Part 2 – How China’s Looming Debt Crisis Will Impact Domains

This is the second article in the series on China. Click here for part 1.

Off the back of all of the China debt crisis, what’s going on in the domain industry? For the past year many western domain investors have been scratching their heads as they tried to work out why the Chinese were buying up all of the 4 letter/number domains.

Other than a few reasons which were largely due to mysticism and numerology there was no sustainable underpinning of the value of many of these domains. In short, it was spectulation run mad that rapidly pushed up the prices.

Despite the underlying values being questionable there has been a rush by many western domain speculators to register short character domains. The total goal was to then sell these domains to Chinese investors for inflated prices. While some people have made money, many are in the process of losing their shirt as the giant global ponzi scheme comes crashing down.

I recently spoke with a Chinese investor that has over $50m to invest in domains and she indicated that they are putting just about everything on hold to see what’s happening with the market. The domain industry has just experienced a bubble fuelled by cheap money that was looking for another asset class to invest into. The rule of thumb for bubbles is to get in and get out really fast so if you're holding any of these domains then it may be a long time (if ever) before you see a return.

As an example, a number of months ago I sold a whole lot of 4 letter dotcom domains to a Chinese buyer. I recently checked the market and you couldn’t get half the price for those domains now.

I have been upfront in saying that while the cheap money is available then in my opinion sell. It’s not often that you get opportunities like the one that has just past.

What’s really interesting is that many of the Chinese registrars are the companies that are moving massive numbers of the new gTLDs. As an example, registrar has sold 27.3% of the .xyz domains (1.13m). Congratulations should be made to Daniel Negari and his team as they really tapped into the Chinese market as a place to sell the .xyz brand in a big way.

Likewise, .CLUB has managed to sell over 60% of its domains to Chinese investors. It’s clear why Collin, Jeff and the team have been clocking up the frequent milers to China and back! Like a number of the other new gTLD registries they seized upon the boom time in China as a way to move their stock. It was a fantastic move!

The question that needs to be addressed is what will happen to the new gTLD market in a Chinese bust? Clearly renewals will evaporate from domain speculators and new registrations will return to much more modest levels. But is this really a bad thing?

What the Chinese boom has done for a number of the new gTLD registries like .CLUB and .XYZ is provide a massive injection of capital at a time when they most needed it. A Chinese bust will not be catastrophic for these companies as they've also been focusing their efforts in other parts of the world and in particular end users.

In the next article in the series I will go through what I think is a good domain strategy in the event of a Chinese economic collapse.


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.