Domain Sales Don’t Add Up

20170817_domainsales

I was crunching some numbers today on the domain sales market and a number of things just didn’t add up for me. It would appear that as an industry we are going backwards….which should be a little bit of a concern.

Escrow.com

The first thing I wanted to do was try and dimension the size of the domain sales market. I decided to start with the estimated size of the Sedo marketplace as they quite regularly published their numbers. I was more interested in the number of domains sold and also proportions of the size of each sale.

After some mathematical magic, I came to an estimated sales volume of just shy of $37m for 2016…..I think this is a little low as some of the larger outliers will push the number up to around $50m. If there’s anyone from Sedo that can confirm or deny this number that would be awesome!

The next question I asked was what proportion of the total market does Sedo have? Sedo actually sold around 99 of the top 304 domain sales for 2016….which suggests about 32% of the domain market. This seems a little on the high side to me.

I then checked the Sedo sales by dollar value and came up with 19%. This seemed like a much more realistic number but let’s round it up to 20% to make our maths a little easier. This would then suggest the total domain sales market size for 2016 was in the order of $50m / 20% or $250m.

This is a decent chunk of change but what’s worrying is the other side of the equation.

Around 40% of all new gTLDs are being monetized or used for resale which suggests 10.5m are being held for this purpose. There is quite a lot of conjecture around the next estimation but if we believe 15% of the worlds incumbent extensions (com, net, org, ccTLDs) are held for some kind of investment purposes then a total of 43.8m more domains are held in this manner.

This then brings the total number of domains being held for investment purposes to around 54.3m. That’s a LOT of domains. If the average domain renews for $10 then a total of $543m is spent on renewals each year!

Last time I checked $250m less $540m is a LONG way short of an industry making a profit. Domain traffic still accounts for a chunk of the shortfall but many of the traffic portfolios have been aggregated, stripped clean of non-performing assets and don’t represent the significantly large number of domains they used to.

Here’s another way of viewing the numbers. In 2016 Sedo sold 14,149 domains. Let’s stick with our 20% market share (even though 32% by number of sales would be more accurate) then the total number of domains in the world sold in the aftermarket is 70,745.

With 54.3m domains held for investmetn purposes this means that 0.13% of inventory is actually sold each year. Let’s imagine my figures are out by 100%.....this would still only be 0.26% of all investment domains are sold! When you look at your own portfolio this is an interesting benchmark to determine whether you are in line with the industry. What percentage of domains did you sell last year?

Theoretically it could also be used as a benchmark to determine the quality of your domain portfolio. Instead of sales use the total number of enquiries received across your portfolio. If it’s above, say, 0.2% then you’re portfolio is attracting more attention than the typical industry, if it’s below 0.20% then start evaluating why you’re holding some of your domains.

Here’s an interesting figure…..about 0.37% of all new domain registrations come from the aftermarket. Granted the aftermarket is not for new registrations but the people buying the domains are effectively treating them in this manner. This means there is a lot of potential for the aftermarket to sell domains to new registrants….the challenge is how to reach them.

Both the market value and market sales volume would suggest there are masses of domain sales investors that are effectively subsidizing their portfolio renewal costs from other sources of revenue. The question I then ask is why?

After a bit of thinking I’ve come to the conclusion that a domain is like buying a ticket in the lottery. If you don’t buy a ticket then you have 100% chance of losing…..and no one likes these odds.

It’s not long before this mentality leads to thoughts of doubling the chance of winning by buying more domains. A sense of self-belief developes where the investor believes they are better than anyone else at attracting domains that are saleable and will make them rich!

This goes on until they acquire a considerable sized portfolio. It’s then that those $10 renewal fees come knocking on the door…..oh dear!

When I look at the domain sales market I’m seeing a broken industry that thrives on speculation, innuendo and the odd sale highlight that gets everyone excited. The aftermarket is begging for a completely new approach to selling domains that change the numbers by orders of magnitude…..the problem is that there are a lot of smart people working on the problem and the numbers don’t seem to budge.

