Domaining is headed for a downturn just like Real Estate

[metrisoft]

I got into the domaining business a few months ago. I have had some successes and some failures. In my limited experience, I have come to the realization that much of the domaining market is driven by speculation, just like Real Estate was. My definition of a "speculation" sale is any sale made between domainers based on inflated appraisals rather than actual market value. Sound familiar? (think Real Estate)

I love the domaining business but I think certain categories of domains are headed for a significant downturn since they are driven primarily on speculation. With the current economic woes, more domainers are going to demand actual market value based on the probability of an end-user sale or real traffic/revenue (not parked) before they purchase a domain.

Here are some examples of domain categories that I think will see a significant downturn:

1. Brandables - Just because a domain name may sound cool doesn't mean someone will want it. I spent a lot of money as a newbie on domains that I thought for sure would sell for tons because they were "catchy." Unfortunately, I have yet to sell one at a premium.

2. LLLL's - Just because you own YZXW.com doesn't mean you can sell it. It is my experience that end users typically aren't looking for these types of "acronym" or "abbreviation" domains.

3. Typos - Typos represent one of the worst possible long-term investments for various reasons that I won't elaborate on.

4. ccTLD's - I registered some really good .MD domains (eg. GP.md, Endo.md, Bio.md, EMS.md) that go well with this "medical" extension. I sent out many, many emails trying to sell EMS.md (for Emergency Medical Services) and got one offer for $5 even though I purchased the domain from the registrar for $150.

5. LLL's - Yes, even these prized domains are headed for a downturn. The prices for these domains have been way over-inflated. What end user would pay $XX,XXX for ZVX.com?

Now for the good news. I think there are "safe harbors" of domaining that seem to be "recession proof". Two of these categories are: 1) Pure generic/keyword .com/.net/.org/.us (geo cities & product categories), and 2) Established websites. Pure generics because there will always be end-user interest. Established sites because they have traffic/revenue and offer a valuable service or information (not MFA sites).

I hope I'm wrong but my prediction, especially with the economic downturn, is that bad LLL's, LLLL's, brandables, typos, and most ccTLDs, will all sink in value 25 - 50% or more over the next few months.

Now, I'm not saying that speculation doesn't have a place in the domaining market, or in any market for that matter, but the domaining market currently seems FULL of speculation and that's a little scary.

I would like to hear others' thoughts.

 

[nicedomains]

To say that brandables, LLLL's and LLL's are all going to downturn is quite an assumption. Your examples are based on your experience and you are citing quad anti premium LLLL's and triple anti premium LLL's !

Most of us have realized that shwag LLLL's and LLL's are not worth investing in and typo's may be obsolete soon so they are a bit risky. However, to claim that all of these domains no matter the quality will decrease in value by 50% is ludacris

Brandables on the other hand are a bit like playing the lottery, you choose the right one and you may win big.. Most investments in brandables are break even or less but there's always that chance of having the right one at the right time..

 

[sgtppr]

"Only when the tide goes out do you discover who's been swimming naked" Warren Buffett

 

[Jasonn]

Big difference between domaining and real estate...
- most domains are owned outright and usually people do not get loans to buy domains
- domains only cost 10 dollars per year to maintain

There is a lot of crap out there that, as people have less and less spare cash, won't be bought and if ecnomic troubles continue, businesses won't be so quick to spend a bundle of cash on a domain, end user sales *may* slow down for a while but I can't see things going the way of real estate.

 

[metrisoft]

Thanks for the responses so far. I am by no means claiming to be domaining veteran who can accurately predict the future. But I am concerned about any market where untamed speculation gets out of hand....

 

[Ross]

1. Brandables - Just because a domain name may sound cool doesn't mean someone will want it. I spent a lot of money as a newbie on domains that I thought for sure would sell for tons because they were "catchy." Unfortunately, I have yet to sell one at a premium.

Who knows what the next big brand is going to be or the next big search engine. You never know and a lot of people have developed these names in to personal projects or even mass websites. These names may not be cream of the crop but they do actually sell.

2. LLLL's - Just because you own YZXW.com doesn't mean you can sell it. It is my experience that end users typically aren't looking for these types of "acronym" or "abbreviation" domains.

There is a proven market for these types of names. Though it may be largely domainer to domainer there are end-user sales and for big money.

3. Typos - Typos represent one of the worst possible long-term investments for various reasons that I won't elaborate on.

Who says you need them for a long term investment?

4. ccTLD's - I registered some really good .MD domains (eg. GP.md, Endo.md, Bio.md, EMS.md) that go well with this "medical" extension. I sent out many, many emails trying to sell EMS.md (for Emergency Medical Services) and got one offer for $5 even though I purchased the domain from the registrar for $150.

.MD is horrid extension to invest in and try to flip domains. There have been only 12 reported sales since '04 on Namebio.com. Most of those are either C.MD or related to Maryland, not Medical fields. Research?

5. LLL's - Yes, even these prized domains are headed for a downturn. The prices for these domains have been way over-inflated. What end user would pay $XX,XXX for ZVX.com?

Yes its unlikely ZVX.com will match up with a company but if it does you can expect that $xx,xxx amount. Plus this follows in the same category as LLLL.coms, there is a PROVEN market, whether it be domainers or not.

Now for the good news. I think there are "safe harbors" of domaining that seem to be "recession proof". Two of these categories are: 1) Pure generic/keyword .com/.net/.org/.us (geo cities & product categories), and 2) Established websites. Pure generics because there will always be end-user interest. Established sites because they have traffic/revenue and offer a valuable service or information (not MFA sites).

