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The Big Issues in the Domain Industry - Part 1
So what are the domain industry’s really big issues? What should we be driving innovatively to solve and what issues are way beyond the scope of short term solutions?
When I think about the really big issues in the domain industry I find that I’m forced to reflect on the four primary business models associated with domains:
1. Selling domains like stock items
2. Selling high value domains
3. Traffic monetisation
4. Development
Selling domains as stock items is all about increasing the sales turnover of low value domains (sub $2K) in your portfolio. This is similar to a supermarket which operates on low margins wanting to increase the throughput of products being sold.
When you look at the incumbents in this market they have all been trying to increase the demand. This has largely been achieved through increasing the breadth of their distribution networks (ie. Registrars) so their inventory is exposed to a larger audience.
I see a number of innovations that centre on pricing that can be explored in this market and I will discuss two of them in this article. To date, the feedback from domain marketplaces has been that if a domain is priced it’s more likely to sell. This seems to make sense as buyers like to know what they are about to pay for domain rather than “make and enquiry”.
At the moment most markets encourage domain sellers to price their own domains…..which seems to be a little silly. Why is this? Domain sellers are typically at an informational disadvantage compared to the marketplaces….so why ask the “amateur” to price their domains?
Not only this, domain sellers often don’t have the resources to pull together a myriad of data points to more accurately price a domain name…..worse than this, the data points are often not available to the domain seller in the first place.
This means the domain prices are often more guesstimates than real and a LOT of money is potentially being left on the table due to either over pricing (reduced stock turn) or under-pricing (leaving money).
Currently, the pricing of a domain largely depends upon traffic levels, length, TLD and comparatives. In my opinion, using comparatives completely undermines the whole point of a domain being unique. Why buy a domain for $X when you can buy another one that’s cheaper. This is particularly true with the massive influx of supply from the new gTLDs.
Although important, the above data points in themselves they are not the end. In a previous article, I proposed using the Google keyword price to plot the demand curve for a market vertical. Domains could then be plotted on this demand curve to determine their sell price…..this will take a bit of work but it is definitely doable at scale.
The second pricing innovation is around bundling domains together to increase the stock turn. This is the classic do you want to buy a Big Mac or a Big Mac meal (coke, fries and burger)? Although you may be giving away a little bit of margin the stock turn (and yield per sale) is dramatically increased.
In the domain world, this would be akin to selling not just selling losangelesonlinegames.com for $1,500 but bundling westlosangelesgames.com and eastlosangelesgames.com and sell the three domains for $3,000.
Obviously, these are contrived domain names and prices, but the principle of bundled pricing holds true. The buyer is faced with a choice of accepting additional value for a reduced price….in many respects they’ll want the entire meal. The seller achieves a greater stock turn and yield as a result of the bundling. I may be wrong, but I don’t know of any marketplace that allows bundled pricing.
There are more than just these two innovations that I believe need to occur to increase the sales of domains for portfolio owners.....there are many other's that need to be addressed but that is for another time.
I will be discussing innovations in the other business models in future articles. If you would like to ask questions or contribute your own ideas to the discussion, then please join me in the “Selling Domains Discussion Group” in the Domainer’s Network.
Comments
Brilliantly insightful and illuminating... as per your usual! Thank you, thank you!
Not a problem.....I hope I helped you out.
What do you suggest as the best way to price and not leave too much on the table ?I recently saw that Lora dot com sold for less than high grade dot com.Lora is shorter buthan high grade is longer .Lora was undersold and seller may have made some profit but it was smallest return for a name worth way more than its sold price.I think most domainers sell due to personal reasons while others wait .Always ask for more when you hold a good Domain even if it's 2 words or 3 words.Always research and get the most reasonable price.It's an investment whether part tike or full time .
Thanks for your article and guide.
XR....interesting question.
The first thing to appreciate is any new gTLDs with reserved priced domains are guessing the value. Ultimately the market will price those domains but it's clear to me that most of them are entirely made up. It may make their balance sheets look healthy (not sure how auditors deal with the pricing btw) but for many new gTLDs their P&L is red.
In terms of leaving money on the table....if you have a motivated buyer then research, research and do more research on the potential use for the domain and the benefits for their business. The more tangible benefits with actual numbers you can highlight the more justification for a higher price. You can't just say....."I want $1m" without any justification.
Most domain investors who have been in the industry for a few years have domains in their portfolio with potential end users - typing in the domain's keywords into Google or Bing or Yahoo or Youtube or Facebook or Twitter and finding websites with similar domains or account handles. It is rather easy to find websites using inferior-quality domains to those which one holds in their portfolio. It is quite difficult however to find end users willing to pay a premium price for a domain.
In my day job I quite often see five-figure invoices. Six-figure invoices are common and on occasion I come across a seven figure USD invoice which needs to be paid. I have even seen an $XX million invoice to a client. That is just part of business. I have seen how much real businesses spend on marketing, IT costs, legal expenses, travel, exec bonuses, etc. Yet as domain investors we encounter the inbound inquiry who doesn't want to pay more than $100 for your domain. It seems illogical.
Is there any hope end users will ever see domains in the same light that investors do?
The problem that many domain investors wrestle with is end users know the price paid for the domain (ie. Reg fee) and feel anything above the registration fee them being ripped off. It often takes a lot of effort on the seller to educate the buyer about the rules of supply and demand.....