Over the past few weeks I've been going through my thoughts on a really important chart that I developed for a conference over 12 months ago. It was during this time that I was observing domain prices that were largely underpinned by the industry itself and in particular a select group of individuals. What the industry really needed was an injection of fresh capital. Here is a list of the previous articles in the series:-

Part 1 - Domain Industry and Valuations
Part 2 - The domain bubble
Part 3 - What caused the domain bubble?
Part 4 - Domains and the sub-prime shock 
Part 5 - Domain values and opportunities
Part 6 - The Pressures on PPC
Part 7 - domainers under the magnifying glass

Domain valuations increased to point A on the chart and the lack of sustainability of the underlying metrics ensured that there was going to be a slide downwards to point B. This domain valuation mini-recession is very similar to what many niche markets experience after an initial surge of growth.

The depth of point B has been increased by the global financial crisis as businesses pull back on their advertising spend. The financial industry has always been a major online advertiser and the current uncertainty being experienced by this market vertical has reduced the income levels of many domains and in turn their valuations.

When talking about point C in the graph we need to first of all fully appreciate why it actually exists. Point C represents the point in time when the wider investment community fully appreciates the value of domains and they begin to heavily invest.

As we all know domain names are unique and this uniqueness is a major contributing to their value. For example there is only one progolfer.com and if the golfing market wants to position themselves in that market vertical then progolfer.com is the domain to do it. This creates value for the domain but only value for the natural owner of that domain.

Since the problems with the economy the majority of natural owners have not been in the market for expansion into new markets and the purchasing of domains. This created point B but point C is when this all turns around.

When an asset increases in value then the investment community begins to take notice if an only if they perceive value for their investment. Value will be achieved if:

1. New revenue streams can be developed (eg. build out the domain)
2. Sales potential is greater than the investment
3. Existing revenue streams continue and increase.

The next article in the series will begin by expanding upon these three methods of investment and how the domain industry and get to point C faster.

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