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Using Analytics to Price Domains - Part 4

Using Analytics to Price Domains - Part 4

In the last article in this series I began to unpack the importance of the demand curve for accurately pricing domain names. My experience with domain sellers is that most of them price their domains more by gut then attempting to apply a process. In this article I want to move my line of thinking forward to help sellers more accurately price their domains and buyers know if their getting a fair deal.

Escrow.com

I should say out the outset that I’m going to keep everything as simple as possible by minimising the number of input data points and mathematics…..but hold onto your shirt as it can still get a little tricky! Remember the goal is to see if we can create a demand curve for a market vertical and then attribute pricing to this curve. So where to start?

We can use the google keyword tool (remember there are a LOT more other data points) to provide us with both quantity and price for an individual keyword. It just so happens that the price is more often than not a reflection of the demand for that keyword due to the Google auction system amongst advertisers. Google also provides a competitive index which is really interesting and bears a lot more thought…..I won’t be applying the index for this analysis.

So I entered a whole lot of “gaming” keywords into the keyword tool and out popped the data that I was after. After a bit of manipulation, I was able to produce the following chart (price is the vertical axis and quantity the horizontal). I really haven’t added a huge number of data points but it provides a reasonable picture of demand for the gaming market vertical.

Games demand curve

 

The next thing I add is a power series trend line (blue dashed line) which I can then use to approximate the demand curve for gaming traffic. It just so happens that Excel has a great feature that allows you to display the formula of the trend line on the page. In this case it’s 40.053X^-0.0537. For those of you that have forgotten your maths, this is 40.053 times by an X-value raised to the power -0.537. Basically it’s the formula for a nice curve.

Trend line to games demand curve

 

After some more complicated mathematics using some integral calculus I was able to determine the area under the blue line. Why is this important? What we do know is the average domain name sells for $1,000, therefore the mid-demand point should reflect this valuation. It just so happens that the mid-point is at (1510,0.786). I’ve highlighted this on the graph below.

Plotting of the mid-point

 

So what do we now know? Right up the top of the demand curve are the generic category killer domains and rightly, this is where the curve asymptotes into the stratosphere for pricing. For instance, games.com is worth a LOT of money and this is where this domain would reside on our chart.

At the far right hand end of the blue curve we have a rapid drop off in demand. Any keyword domains that find themselves out this end of the spectrum should be dropped. This is where domains such as reallyawesomegames.com belong…..just drop these ones or at the very least put them up for sale at just above registration fee.

By using the Google keyword tool I can now type in any of my domain names to get the suggested price for that keyword. I can then plot the price on the demand curve and determine whether the domain is above or below the $1,000 point.

Now here’s where it gets tricky. What we don’t know is whether the pricing scale on the right is linear, logarithmic or some other scale all together. My intuition suggests that this scale must relate somehow to the size of the market and the overall demand for the individual domain we are trying to price. I need to think about this a little more.

So what can we now do? We can generate a demand curve for any market vertical, plot the mid-point to work out whether our domain should be priced above or below $1,000. We should also be able to view those domains that are category killers and those that should be dropped. It’s a start in the analytical process…..and hopefully I can refine this further.

Total demand picture

As I said in my previous article, I really value feedback (good and bad) that provokes additional ideas….so feel free to pitch in with questions and suggestions.

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Comments

Guest - Jeff Schneider on 21 June 2016

Hello Michael,

Estibot, and most all other Domain Pricing Systems are based on Google-Centric Analytics. As we have discussed many times this Archaic Pricing system is obsolete. There are Economic .COM Profit Center Valuations that are based on pure traffic potential Compounding, that .COM site holders ONLY can enjoy. This can only be accomplished with Marketing Strategies that DO NOT INCLUDE Google Ad Support. Actually most All Good Domains chances of Gaining back ALL the traffic meant for their site, are increased OUTSIDE THE GOOGLE Traffic Rustling Maze.

So if your analytics are Google-Centric, you may want to reconsider Valuations Outside The Google System as more representative of the true Economic Valuations, some savvy .COM End-Users are aware of.