I will fully admit that some of my numbers are back of the envelope as they are not publicly available but they should be within the ballpark. If anyone has more accurate numbers then please don’t hesitate to reach out to me.

Saturday Musings – A 38 Year Project Is Completed
Business 101 - The Inspiration

Related Posts

 

Comments

Guest - Guest on 18 August 2017
The aftermarket has fallen and it can't get up

You have just described the sad reality for many (if not most) domainers. There has been a race to the bottom in aftermarket prices going on for years now. Of course, not all domains are good. But, many domains will get no offers as long as they are owned by a domainer. But once they drop, many suddenly sell for a few thousand dollars on a dropcatch service. There's something wrong with that picture.

And, None of the domain aftermarketplaces seem to have any real interest in actually putting in any effort to "Actively" sell domains unless they are very high dollar. I believe there are Many small businesses across the planet that could afford to buy domains in the 5,000 to 25,000 price range.

And, there are many domainers that would sell good domains at those prices. There just needs to be a marketplace that takes charge of that sector of the market. They need to actively market, promote, educate and develop relationships with businesses and entities.

The marketplaces could simply say domains in that price range are not worth messing with. But, I suspect there is a Large market out there for good domains in that price range. One thing is Dead Certain: simply putting up for sale landing pages is NOT going to do it.

You have just described the sad reality for many (if not most) domainers. There has been a race to the bottom in aftermarket prices going on for years now. Of course, not all domains are good. But, many domains will get no offers as long as they are owned by a domainer. But once they drop, many suddenly sell for a few thousand dollars on a dropcatch service. There's something wrong with that picture. And, None of the domain aftermarketplaces seem to have any real interest in actually putting in any effort to "Actively" sell domains unless they are very high dollar. I believe there are Many small businesses across the planet that could afford to buy domains in the 5,000 to 25,000 price range. And, there are many domainers that would sell good domains at those prices. There just needs to be a marketplace that takes charge of that sector of the market. They need to actively market, promote, educate and develop relationships with businesses and entities. The marketplaces could simply say domains in that price range are not worth messing with. But, I suspect there is a Large market out there for good domains in that price range. One thing is Dead Certain: simply putting up for sale landing pages is NOT going to do it.
Guest - The Hard Cold Truth on 28 August 2017

Great read. And yes you're right. Domaining is an awful business model. For starters the assets are incredibly illiquid. Buyers for any single property are extraordinarily hard to source. And the efforts spent to sell a name are often wasted efforts -- meaning your best bet is to let the name languish on Sedo, Flippa or GoDaddy auctions for years at a time and pray for a nibble.

Who wins and who loses in that scenario? You, the investor lose on reg fees. And the registrar wins on renewal fees.

Which is the entire point of this illusion:

Domain name investing is not really an industry. But they really, really want you to believe that it is.

Why?

Because domain name registrations are a very, very big industry. And that industry relies heavily on the illusion that domain name investing is in fact, viable.

So please don't notice the fact that your domain portfolio is eating your alive in annual reg fees. Instead, please keep dreaming about your big payout which will come any day now.

Great read. And yes you're right. Domaining is an awful business model. For starters the assets are incredibly illiquid. Buyers for any single property are extraordinarily hard to source. And the efforts spent to sell a name are often wasted efforts -- meaning your best bet is to let the name languish on Sedo, Flippa or GoDaddy auctions for years at a time and pray for a nibble. Who wins and who loses in that scenario? You, the investor lose on reg fees. And the registrar wins on renewal fees. Which is the entire point of this illusion: Domain name investing is not really an industry. But they really, really want you to believe that it is. Why? Because domain name registrations are a very, very big industry. And that industry relies heavily on the illusion that domain name investing is in fact, viable. So please don't notice the fact that your domain portfolio is eating your alive in annual reg fees. Instead, please keep dreaming about your big payout which will come any day now.
Already Registered? Login Here
Guest
Wednesday, 20 September 2017