Blogs about how you can best sell your domains or stories about how you may have sold or bought a domain in the past.

Working With Domain Brokers - Part 1

Working With Domain Brokers - Part 1

When you really think about it, professional domain brokers have one of the most difficult jobs in the world. They have to manage both a domain owner’s and a potential buyer’s expectations and walk a tightrope whether they get paid or not. I’ve been doing a lot of thinking about the brokering industry and thought that it was about time I wrote an article or two on the topic.

Domainers, engage the services of a domain broker because they want a domain(s) sold. The reason they do this is that to date they have not been able to sell their domain at their anticipated price point. They then pass their domains to a broker in the hope that by engaging the services of a professional they will succeed in attaining a great big windfall.

Escrow.com

So what’s the first thing that a domainer does? They tell the professional what their domain is worth. How stupid is that???? The reason why they’ve just engaged a broker is to get their professional advice on the value of the domain. A good broker is a person that should have the pulse of the market….not the domain investor that has, to date, fundamentally failed to sell their asset.

Here’s the difficulty for the broker. In most cases, the domain is worth precisely what someone is prepared to pay for it. Sure, they can guesstimate, but a more professional broker will more often than not say they need to do some research on the sale price. What they are really saying is I need to make some calls, rustle a few bushes and see what falls out. This makes perfect sense to me.

More often than not, the domain owner has completely unrealistic expectations on the price. If you ask 99% of domain owners for a valuation of one of their domains they will ultimately guess. There’s no science or numbers behind what they want….they just want it. That’s all very well but what they want for the domain and what the market is prepared to pay are two entirely different things.

For example, you may want to sell one of your domains for millions of dollars but if the market is telling you it’s worth $10K then you really need to revaluate at your expectations.

The problem arises when the broker looks at what the market is telling them and then the often crazy number that the domainer wants for their domain. If the numbers are way apart then the broker knows they will never sell the domain and make their commission….so why bother starting.

If the numbers are closer together then the sale is more likely to happen and the broker can either do a quick sale or try to push things upwards. They are now wrestling with maximising value rather than whether they will put food on the table.

For example, let’s imagine that a domainer values their domain at $100K (ie. the reserve price) and the broker values it at $20K. Put yourself in the broker’s shoes for a second…..deep down they know that it will be highly unlikely if they are able to meet the seller’s price…..so why would the broker waste their time? On the other hand, if the reserve was $20K then the broker is now working towards a $30K+ sale value to move the domain on and maximise their commission.

What I don’t understand is the number of brokers that are still doing deals where they only receive a commission on the sale of a domain…..this is what I would do if I was a broker.

I would say to the seller something like, for every $1,000 that we are apart on the domain valuation you need to pay me a retainer of $10/month in advance. If we look at the above example this means the seller can either reappraise their $100K reserve or reduce it to the broker’s valuation. If the seller refuses to budge then they need to pay $800/month for the broker’s time.

What this model does is:

1.      Pay the broker for their time attempting to sell at unrealistic prices.

2.      Incentivise the seller to reduce their expectations in line with the market.

3.      Ultimately start to increase the liquidity of domains as more are sold.

We can argue about the price points and whether it should be $10/month/$1000 or some other figure but the model seems to stack up pretty well.

In the next article in this series I’m going to share some of my own experiences with engaging the services of a broker and also some of the stupid practices of sellers.

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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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Buying and Selling a Traffic Portfolio - Part 6

Buying and Selling a Traffic Portfolio - Part 6

In the previous five parts in this series I’ve covered a lot of ground on how to better buy and sell a domain traffic portfolio. In this article I’m going to expand upon the “Domain Risk Index” (DRI) which is a tool that helps you make better buying and selling decisions.

We developed the DRI as a domain and portfolio analysis tool a number of years ago for ParkLogic clients. In summary, the Domain Risk Index (DRI) mashes together about twenty different metrics to produce an index between 0 and 100. Zero represents HIGH risk investment and 100 is a NO risk investment.

Escrow.com

The various metrics are weighted according to their impact on an investment’s return. Investors are typically interested in stable returns and the index allows them to gauge the amount of risk that they would like to take on.

