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Why I Struggle with Domain Sales

20191106_domainsales The problem with domain sales

Let me say right up front that domain sales as a business model is really difficult way to try to make a living. There are some exceptions to this statement, but they are few and far between.

Escrow.com

The problem with most domain sales is they are more a function of luck than of a carefully planned strategic decision. They happen so infrequently that for the majority of investors they don’t know when and what quantum of size the next sale will be. This makes planning in your business next to impossible.

For instance, let’s imagine you have a portfolio of 5,000 domains and during the last 12 months you sold a domain for $5,000 in January, one for $20,000 in June and finally one for $5,000 in September. This brings the total of your sales to $30,000.

This sounds great and everyone trumpets the $20,000 sale when you get together at NamesCon in January. What most people don’t tell you is the fact their renewals are $50,000 and during the last 12 months they went backwards by $20,000. Sure, this is a contrived example but I think you can get my meaning.

The dream is that one day you’ll sell a domain for $1,000,000 and all the waiting and constant reinvestment will be worth it. I hate to rain on your parade but given that only a handful of domains are sold for these sums of money each year then your aspiration will likely remain a pipedream.

The question I want to ask sales investors is actually quite simple, “What domains do you drop to reduce your costs so you're profitable?”

Since domain sales are so infrequent you have no idea what domains will get enquiries (let alone sell) and what will not. What I see most people do is use their gut instinct to drop the “garbage” domains or worse, they hold onto to all their domains and subsidise the loss from their day job.

This whole scenario became completely ludicrous when the new gTLDs were launched and domainers piled into them believing that if they didn’t, they would miss out on the next gold rush. The result is that close to 59% of new gTLDs are held for investment purposes.

I've said this many times and I'll say it again. When dotcom was launched there were a handful of extensions and massive demand. Now there is low demand and massive number of extensions.....it's completely flipped the other way around.

Who are the winners in the whole domain sales scheme? For a start, the entire supply chain from ICANN, registries and registrars. Every time you buy a domain these players benefit. Should we complain about this? Absolutely not! In particular, the registries and registrars have done EXACTLY what they are supposed to do…..convince people (ie. you) to buy their domains.

Some domain investors believe the new gTLDS should spend more on marketing their brand to the global marketplace. The belief underpinning this position is that as the brand awareness increases the domains in investor hands will rise in value…..let’s unpack this for a second.

The global demand for domains is relatively static at about 5% per year and what some investors are hoping is that through registry/registrar marketing efforts this number will dramatically increase. To move the needle on GLOBAL demand will literally take billions of dollars….so you can give up on that.

Besides, why should a registry or registrar spend huge sums marketing when they’ve managed to sell to you? Being economically rational they’ll sell to investors and wait for the few percent per year of end user demand to take hold in the long-term.

Who else are the big winners?

Early adopters – these people have single word (or short) dotcom domains that have intrinsic value due to their scarcity. They are the ones that discovered the gold in the first place and all power to them.

Mass aggregators – There are two groups of people here:

Investors that have spent huge sums of money aggregating massive (greater than a million) portfolios and have achieved an economy of scale in this process.

Marketplaces – they have facilitated the sales of domains through their systems. They don’t have any registration costs as investors add their domains for free. I should note there are other costs associated with establishing a scalable marketplace.

Lucky investors – these are people that just happen to have a domain someone with deep pockets wants. They have purchased their lottery ticket and the number came up…..don’t make the mistake into thinking they are necessarily savvy business people.....they're just lucky.

Maybe I’m completely stupid but I just can’t get my head around investing into domains on the basis of a strictly sales business model. The risks just seem too high for me…..and hence why I LOVE traffic domains that produce repeatable revenue.

If you disagree with my summation about domain sales, then please let me know. I could be completely missing something, and I’d be happy to be pointed to the next bucket of gold at the end of the rainbow.

Saturday Musings – Equal Opportunity vs Equal Outc...
30th Anniversary of the Australian Internet

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Comments

Wolftalker on 06 November 2019
Unfortunately..

..words of wisdom.

..words of wisdom.
mgilmour on 06 November 2019

Thanks for that!

Thanks for that!
ideafarmer on 06 November 2019
Introspection is hard

As I sit on a 1000 domains portfolio dependent on occasional sales and hoping for a big sale... you make me reconsider my strategy. So hard to walk away even though that might make the most financial sense. Definitely feels smarter than just playing the lottery (I think I've made smart choices) but maybe I'm deluding myself. Thanks, I think, for making me take a hard look at my domains.

As I sit on a 1000 domains portfolio dependent on occasional sales and hoping for a big sale... you make me reconsider my strategy. So hard to walk away even though that might make the most financial sense. Definitely feels smarter than just playing the lottery (I think I've made smart choices) but maybe I'm deluding myself. Thanks, I think, for making me take a hard look at my domains.
mgilmour on 07 November 2019

Happy to help out. Do any of the domains get traffic?

