Data. I love data. And today, investing in domains is all about data.

As Shane Cultra said a few weeks ago, “If you’re not in Chinese domains right now you’re out of the wholesale market.” Not 100% accurate, more like 110%.

Everybody has seen this type of scenario before. A product gets hot, buyers rush in, everybody’s making money and then a bubble pops. I am going to go on record and say my opinion is there will be a bubble, but not any time soon. And when that first bubble pops, it will simply be a slight correction to a foundation not even formed yet. What is happening right now is the most important thing to ever happen in the domaining world.

Traditional Domaining

Up until China started investing heavily in domains, choosing assets to invest in was part art, part science and part gut. Over the years, I have seen so many different opinions on domain name values for brandable and keyword domains. While this data played some role, the value typically ends up based more on a gut check than anything else.

Comparable sales data of brandable and keyword domains can only do so well because metrics used from one sale to another are rarely strong enough to warrant broad extrapolation to similar domains. Sellers often use data like the Google Adwords Keyword Planner to identify the number of searches each month for a particular keyword or phrase. However, if there is no direct navigation traffic (people typing in the domain name), then the owner must develop a website and get on page one of Google to take advantage of that traffic. Otherwise, it really means nothing.

Secondly, my guess is that over 50% of all keyword and brandable domain sales would never had a second buyer anytime soon. It’s one of the main reasons why looking at DNJournal every week is such an addictive read. You never know what’s going to sell. Furthermore, most sales are from inbound leads, which is not the result of 12 people fighting for a domain in auction. It’s typically the result of one person with an emotional attachment to that name. This is a core issue behind the problems in extrapolating sales data for broader valuation analysis.

Numerous other factors exist that make the challenge of quantifying domain name values using an algorithm nearly impossible. Luc and Essa from Estibot are brilliant people. Many of the world’s top technology companies would love to have even a clone of either one who is half as good. Yet, even with all the resources they have, automated domain name values for brandable and keyword domains are still hit and miss when compared to the accuracy of appraisal systems for traditional industries. Take real estate, for example. Ten appraisers could assess the same house and likely come in within 15% of each other. Take 10 automated systems in this industry or even ask 10 true professionals in this industry and you’ll likely see variances of 50-75% – resulting in a valuation that ultimately has more to do with your gut than with data.

Enter China – The New Normal

Did I mention that I love data?

Domain name investing for the China market is now based on data. Four-letter (4L), five-letter (5L), three-number (3N) domains … Whatever the data set is, one can break this set down and find floor prices for a wealth of patterns. Double letters, beginning and ending 8s, double repeating, etc.

And these patterns mean something, since underneath it all we have an extremely large amount of buyers who satisfy the demand. This is not going away, in my opinion. If two-number domains dropped in value tomorrow and China wanted out, then only a small percentage of value would fall before Western bidders all bought back in. Same with four numbers, four letters and even longer strings.

The underlying difference in why this data is so much more important (and relevant) today for Chinese domains is that brandable and keyword domains do not have the same liquidity factor nor the same amount of people lining up to pay $25,000 for a domain. The wholesale market can be 75-90% cheaper than end-user sales.

In China, this wholesale demand is the market. Almost none of these domain names will ever get used. They are being treated strictly as commodities, and we are still in the first stage of this investment: Building a foundation. No popular CHIP (acronym for Chinese Premium) domain name seems like it is going to fall off the charts. Why? Because we are likely not anywhere near the top of the mountain yet. People are acquiring portfolios, registering domains and positioning themselves. And there is a lot of that still to do.

There is also a beautiful difference between Chinese and Western culture. China is a culture where people are taught about saving and building wealth from Day One. North America, on the other hand, is a consumer-based society where we spend, spend and spend. There is an entirely different mindset for building wealth in China and this is something, together with the portable liquidity of these assets, which I truly believe is core to the growth of domain investing as a long term asset class in China.

The Big Picture

Oh, the big picture. I don’t think that reported sales are showing enough of the big picture. Why?

Undervalued Inventory

There is so much inventory being purchased under value at the moment: from buy it now, closed auctions and private sellers. Many owners are not aware or simply have no idea how to price domains right now and – rightfully so – many of us are still trying to understand the China market.

Corporate Life

I spoke to one of the largest domain portfolio owners yesterday and they said: “We are just getting into this market now. Not sure how we really missed it.” Think about it – How many other corporate and private owners who list names on marketplaces follow the daily domaining topics as most of us do? A small fraction, is my guess.