What we then did was take a large sample of domains that statistically represents the Domain Industry and graph the results on a chart over time (orange line above). The blue line represents the ParkLogic account owner’s performance on the scale.

Domain Risk Index

As can be seen from the sample chart there was a surge in stability at the beginning of October that has now tapered off into a time of instability. This needs to be viewed in light of the fact that the peaks and troughs are from 54 to 58 on the scale.

So what’s the point in all of this? Let’s image that you have a portfolio of domains that you are wanting to sell that is around 80 on the scale. This means that from an investment perspective it is MUCH less risky compared to the typical industry portfolio. This then logically translates into you being able to ask more money for your portfolio than the typical industry sale.

For example, if the industry is typically selling a portfolio for 2 years revenue then you now have a justification for why you should be asking 3-4 years revenue. It’s playing the capital value game with good solid independent metrics behind it that gives both the buyer and the seller that they are getting a good deal.

So what else can you view as a part of the DRI? We also provided some of the additional metrics that make up the DRI. For example, if you would like to see what is happening on EPC trends for the industry versus your account then it’s a button click away (see below).

For the trend graphs, anything above 50 means there is an upward trend anything below 50 means it’s trending downwards. The higher above 50 that greater the increases in the trend and reverse is true if the chart is well below 50.

EPC Trend

As can be seen from the EPC trend chart there was a surge in higher paying EPC rates at the end of October that is likely due to the rush up until Christmas. What’s interesting is that this sample portfolio did not experience the same impact (blue line).

What’s great news for domain owners is that the CTR trend also increased at the same time and as can be seen from the chart the domain owner experienced an uplift in CTR.

CTR Trend

 

By using some of these charts a buyer can purchase portfolios when the trend lines are down and sell when they are high. This is similar to what many of us do with our stocks. Buy low, sell high.

There’s a lot of information tied up with DRI and its charts. Further information on the definitions is available under the DRI Terms and Definitions link below the chart.

Over the years we’ve found that buyers and sellers that use tools like the DRI have an informational advantage over others in the market. This allows them to make smarter selling and purchasing decisions and take advantages of the fluctuations in pricing.

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
Click here to arrange time with Michael
Click here to advertising on whizzbangsblog.com

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Buying and Selling a Traffic Portfolio - Part 5

Buying and Selling a Traffic Portfolio - Part 5

Like any industry where buying and selling is involved there is a potential arbitrage gap between what the seller is generating and what the buyer can potentially earn once a transaction is complete. This can dramatically change the return on the investment.

A simple example would be if a seller has all of their domains parked at Company A and they received a 75% payout. As the buyer, you know that at the same company you receive 85%. That’s a 13.3% greater payout. This means that if you paid 24 months revenue for a portfolio you should get the payback within 20.8 months.

Escrow.com

If a seller has all of the domains at a single parking solution then there are a considerable number of additional ways that you can increase the revenue. Over the years at my company ParkLogic I’ve found that the maximum any parking company typically wins in a portfolio is 20% of the traffic.

This means that if you are acquiring a portfolio that has been parked at a single parking company then you can at least improve it 80% of the time. That’s a great outcome! At ParkLogic we also have a real-time bidding system in front of the traffic that sends the traffic direct to advertisers to provide additional revenue uplift (enough of the sales pitch!).

The reverse of the above is when you find a portfolio that is parked all over the place or where there may have been some special deals in place that underpinned the revenue line. For example, let’s imagine the portfolio had a group of domains that were all going to a particular affiliate company? Will the deal also migrate with the domains or will the deal suddenly vanish once you parted with your hard cold cash?

Likewise, for domains that have “slept around” they are likely to be fully optimised. Be careful of buying these portfolios as there is unlikely to be much of a “free” revenue uplift from optimisation. What I would recommend is to ensure that you can establish an account with the optimisation company prior to the acquisition. We have a number of ParkLogic clients buying and selling domains between them to more secure their ROI.

I’d also be careful of fad domains. These are domains that are popular for a time and then the traffic just dies off. So do your due diligence on the traffic by requesting stats across six months and then view the traffic data on a domains by domain basis to see if there are any trends that you don’t like. Spikes in traffic and downward trendlines tend to be the bad ones to look out for.