Gratefully, Jeff Schneider (Contact Group) (Metal Tiger) (Former Rockefeller IBEC Marketing Analyst/Strategist) (Licensed CBOE Commodity Hedge Strategist) (Domain Master https://www.UseBiz.com

Hello Michael, Estibot, and most all other Domain Pricing Systems are based on Google-Centric Analytics. As we have discussed many times this Archaic Pricing system is obsolete. There are Economic .COM Profit Center Valuations that are based on pure traffic potential Compounding, that .COM site holders ONLY can enjoy. This can only be accomplished with Marketing Strategies that DO NOT INCLUDE Google Ad Support. Actually most All Good Domains chances of Gaining back ALL the traffic meant for their site, are increased OUTSIDE THE GOOGLE Traffic Rustling Maze. So if your analytics are Google-Centric, you may want to reconsider Valuations Outside The Google System as more representative of the true Economic Valuations, some savvy .COM End-Users are aware of. Gratefully, Jeff Schneider (Contact Group) (Metal Tiger) (Former Rockefeller IBEC Marketing Analyst/Strategist) (Licensed CBOE Commodity Hedge Strategist) (Domain Master https://www.UseBiz.com
mgilmour on 21 June 2016

Hi Jeff,
Many thanks for your thoughts. I think what I was attempting to do with by using the Google data was to get a picture of the demand curve for the various domains in a market vertical. Once the demand curve is known then we can begin to plot additional data points that are not Google Centric to get an estimation of a domain's value.
The biggest issue I'm trying to work out is what the scale above and below the $1,000 known data point looks like. As I mentioned, I think that it has a relationship to the market size.
I must admit that I've looked at Estibot and I find that it has almost fictitious prices and I'm not sure what they are based upon.

Cheers!

Hi Jeff, Many thanks for your thoughts. I think what I was attempting to do with by using the Google data was to get a picture of the demand curve for the various domains in a market vertical. Once the demand curve is known then we can begin to plot additional data points that are not Google Centric to get an estimation of a domain's value. The biggest issue I'm trying to work out is what the scale above and below the $1,000 known data point looks like. As I mentioned, I think that it has a relationship to the market size. I must admit that I've looked at Estibot and I find that it has almost fictitious prices and I'm not sure what they are based upon. Cheers!
Guest - Adam on 21 June 2016
Hate Math

I hate math. Besides you are assuming people act logically when they don't. Pricing by gut is good but you need experience.

I hate math. Besides you are assuming people act logically when they don't. Pricing by gut is good but you need experience.
mgilmour on 22 June 2016

Hi Adam, yes,,,,maths can be a pain at times. The methodology of pricing domains can be used for both buying and selling.

Hi Adam, yes,,,,maths can be a pain at times. The methodology of pricing domains can be used for both buying and selling.
Guest - Jeff Schneider on 22 June 2016

Hello Michael,

Google has been on the prowl since their Market Inception, to undermine or replace domains as a tool for navigation. Their massive Advertising campaigns dissing .COM Profit Centers Assets as having low valuations, permeates the Valuation Psyche of many in the domaining Industry.

This concerted Google-Centric characterization, needs to be realized by all domainers as a frauduleht Valuation Model. Yes maybe we should consider the .COM Asset Class as being much more valuable Outside of the Google SEM Model. The Google Garden Maze, devalues any and all participants sites within its Traffic Stealing shell game, that in effect exposes all Google Ad participants to massive loss of Traffic to the participants most dreaded Competitors

Long story short Domain valuations are reduced for all Google participants. There are Domain Valuations within the Google Traffic Trap that are much lower than the true Economic Valuations being experienced by Site Owners that bypass Google.

Gratefully, Jeff Schneider (Contact Group) (Metal Tiger) (Former Rockefeller IBEC Marketing Analyst/Strategist) (Licensed CBOE Commodity Hedge Strategist) (Domain Master https://www.UseBiz.com

Hello Michael, Google has been on the prowl since their Market Inception, to undermine or replace domains as a tool for navigation. Their massive Advertising campaigns dissing .COM Profit Centers Assets as having low valuations, permeates the Valuation Psyche of many in the domaining Industry. This concerted Google-Centric characterization, needs to be realized by all domainers as a frauduleht Valuation Model. Yes maybe we should consider the .COM Asset Class as being much more valuable Outside of the Google SEM Model. The Google Garden Maze, devalues any and all participants sites within its Traffic Stealing shell game, that in effect exposes all Google Ad participants to massive loss of Traffic to the participants most dreaded Competitors Long story short Domain valuations are reduced for all Google participants. There are Domain Valuations within the Google Traffic Trap that are much lower than the true Economic Valuations being experienced by Site Owners that bypass Google. Gratefully, Jeff Schneider (Contact Group) (Metal Tiger) (Former Rockefeller IBEC Marketing Analyst/Strategist) (Licensed CBOE Commodity Hedge Strategist) (Domain Master https://www.UseBiz.com
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