Why I Struggle with Domain Sales

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.

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.