Happy to help out. Do any of the domains get traffic?
ideafarmer on 11 November 2019

I was traveling and just back. I don't know the traffic numbers. I used to have many parked but now most have landing pages only, and listed with afternic. (300+ are listed with brandbucket) How would I check traffic numbers for a list in bulk? Thanks

I was traveling and just back. I don't know the traffic numbers. I used to have many parked but now most have landing pages only, and listed with afternic. (300+ are listed with brandbucket) How would I check traffic numbers for a list in bulk? Thanks
mgilmour on 11 November 2019

I think the best thing to do is to apply for an account at ParkLogic.com and put ideafarmer as one of the domains. I'll approve the account and we then see how much traffic you have.

I think the best thing to do is to apply for an account at ParkLogic.com and put ideafarmer as one of the domains. I'll approve the account and we then see how much traffic you have.
ideafarmer on 10 December 2019

I applied for an account and listed only a few domains as instructed. Should I have attached the entire list?

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I applied for an account and listed only a few domains as instructed. Should I have attached the entire list?
whizzbang on 07 November 2019
Most honest article about domaining

This is the most objective article I've ever read since I've been investing in domains over the last 15 years. You nailed it. Most people read and talk about the few domains that sold. It's hard to read find headlines with 99 percent of domains that never sold.

In the end, the big boys are the winners. New domainers end up been the suckers. Unfortunately, some new domainers will never learn from their mistakes, cut their losses and move on.

Unless for investors with deep pocket, domaining should not be anyone's primary business.

This is the most objective article I've ever read since I've been investing in domains over the last 15 years. You nailed it. Most people read and talk about the few domains that sold. It's hard to read find headlines with 99 percent of domains that never sold. In the end, the big boys are the winners. New domainers end up been the suckers. Unfortunately, some new domainers will never learn from their mistakes, cut their losses and move on. Unless for investors with deep pocket, domaining should not be anyone's primary business.
mgilmour on 10 November 2019

Thank you for your kind comments. I must admit that I try to be as honest (sometimes brutally so) as possible in writing articles.....

Thank you for your kind comments. I must admit that I try to be as honest (sometimes brutally so) as possible in writing articles.....
Guest - William on 07 November 2019
Who is the buyer?

The most important question to consider is who is the buyer going to be. Three letter and single word .com names come with a ton of potential end users. Multiple interested parties = higher chance of sale and a higher price. Some gtld's have these characteristics but even most short gtlds don't have an obvious buyer. The added carrying cost of the gtlds makes the pool of viable investment grade names even smaller.

The most important question to consider is who is the buyer going to be. Three letter and single word .com names come with a ton of potential end users. Multiple interested parties = higher chance of sale and a higher price. Some gtld's have these characteristics but even most short gtlds don't have an obvious buyer. The added carrying cost of the gtlds makes the pool of viable investment grade names even smaller.
mgilmour on 10 November 2019

This is a really good point. Always ask, "Who is the buyer" prior to purchasing any domain name.

This is a really good point. Always ask, "Who is the buyer" prior to purchasing any domain name.
Guest - bul on 07 November 2019
A certain Honesty that is rare.

In a world of spin a bull, I keep coming back to read your posts as there is a certain honesty that comes with it. I was once a 10,000 or so domain investor (I'd say enthusiast too). After selling a few hundreds, I realized I had to make some quick decisions based on the reality of sales and renewal fees. Then came the .whatevers. .la was my first deep dive having resisted the .me and .mobi. I spent about 10k on them. Great short keywords. I never sold a single one of them and dropped all in year 2. To date, i am warry of .whatevers. I have 6 left and right matches and I can tell you I have had ZERO inquiry on them despite a decent amount of traffic on them. Yes, the guys we admire, the ones seem to selling every month, we forget its a small fraction of their 10 or hundreds of thousand domain names for which they must renew month. I remember the headaches of keeping up with my 10k back then. I am thinking, given my experiences, if you hang out in the places where you get to know the next big thing, you might get lucky and get a big sale. One is better off with a small portfolio educated bets than hundreds of get lucky sooners. Don't even fall for the con that drop catching is a sure bet. People don't just drop great domains. But new ideas and concepts are born everyday so don't be afraid of hand registrations. Even the drops everyone seems to scrumble for where once hand regs!. Great articles as always

In a world of spin a bull, I keep coming back to read your posts as there is a certain honesty that comes with it. I was once a 10,000 or so domain investor (I'd say enthusiast too). After selling a few hundreds, I realized I had to make some quick decisions based on the reality of sales and renewal fees. Then came the .whatevers. .la was my first deep dive having resisted the .me and .mobi. I spent about 10k on them. Great short keywords. I never sold a single one of them and dropped all in year 2. To date, i am warry of .whatevers. I have 6 left and right matches and I can tell you I have had ZERO inquiry on them despite a decent amount of traffic on them. Yes, the guys we admire, the ones seem to selling every month, we forget its a small fraction of their 10 or hundreds of thousand domain names for which they must renew month. I remember the headaches of keeping up with my 10k back then. I am thinking, given my experiences, if you hang out in the places where you get to know the next big thing, you might get lucky and get a big sale. One is better off with a small portfolio educated bets than hundreds of get lucky sooners. Don't even fall for the con that drop catching is a sure bet. People don't just drop great domains. But new ideas and concepts are born everyday so don't be afraid of hand registrations. Even the drops everyone seems to scrumble for where once hand regs!. Great articles as always
mgilmour on 10 November 2019

Thank you for your kind comments.

Thank you for your kind comments.
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