Domaining is still only a full-time job for a relatively small group of people and many of the employees who run domain portfolio sales are not domainers. They simply have goals to meet and, if all is well, then hey, all is well.

Poor Inventory Search

Many auction houses are doing extremely poor jobs of showcasing inventory. Sedo, for example, just added a numeric-only search function in early November. SnapNames still doesn’t have one.

Blocking Buyers

Many auctions are closed, so those buying need to understand where to place backorders, etc. There are visible differences where you buy domains resulting in arbitrage (buy on Snap, sell on NameJet, for example), and many more undermarket sales happening.

The good ol’ days of being in private auctions may very well come to an end soon. In fact, except for personal gain, I really don’t see any reason to have private auctions anyway. As long as bidders are verified, it doesn’t make any sense from a business perspective to limit the last three days of bidding to a closed group of people. People will follow the gold and that gold is inventory, doesn’t matter if auctions or private or public.

New Players Innovating

NameJet is likely the most important player in the West right now. Not only do they provide an API feed for their inventory, but they’ve also been quick to add a numeric search function, have quality standards for sellers, an exclusive lock on Network Solutions expired inventory, longest payment terms and holding more and more public auctions.

DropCatch and Pheenix are also opening up public auctions once a domain name is caught. And registrars like NameBright are advancing bulk tools every day for owners – seriously, try their bulk search of 5,000 domains at once. You will never go back.

Many companies who used to run the drop markets in this industry are being phased out by people who realize the potential in China, listen to buyers and sellers, and have the nimble resources to adapt. This innovation is resulting in greater tools, more opportunities and a more efficient marketplace. All of this would never happen at this pace without the demand from China.

So, going back to Shane’s quote: “If you’re not in Chinese domains right now you’re out of the wholesale market.”

Yep. That sounds about right.

---

NameCorp™ is a boutique digital agency with an insane appetite for naming and more than 20 years of experience. Contact us to learn more about finding a better domain name.

China. The New King of Domains.

If you own a premium domain name, then odds are you have received an inquiry from a prospective Chinese buyer over the past year.  Domain names have become an extremely popular investment in China and many of the industry’s top reported weekly sales are now credited to both Chinese investors and Chinese companies.

Why is China suddenly the biggest marketplace for domain names?

There are many answers to this question but one thing is for sure: The Western world doesn’t even come close to the influence that China has on domain names anymore.

And this is a good thing.

Let’s go back a few years first.

The Collection Years.

Up until 2009 or so, there were only a relatively small number of large bulk buyers in the traditional domain investment community. The vast majority of these buyers were based in North America, Europe and the Caribbean, and often competed heavily in auctions for any name of quality.

The Adjustment Period.

Somewhere around 2009, Google, Yahoo! and other upstream ad providers introduced quality score payments and many domain name owners who relied on parking revenue saw their payouts drop.  It was the first of many things to shift a primary focus to domain name sales versus monetization.

Pandas and Penguins killed the value of exact match domain names and the introduction of zero-click advertising started exposing premium domain holders to great risk, reducing the interest in parking by many big investors.

(Zero-click parking is almost the worst thing you can ever expose a premium domain name to in our opinion. A domain name’s value has the potential to be exposed to penalties, bans and more, all while you often have no idea. If you own a premium domain and it’s on zero-click ads, you’re just asking for trouble.)

During this period, DomainNameSales.com, Mark.com and other key marketplaces were established, showing the interest in expanding public aftermarket sales platforms.

The New Internet.

Prague, 2012. This is when many of the world’s top domain investors became kids again. ICANN opened up the doors for new domain name extensions and the response was similar to Willy Wonka finally opening the doors of his chocolate factory.

New companies were formed, people became enthused again – it truly was similar to kids in a candy shop, except the candy cost more. Companies like Donuts raised $100 million for new GTLDs; Google spent $18.6 million just on applications. Even well-known industry leaders spent millions on applications to own some of these new extensions.

However, the most important thing was something very few people ever spoke about.

A lot of this money wasn’t from domainers. It was from venture capitalists, private investors, well-known companies and more.

All of a sudden, domain names had Main Street credit with tremendous new cash investments. This was verification the aftermarket for domain names was just beginning.

February, 2014.

This date was critical. The first launch of these new domain name extensions went live. It was like being at the Super Bowl watching the coin drop. No one really knew what was going to happen. Would anybody want these new domains? Would people pay a premium for early access to premium domains? If so, what prices would they pay? Would companies really buy these names? Registries needed adoption for the long term.

