Saturday Musings - Why Domains Are Like the “One Ring”

Author, JRR Tolkien, suggested in “The Lord of the Rings”, that the one ring allowed wearers to rule but each time they put it on they tended to spiral down into deprivation and psychosis. The character of Frodo did his best to resist the rings temptations but sometimes he just couldn’t help it. I sometimes wonder whether domains are a lot like this.

Gollum - have you bought the .comRemember when you bought your first domain name? The nervousness of the purchase followed by the terror of what the heck are nameservers and EPP codes. But you were hooked. The desire to buy or sell just one more domain each day becomes an irresistible allure that you just can’t seem to deny. If you don’t believe me then consider the following….

What’ the first thing you do each day? Is it check your domain stats to see whether they are up or down? How about jump onto Afternic or Sedo to check out any domain offers?

What’s the last thing you do before you go to bed? My wife used to ask me whether I’d tucked my computer in as yet….which is a euphemism for have I checked my domain stats?

When you really consider it the last thing we needed was the monetisation providers, registrars and marketplaces to develop apps and responsive websites. This then meant we could feed our addiction to domains during the day while we were catching a train, in a staff meeting or having a coffee with our loved ones.

Of course we could disguise our domain addiction by mumbling something about checking up on an important client email, but between you and me, we know the truth. You’re a domain addict.

I bought a domainSo what is it that is so mesmerising about something you can’t touch, talk to and is full of technical mumbo jumbo? I think I have the answer to that question. Domains are all about power. We may be embarrassed to admit it, but any domain addict worth their salt loves the fact that they own and control something that can impact the world, is unique and, well, hmmmm…..precious.

So deep down inside we are all “Lord of the Rings” Gollum’s coveting our preciouses. Let’s look at the similarities. The one ring impacted the world, so do domains. Tick! There was only one “One ring” and there is only one of each domain. Another tick! The one ring was precious and so are domains. Let’s face it, most of our domains have little stories about how we acquired them and we recount other addicts all about them over drinks at conference bars.

I could carry the analogy further by saying that we, domain owners, stare at computer screens in the dark…..Gollum stared at silver fishes in the dark. He was addicted to the ring….we are to domains. The list goes on and on….which leads me to one conclusion…..the size of eyes of some NamesCon attendees seems to be getting larger each year……oh dear, they may be on their way to “Gollumhood”.

What’s also interesting about domains is the social structure they have developed. Consider for a second who has a more important social standing. The domain investor that owns download.com or joes-pizza-shop-around-the-corner-is-open-now.com?

The domain is locked precious!So like the “One ring” domains do imbue a kind of power! I’m either a somebody or a nobody because of my domains. So when you look at the flood of investors into the new gTLDs it’s all about their quest for controlling something that is powerful.

What many don’t realise is there’s “one .COM to rule them all and in the darkness bind them”. This is a fancy way of saying that you may own an amazing new gTLD but ultimately you will bend your knee to the .COM. It makes me wonder how long it will be until there is a rebellion……

I don’t know about you but right now I’m feeling an incredible urge to go an register just one more precious....I mean domain…..and then it will be mine! All MINE!

Have a great weekend.

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Problems With The Domain Industry

I published an article about ChiP (Chinese Premium) domains yesterday and received a really interesting comment from a reader that I would like to unpack. For a start I would like to thank them for the effort they took in writing the comment as it’s clear they are really passionate about domains.

Escrow.com

As the comment is public, here is what they wrote:

Your advice to sell is terrible advice. And then you offer to help CHIP owners liquidate. Four-letter .com prices are positioned to move up substantially in the coming years and you recommend getting out now. You obviously needed a better translator on your China trip. SELLING CHIPS NOW AT LIQUIDATION PRICES IS TERRIBLE ADVICE. PLEASE DON'T HEED.

Yes, my advice may be terrible for a subset of the domain community that is wanting to hold their domains in perpetuity but here’s the thing. The whole point of having an asset is either it produces dividends in the form of an income stream (eg. Monetisation) or you sell the asset for more than you paid for it (ie. capital gain).

If you always believe the price of the asset will increase and you have no need of additional cash, then logically you should hold the asset. The assumptions underpinning this strategy is that domains will be used forever and that there aren’t any market cycles that you can take advantage of.

