. The remainder will enter a frenzy of fire sales. The delay until this happens will really depend upon the length of time it takes for the cash to run dry for each of the registries.

From a domain investment perspective choosing the right ngTLD that will survive will be as important as choosing the right domain. It will be interesting to see what will happen to registries that no one wants to buy or can’t continue. Ifully admit that I’m unaware of the ICANN contractual details around this eventuality.

The bottom line is that ngTLD's are a very long-term investment and given this they have a LOT of risks associated with them for domain investors.....so if you end up buying up a portfolio then make sure that you choose wisely and have very deep pockets.

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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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Critical Insights Into the Domain Industry – Part 4

Critical Insights Into the Domain Industry – Part 4

This is the fourth part in the series on the Domain Industry and it continues directly on from the previously three. Even with the decline in traffic revenues they have continued to underpin the entire domain industry since its inception. Everyone from the registry through to the parking company are dependent upon this steady relatively consistent stream of cash.

The one bright spot during this time was that domain investors began to set more realistic prices on their assets. This drastically improved the problem of domain liquidity and injected more funds into the industry.

Before the industry downturn domain investors honestly believed that every domain they owned was almost priceless….they were waiting for that magical pot of gold to appear at the end of their domaining rainbow. I remember one prominent investor publicly declaring that he automatically turned down all offers less than $200K!

Escrow.com

With the squeeze on returns really biting, investors were now looking for another business model to help them out. This was the birth of the stock-turn model of selling domains.

Think of this business model as more like the supermarket rather than the boutique store. The supermarket has much lower margins but sells a greater volume of goods. It survives on these margins because of the masses of people that purchase through them….this was the problem that the domain industry needed to solve.

To join the stock-turn revolution, domainers had to realistically look at their portfolio and then price the majority of their domains at around the $1500 mark. The goal was then to sell 1-2% of their portfolio each year. Like the supermarket, this is effectively an eyeballs game. For the model to work domainers needed to get their assets in front of as many people as possible who are currently seeking to buy a domain name.

This was a seismic shift for the industry and really illustrates the pressures that domainers were under financially at that time. Domains that were once priced at $200K were now being sold at 1% or less of that value. These were desperate times.

In the entire domain value chain the end user eyeballs were all going to registrars to find the domain for their business. For the first time, registrars found themselves in the box seat to exploit this opportunity.

When end-users went to purchase a domain name rather than saying that it was unavailable a message would pop-up that the domain could be purchased for $1500 (as an example). A business wanting to secure their domain wouldn’t think twice at paying 150 times the registration cost of the domain.

The biggest challenge for this model to work was that domains that were registered with one registrar needed a fast way to be transferred if another registrar sold them. This was the birth of the multi-listing-services model that allowed fast transfers of domains between registrars. The streamlining of the fast transfer process has meant that consumers could now more easily purchase domains that are owned by domain investors.

Not surprisingly, there was a huge rush to get into this space by many of the registrars. Why sell a domain for $10 when you could sell the same domain for $1500? The profitability of a registrar now had the potential to dramatically increase. A virtuous cycle came into play as the major domain marketplaces sought the valuable eyeballs provided by the registrars and matched them with their existing marketplaces.

Here’s the interesting challenge. Everything, and I mean all domain sales hinge on traffic. Whether the traffic is generated by a registrars brand (eg. Godaddy, Afternic, Sedo etc) or from the domains themselves. If a consumer doesn’t know a domain is available then they can’t purchase it.

The decline in PPC rates impacted the sales market in two ways:

1.            Less liquidity in the domain space for domain investors to purchase domains.

I remember writing an article around 2008 about the fact that there were a number of large domainers that were market makers. In other words these individuals had amassed such a large amount of traffic revenue that they directly influenced the price of domain sales. As an aside, in the then relatively immature domain aftermarket, the prices dropped almost overnight when these players stopped buying domains.

2.            Less traffic as domains were dropped

This second impact is somewhat hidden. What many people haven’t considered is that the traffic domains would often be the conduits for potential buyers to the domain marketplaces. To date, the domain marketplaces have received this traffic for $0…..not a bad deal when you think about it.