The last 18 months have proven that there is an undeniable thirst for these new domain name extensions.

“Adoption is, in fact, key, and it’s borne itself out over the course of the past year and a half. Registrations at Donuts alone exceed two million names and the number is steadily climbing. Consumers not only are buying names in new TLDs, they’re putting them to use. One has to look only at the featured sites page on our website to see daily examples of real world use.” noted Daniel Schindler, Co-Founder, Donuts Inc. when asked about the last 18 months.

A couple weeks ago the industry may have achieved its biggest tipping point yet when Google decided to forgo the traditional .com and consolidate all its companies under a .XYZ domain name.

China Becomes King.

While all these changes were happening with the introduction of new domains, Chinese investors were slowly becoming dominant players in domain name investments.

For those unfamiliar with China, there are very core differences in how wealth can be invested in China. If you live in the Western world, you can pretty much invest in anything. China has much tighter restrictions, especially on funds leaving China.

These restrictions may impose hardship in China, but they also create great demand for alternative investments from Chinese buyers more than many other countries. Domain names started becoming extremely popular for a number of reasons.

• China has an extremely high Internet penetration.
• No walled gardens for mobile usage. In the U.S mobile usage is mostly behind walled gardens (Facebook/Twitter/etc.)
• Mobile Internet is mature since they started and expanded mobile Internet before the App economy took hold, they are still used to domain names
• gTLDs are not under the control of the Chinese government. The ICANN controlled gTLDs are harder to seize without proper legal documentation versus their domains (.com.cn/.cn) which can be often seized without notice.

But why domains?

Good domains are rare—very rare—and with such rarity comes value and prestige. Most people would love to own a domain like sex.com or money.com, but very few have the means. Furthermore, very few great domains are even available for sale.

The reason China became king is that the Chinese wholesale market has applied logic to inventory and created foundational values rarely seen before in this industry with such high demand.

Instead of applying a Wild West attitude using almost defunct measurements like SEM value or PPC search, Chinese investors focus primarily on the best of the best. Two Letter dot coms, Three Letter dot coms, One word dot com’s etc… There is very little Wild West of anything when it comes to Chinese buyers. In fact, they have proven to be some of the smartest investors in this industry although the latest to arrive.

This year alone we have already seen 50% of the Top 10 reported sales YTD by Chinese buyers and the biggest rumored sales are also from Chinese companies – We.com ($8 million USD), and 360.com ($17 million USD).

Some say this is a bubble but many industry professionals disagree.

Tracy Fogarty, Founder of eNaming.com, said “Many of our best clients are from China and the demand from Chinese companies looking to acquire domains has never been higher than before”.

Perspectives like this further validate there are many signs this is not a bubble. It’s not just investor demand but real companies who are looking to upgrade or acquire the best version of their domain name, and willing to pay dearly for it.

What the Future Holds.

There are many opinons on domain name values. However, it comes down to simple supply and demand. Great names are hard to find and once a great domain is gone it’s typically gone for good. Over the last year many two letter dot com domains have gone to brands – most recently TR.com to Thomas Reuters – and more will be acquired. At some point these will all be owned by brands and almost impossible to buy.

If you are sitting on the fence about acquiring a premium domain name there are a couple things to understand:

• Domains are global. So is demand. Waiting doesn’t typically help your chances of acquiring a domain.
• The domain name you want is likely a generic domain name. That means other people want it also.
• A domain name is an asset. It’s something you own. The $100,000 you spend on ads is an expense; it’s not something you own.
• Understand the value of the asset before negotiating. It’s not “just a domain name”.
• If somebody owns a great domain name and they tell you they have multiple offers from Chinese investors, well, they probably do.
• A US Trademark doesn’t mean you have exclusive rights to a domain. There are multiple classes of trademarks and many countries issue them. Then there’s the situation when the domain owner acquired the name, use and so much more.
• If your lawyer has never dealt with a domain name issue before and promises they can file a form to get the name, think again. Talk to a domain name lawyer. Odds are your lawyer is wrong.
• Offers for a good domain name do not start at $500. Add a zero or three.

Nobody can predict the future but when it comes to great domain names one thing is for sure, it’s not a collector sport anymore.

---

NameCorp™ is a boutique digital agency with an insane appetite for naming and more than 20 years of experience. Contact us to learn more about finding a better domain name.[/av_textblock]