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.
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]