It’s all about managing risk and everyone has a different risk profile. For example, a number of years ago I sold my traffic portfolio at the peak of the market for a crazy multiple, waited a couple of years and then bought back in at a fraction of the cost. I was managing my risk, taking some cash off the table and watching the market.

If you are running a business, then at some point in time you will sell the asset and crystalise the capital gain. If you plan on selling in the way distant future, then you essentially are saying you have an infinite appetite for risk.

One of the major aspects of risk management is diversification by taking the money off the table and then investing it elsewhere. Everyone is different. Some take the cash and invest it in the stock market while others invest it in personal relationships by having a family holiday. Wherever you choose to invest is your own business.

There is the other issue of cost of capital. What does it cost you to have cash working for you elsewhere versus leaving it in the current asset? If you want to invest in a business and don’t have the cash then it could be you end up borrowing funds…..what is the cost of this capital versus selling the domains now? These are all questions that can only be answered on an individual basis.

Which brings me to the current market cycle. All the data indicates that we have tipped over the peak of a Chinese driven market cycle. Domains I sold in December last year I can now pick up for around 70% of their sale price. Over the last twelve months the Shanghai Composite Index (see below) continues to decline which correlates with what is happening in the domain space.

Shanghai Composite Index

 

 

This does not mean that selling ChiP domains is a bad deal now. Yes, you may have received a better deal last year but in six months’ time it’s likely the market will completely cool off and you find yourself playing the really long-term hold game. Is this something that everyone wants to do? Of course not. Some will hold and some will sell based upon their own circumstances.

Let’s flip this around. If the reader who commented believes that selling ChiP domains at “liquidation prices” (for the record, they aren’t liquidation prices) is terrible advice then they must be a massive buyer of the domains themselves. They have a belief that over the years the domains will massively increase in value and therefore they should logically purchase them. What does this do? It pushes the prices of the domains up as there is more demand and reducing supply.

Now if the commenter is saying everyone is mad for selling and they are not buying then they are either being economically irrational or they themselves don’t have the cash to take advantage of the cheap opportunity.

This brings me to my final point. The lack of liquidity in the domain market as investors buy-in to the perpetual hold model is frightening. This mode of thinking drives some domain investors to reject $1,000 deals for stock-turn domains in the belief that one day they will get $20,000 for them. In comes the massive supply of new gTLD options for buyers and suddenly the potential $20,000 deal is fifty plus years away…..that’s a long-term hold.

The purpose of indicating that my company, ParkLogic has buyers of ChiP domains was an effort to solve the liquidity problem for those people that wished to manage their risk. We’ve already moved a lot of ChiP domains and continue to do so as everyone has a different risk profile.

Never forget that cash provides flexibility to take advantage of other opportunities. As an example, the other day I came across a fantastic business that was looking for investment. I’m now a shareholder and it’s rapidly moving forward….

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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.

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Developing a Domain Into a Business - Part 1

So you’re all excited about developing that really special domain name and you’re wondering what the first steps are. Most people immediately jump into getting a website up….whatever you do this is the completely wrong approach!

In this article I want to touch on a number of things that I look for in start-up businesses and then as the series progresses discuss how to actually build a successful business. I've founded many successful startups and there is nothing quite as satisfying as creating something from nothing.

Escrow.com

I've found that successful businesses typically start with a well thought out business plan. The technical implementation of a website is only one small but important aspect of the plan. The first thing that you need to work out is how you’re going to make some money. You may only have a vague concept about how you are going to do this but nevertheless, get it down on paper!

For example, I love writing my blog on the domain industry, business and even my weekly personal musings. From my very first article I had a clear direction that it would be an advertising based business....it may seem obvious but there are many other things that I could have done. Speaking of which....reach out to me if you are interested in advertising!

I was recently approached to invest in an online business and the first question I always ask is, “How are you going to make money?” This seems an obvious question but believe it or not it’s often forgotten in the excitement of getting a pretty website up and running. If you can’t answer the question then stop whatever you are doing and work on that problem because it impacts everything else that you do.