For example, the major marketplaces do not pay anything to a domain owner when a buyer clicks on the “this domain maybe for sale” link. This makes sense, because the domain owner wants the person to buy their domain. What is interesting is that the buyer may go and then search the marketplace and purchase an entirely different domain. The owner of the domain that generated the lead gets paid nothing. In my opinion, this is an embalance in the industry that will eventually be ironed out by an innovative company.

What happened several years ago is that many of the marketplaces that are also tied to parking platforms became desperate for the traffic that also generated buyers. Domain parking was starting to be seen almost as a loss leader. Suddenly traffic became valuable not for its PPC value but for the potential buyers that it also brought.

This series on the history of the domain industry will continue.

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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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Critical Insights Into the Domain Industry - Part 3

Critical Insights Into the Domain Industry - Part 3

I remember speaking at TRAFFIC Vegas 2008 and I put up the below graph on the projector. I indicated that the industry was in a mini-bubble with domains at hugely inflated prices. I had a large number of people come to me after my session and tell me that I was nuts. Was I wrong?

I believed that we were at point A in the chart and the mini-bubble was in full swing. So why did I stand up and pour call water over the partying atmosphere? To understand what I was seeing we need to understand the industry at that time. This is the state of the industry back in 2008:

  1. Market valuation were being underpinned by a few select domainers – no market depth.
  2. Domain investors were massively reinvesting their parking revenues
  3. Debt has entered the market.
  4. Flurry of new small investors hoping they weren’t too late.
  5. Lack of domain liquidity

Escrow.com

Anyone of these factors alone would inflate prices but combined, they created a massive bubble. Domains with little to no value went for crazy prices and traffic domains sold for insane multiples. The euphoria was like a contagion that was eating away at the heart of the industry as it danced to some strange beat. More and more people wanted to join the celebration as if there would be no end.

I’ll never forget seeing a domain magazine enter the market (remember we are niche) and then a second magazine appeared! This is when I personally sold the vast majority of my own domain portfolio….the writing was on the wall. I was out! I took the money, spent 6 months traveling, got my pilot’s license and paid for the kid’s school fees. Life was very good.

Since that time there’s been a lot of blood in the water as domain investors that had raised debt/equity capital discovered they were in a new world - point B. The Global Financial Crisis (GFC) was the icing on the cake and Google, correctly put the squeeze on payouts….don’t forget they have shareholders in a turbulent financial market.

When seeing the GFC storm first hit I read a domain blog suggesting that it was great to be in the domain industry and not be subject to the financial winds. I immediately wrote an article saying that if you believed the writer then you were living in a fool’s paradise.

Let’s think about the GFC and the factors above. Market makers left as they battened down the hatches of their own financial situations, parking revenues declined courtesy of Google, debt financing dried up and new investors vanished. I’ll deal with the final factor in my next article…so let’s hang onto that one.

During this time I know of quite a number of companies that have either had to tell investors that their ROI will now be over a much longer time frame and some even had to liquidate assets to crystalise losses. Many of those individuals that raised debt have found themselves selling their house or have gone into bankruptcy. This is a sorry tale but one that has been a nightmare reality for some.

It has been really difficult for these individuals as they were like shooting stars that shot across the sky in a blaze of glory just to burn up. Most are no longer in the industry, some stole from other domainers, others suffered massive personal problems as the financial pressures came to bear and quite a number ended up with serious health problems due to stress.

I remember calling up one such person to see what I could do to help them out. They sounded like a shadow of their former self. My advice to anyone that has gone through financial hardship is to get help sooner rather than later. For the rest of us that have survived those years….we need to thank God that we’re still here!

I say to my kids that the cheapest way to education is to learn from other people's mistakes. Our industry needs to learn from those turbulent times and learn both the good and the bad from those people that blazed across the sky. We also need to learn from those people that are still around and remember those times....there are still quite a number around.

One of the things I love doing at conferences is getting together with this group of domainers and discussing what kept their heads in the game during those years and what they're doing now. They typically don't make a big show about what they are doing but nevertheless they are inspirational individuals and are ALL in my "Hall of Fame".

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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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whizzbang
I agree, Thank God we made it this far. Quite a journey full of experiences and hardship. Maybe the ones no longer here weren't me... Read More
05 June 2015
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