Part 3 - How A Decline in the Chinese Economy Will Impact Domains

This is the third part in a series that examines domains and the Chinese economy. The first two parts can be viewd by clicking on the following links: Part 1      Part 2

The biggest concern with a Chinese economic downturn is the impact that it will have on the rest of the world. As companies reduce spending and hunker down during the economic storm domain valuations will be the recipient of a perfect storm of less demand and massively greater supply courtesy of the new gTLDs.

If you are considering an offer right now on a domain, then my advice would be to take it, as I believe we will be heading into some rough water over the next couple of years. I’ve never regretted having cash in the bank and if I’m right, then there’s going to be some real bargains available in the not too distant future.

The biggest concern for me is the value of domain traffic in a financial crisis. Users will still have value but I’m concerned whether the value will be fully realised by domain investors in a downturn.

The Global Financial Crisis (GFC) taught us that although domain traffic is valuable (businesses need customers) the position of domain investors in the domain ecosystem is currently quite weak. As the dominant advertising partner, Google is likely to try and take a greater share of the reduced volume of advertising dollars in a difficult market.

This strategy worked in the past because there was excess margin between what Google pays out and second tier advertising exchanges. We are seeing that this is not necessarily the case in every market vertical. Domain investors that leave all of their domains with a single company or try and move them manually between monetisation companies will achieve sub-optimal results.

The challenge for domain investors is to diversify revenue sources so that they are not all coming from a single company. A recent article on the “hidden value of optimisation” clearly showed how optimising across multiple revenue sources effectively hedges against turbulent economic times. In the case of the article it illustrated the cross-rate differential between the Euro and $US as an example.

I’m constantly looking at macro-economic factors that may impact ParkLogic clients and then devise ways to help mitigate any downside risk while increasing the benefits from any potential upside opportunities. It’s what keeps the team awake at night as we dive into not just domain data but data that may impact the value that underpins our client’s assets.

To finalise this series, here is a list of actions that you may wish to consider implementing:

• Finalise all active domain transactions.
• Review the prices of all of your domains with an eye to reducing them.
• Ensure all of your domains have buy it now prices on them.
• Get all of your domains into each of the active market places.
• Actively reach out to end users of your domains to market them.
• Setup a webpage with all of your domains listed and their prices. All “for sale” links on parked pages should point to this webpage. If a potential buyer clicks on one of the domains then it may route through to one of the market places to handle the negotiation etc. This will mean that all of the traffic from potential buyers will be routed through to your domain list and not used to potentially sell someone else’s domain.
• Outsource all of your domain management (especially for traffic) to a company that actively reduces revenue risk.
• Do not buy any domains unless you can see a clearly defined exit.
• Close any developmental projects that have a time horizon greater than 2 months.

I hope that you found the series on domaining and China interesting and thought provoking. I'm looking forward to DomainFest in Hong Kong to test out some of my hypothesis.

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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.