1) You have pointed out the obvious and the PROVEN market that is already there.
2) This is not considered domaining and is developing. Though this is prolly the easiest way to flip a domain you are essentially pointing out the obvious again.

I hope I'm wrong but my prediction, especially with the economic downturn, is that bad LLL's, LLLL's, brandables, typos, and most ccTLDs, will all sink in value 25 - 50% or more over the next few months.

25-50% i do not think so. Think of it as more of a shopping spree where everything is discounted.

Now, I'm not saying that speculation doesn't have a place in the domaining market, or in any market for that matter, but the domaining market currently seems FULL of speculation and that's a little scary.

Without speculation you would have limited returns and the demand would be down. Its healthy to speculate and sometimes a bubble pops !

Generally what i am trying to say is BUY NOW! Domains are a great investment if you have the money and know what to invest in. Yes the economy is bad but it only helps us invest in things that we normally couldn't.

 

[bmugford]

Domains are not as exposed to the US Economy as many other assets. There are still parts of the world that use the internet, and have stronger economies.

 

[nicedomains]

Yes, domaining is going into the dumps!

Everyone PM me any one word .coms, quad premium LLLL .coms and generic two word .coms you want to sell for under a hundred bucks. It's time to dump'em all, hurry get out before it gets worse!

 

[metrisoft]

I'm not saying "domaining is going into the dumps". I guess what I am saying is that now is the time to invest in PROVEN domain categories like generics and existing sites because, as Ross pointed out, there are deals out there! Why spend your money on other unproven categories when, for example, you can get a nice established site that is making money every month for cheap ?????

 

[ofclean]

Because you should buy low and sell high, not buy high and sell high.

 

[snoop]

Agree generally, though keep in mind the domain market has already seen large falls since the end of last year, bigger than most stock markets.

Domains are not as exposed to the US Economy as many other assets. There are still parts of the world that use the internet, and have stronger economies.

So I guess we'll all sell our domains to the Slovinians? US and Europe would be 2 of the 3 largest economies in the world. Both are now facing a severe recession.

Now for the good news. I think there are "safe harbors" of domaining that seem to be "recession proof". Two of these categories are: 1) Pure generic/keyword .com/.net/.org/.us (geo cities & product categories), and 2) Established websites. Pure generics because there will always be end-user interest. Established sites because they have traffic/revenue and offer a valuable service or information (not MFA sites).

It just isn't so. No such thing as a safe habor in domaining.

 

[bmugford]

I will keep buying. My sales have been fine even in a crappy market.

I will place my bet that premium domains will lose less in value than almost any other assets. Plus, unlike stocks, domains are one of the few investments you can buy for pennies on the dollar with research and effort.

Agree generally, though keep in mind the domain market has already seen large falls since the end of last year, bigger than most stock markets.



So I guess we'll all sell our domains to the Slovinians? US and Europe would be 2 of the 3 largest economies in the world. Both are now facing a severe recession.



It just isn't so. No such thing as a safe habor in domaining.

 

[Ross]

I Plus, unlike stocks, domains are one of the few investments you can buy for pennies on the dollar with research and effort.

I think this is what makes domains so dynamic and attractive. When domains are on the high end you can still invest for pennies and sell on the high end, vise versa as well when the market is on the low end. So no matter what you still have the ability to invest the same amount no matter what the market is like.

Also on top of that you can actually add value to a domain through some work and research. There are endless possibilities to domains, even if the market is crap. YOU can still earn money and profit with a GREAT ROI!

 

[bmugford]

Right, through development it is like creating a dividend on your investment. You have far more control than with most other investments.

I think this is what makes domains so dynamic and attractive. When domains are on the high end you can still invest for pennies and sell on the high end, vise versa as well when the market is on the low end. So no matter what you still have the ability to invest the same amount no matter what the market is like.

Also on top of that you can actually add value to a domain through some work and research. There are endless possibilities to domains, even if the market is crap. YOU can still earn money and profit with a GREAT ROI!

 

[Kate]

4. ccTLD's - I registered some really good .MD domains (eg. GP.md, Endo.md, Bio.md, EMS.md) that go well with this "medical" extension. I sent out many, many emails trying to sell EMS.md (for Emergency Medical Services) and got one offer for $5 even though I purchased the domain from the registrar for $150.

ccTLDs are good but they are not all equal. There is no real market for vanity/exotic extensions like .md. I think you need to focus on established extensions instead.
As usual quality domains will do well and be more or less recession-proof. I think domains have proven to be very resilient when compared to the 'real world' economy.
Overall I'm glad I put my money in domains and not at the bank.

 

[nicedomains]

Overall I'm glad I put my money in domains and not at the bank.

:bingo:


Also, I totally agree with Ross as he points out the domaining industry is more dynamic than the stock market because there is always opportunity to sell high even when the market is low.

 

[thebutler]

Typos rock

You're way off the mark in regard to typos. If you have any generic typo it'll just keep delivering traffic. Its up to you develop a successful starategy to make some money off that domain in the future. Think about it. A typo for cooking would still deliver a certain number of traffic every day.

 

[duceman]

:imho: You'll only be at risk if invested in the "slums" of the domain business and maxed your credit card out to do it. If you are invested in Manhattan with no debt service you'll be just fine.

I'll leave the discussion for where the slums are for a different day.

 

[Seabass]

If the financial world's lending freezes up, so will purchases of domains..... simply by default. Almost everything will freeze in every market except essentials...... and so will the clicks on many types of domains, thereby speeding up the devaluing of domains in most niches by varying percentages.

"IF" that happens

 

[ALG]

I think that there is only movement up. People are going to be scrambling to keep their business in the latest trend. I think that people are going to get into type in traffic words and acroynms just as much as ever. May be tough times but the wave will pass through.