The second question I end up asking is, “How fast can you earn your first dollar?” Like the first question this one is vital as it helps scale how big an investment you require to really understanding if you will actually have any customers.

Once again, I see many budding entrepreneurs believe that they need everything nailed down, automated and working at peak performance. I personally don’t really care about many of those things. I’m more interested in them actually earning the first dollar.

Jeff Bezos started processing his first online payments by literally taking a disk out of one computer and walking it across to another computer. He nick-named this sneaker-net. He didn’t have all of the automation in place but he knew how to collect the money…..the automation came later.

So I come back to the question, “How fast can you earn your first dollar?” Forget all the bells and whistles. I want to know how long it will take you to get a client to buy your product or service. From an investment perspective this proves so many things about your business:

1.    That there is a market.
2.    The really basic technology works.
3.    Your product/service works.

Once you have this in place then it’s just a question of scaling.

It’s like me with the science fiction book that I’ve written called “Battleframe”. I’ve never written a book before and it’s been quite a journey but now that I have my product I need to think of innovative ways of getting it into the hands of customers. I need that first customer that I’ve never met before (ie. not a friend) to buy the book and say that they enjoyed it. Once everything’s in place I then need to scale…..and write book two!

A number of years ago I met a domainer that had built a website into a business. They’d spent $6m on it before they had earned a penny. I must admit it that I just don’t get this mentality. What happens if the market rejects your product? You’ve just spent $6m on something that is pretty worthless.Once you’ve answered my two above questions then you need to answer the third one, “Do I really need any investment.” I’ll cover this in the next part in the series.

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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. Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face.
Click here to arrange time with Michael
Click here to advertising on whizzbangsblog.com

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“How are you going to make money?” Fred Wilson, the venture capitalist who spotted Twitter, Tumblr, Foursquare, Zynga, etc. earl... Read More
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Why I'm not buying into the new gTLDs

With the all-pervasive hysteria about the new gTLDs I feel like I’m going a bit against the flow. So why aren’t I getting into a buying frenzy and forking out wads of cash?

In a previous blog I talked about having a business model for each domain name that I own, the problem is I can’t see a business model with the new gTLDs.

Let’s just think about it for a second; they won’t have any traffic, with the glut of opportunities available they won’t really be that sellable and I don’t need another domain to build into business (I’ve got enough to last a lifetime!). Hmmm…..so what is the business model? How am I going to get my return on my investment? I’m not…plain and simple.

On top of there not being a business model I find that it’s also all about focus. Since 2014 started ParkLogic is has been going through a massive growth spurt and we’re in the middle of a major developmental project. We hope to have this ready for release at DomainFest at the end of March. I don’t want to lose my focus from ParkLogic on something that is more of a gamble playing the lottery.

So when you place your hard earned cash on the table ask yourself two simple questions:
1.    What is my return on my investment?
2.    When will this happen?

If you can’t ask these questions then I suggest that you attend TRAFFIC in Las Vegas and put your money on the roulette wheel. At least you may have some fun!

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What's Your Business Model?

It’s critical that every one of your domains has a business model associated with it so that you can make appropriate decisions about how to best increase their value or realise there value.

So what are the business models that I use?

Traffic domains – these domains are those that receive traffic and are monetised. The key is to extract the maximum value out of the traffic each and every day.

High Value domains – These are more often than not two letter or single word domains – for example, ab.com or vodka.com. These are the “rainbow” domains….in other words, if a large corporate decides to buy one then you’ll get the pot of gold at the end of the rainbow. I would highly recommend that you outsource these domains to a qualified good broker who knows how to create a market.

Stock Items – These domains are often multi-word domains and should all be priced and ready to sell at sub $1,500. You may get more…..which is great but it’s all about moving the stock. The ultimate goal here is to sell around 3% of your domains per year.

Development – You can’t develop everything….you just don’t have the time to impact thousands of domains in a meaningful manner but you do have the time to build a business on a few. My advice would be to build some domains into profitable businesses and then sell them off…..then repeat.

We could refine these categories a bit further but the message should be clear that every domain needs a business model. So take a look at your domains and ask yourself, what business model am I applying to it? In future blogs I'll see if I can unpack the different categories a bit further.

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