Particularly look out for what I would call the “lucky click” domains. These are domains that may be sold in amongst all the others that have a tiny amount of traffic but got a $30 click. You’ll probably never see that click again but if you buy these domains you’ll be paying a lot for them. To find them calculate the RPM for each domain (revenue / view * 1000). Sort the domain list from highest to lowest and you will discover that these domains are typically sitting right at the top…..get rid of them from the deal.

The wise purchaser will take the time to thoroughly go through a list of domains and indicate which ones they are prepared to pay for and which ones they aren’t. The seller will try and keep the portfolio together as an aggregate to stop this type of cherry picking. In the end it will become a negotiation. The strength of your position in the negotiation will be determined by how much homework you have done at the analysis stage.

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
Click here to arrange time with Michael
Click here to advertising on whizzbangsblog.com

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Buying and Selling a Traffic Portfolio - Part 4

Buying and Selling a Traffic Portfolio - Part 4

So you’ve done your due diligence on the domain portfolio that you wish to acquire and everything looks like it’s good. All you have to do is part with your hard earned cash and wait for the authorisation codes so that you can transfer the domains into your registrar. So what’s the problem? A lot!

What happens if you send off your money and the seller decides not to transfer the domains. They now have your cash and the domains. What happens if you send your money and the domain statistics have been fabricated? What happens if you transfer your dollars and discover that the stats have been pumped up with purchased traffic? These are all good questions and I’ve heard story after story of people who have been burned by unscrupulous sellers…..so my advice is BEWARE!

Some buyers try and solve this problem with a contract. Personally I find that they are almost worthless. If you have a person that is prepared to steal your money then reneging on a signed contract is probably nothing big for them. So what’s the solution?

In a nutshell I would recommend using an escrow service. With a good quality escrow service both parties (ie. the buyer and seller) can agree to specific terms and a middle-man handles the actual transaction.

For example, you transfer your money to the escrow service and the funds are not sent onto the domain owner until the domains are under your control. This at least stops people from running off with your money and the domains. You can actually specify a variety of conditions that are agreed by both the buyer and the seller that the escrow company can verify before the seller can get their hands on your cash.

Seller financing has become very popular. The escrow company holds the domain in their account while the financial obligations are met. Say $12000 being paid in 12 monthly instalments of $1000. My only caution is can you imagine the headaches involved if the escrow company ceases to operate or becomes insolvent during a transaction of this kind. This wouldn’t be pretty!

There are a number of Escrow companies that domain owners use with Escrow.com being by far the most popular and the longest established. Over the years, they’ve spent a huge sum to ensure that they are in compliance with the various governmental authorities that manage the escrow industry and ensure that it’s clean.

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Buying and Selling Traffic Portfolios - Part 3

Buying and Selling Traffic Portfolios - Part 3

In the previous two articles we looked at managing legal risk and also the different types of traffic that often flow through to domains. In this article I will be examining the other influencers on the returns from a traffic portfolio.

The first thing to look at is where the traffic is coming from. For example, is it mainly USA or is it from China? Chinese traffic tends to be paid much less than traffic from the USA.

A number of years ago I did an analysis on the penetration of credit cards in a specific geographic region and how this influenced earnings per click (EPC). Cash based economies like China tended to have a much lower EPC. The reason being that marketers have a much more difficult time tracking spending money online to ultimate sale of the goods if the transaction is constantly being pulled off-line.

I personally believe that over the years ahead many of these burgeoning economies will adopt credit cards and the online cycle will be complete for marketers. So watch this space!

When you buy a traffic portfolio you are always looking for any “free” upside. An example of this would be if you were getting paid 90% from a monetisation provider but the person selling the portfolio is only getting paid 80%.

We’ve had ParkLogic clients purchase portfolios that have been held at a single parking company and then placed on our system. From experience, typically no parking providers wins more than 20% of the traffic on our platform which means that the acquisition would receive more revenue 80% of the time if move to other platforms. This typically provides a 30% uplift in revenue via our algorithms and processes and this dramatically reduces the payback period for the investment.

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