Is Domaining basically one giant pyramid scheme?

[domainsoup]

Been in the domain game for a while now.
People are sold the idea that getting the right domain can make them a lot of money. This idea is largely false as the majority of good domains have already been registered. People get lucky very rarely with a handregistration. The success stories are told over and over. But for each one there are hundreds of thousands of ones that go nowhere.

OK now on to how else to get a good domain. Drops and expired auctions. Entire industries have been setup for this. But guess who makes the most money on this? The companies that sell peoples expired domains after collecting renewal fees (double dipping). The auctions are either inflated or not representative of the actual price. There have been many times I've purchased at auction at domain with like 200 bids and sold for 800+. Then you list it on Sedo. And you get people offering maximum $100 paid. Most times these people cancel the negotiations even if you price it at 1000. So 20 bidders bid a domain up to 800 at auction. And the most you are offered is 1/8th of it? Companies like Godaddy are making a killing. I don't know if they are shill bidding but someone is willing to pay 790 at auction. But no one is willing to pay more after?

Domaining is largely a pyramid scheme. Why? Because the people that make the money have largely all been decided. There will always be success stories. But the majority of people who enter it fail. The big companies make all the money. And they sucker the average joe into believing a dream that doesn't exist.

It's like a lottery. The guy with the winning numbers is happy. But everyone else loses. Yet people get hope because of the story of the guy who won.

 

[Nazz]

They don't want you to win, so we gonna win some more.

Bless up.

 

[Mervyn]

They say that during a gold rush the smart man sells the shovels.

@domainsoup, I think the issues you have with domaining have to do with the above statement - the smart guys are those providing services (the Registrars, the Auction houses, the valuators, etc) and there's nothing wrong with that - they are just making money off the most profitable part of the value chain.

Like any gold rush there will always be the people duped by "fool's gold" (ie bad domain names and misguided trends (like all the people buying up VR and marijuana names now thinking they'll retire off those names)). The fact that fool's gold may sell for $800 on Flippa and then for nothing on Sedo only speaks to the buyer's lack of knowledge and not the corruption of the market as a whole. Also - side note - I think you described a ponzi scheme, not a pyramid scheme.

The truly important thing is that there IS gold in domaining and if you learn where the value is (which is something that is greatly misunderstood) you'll hit pay dirt. If not, you'll keep regging terrible names and losing your socks on auction fees and renewals.

 

[Coldtrigger]

@imadoerwhen we try to sell it - we dont find any users and its usually through some intermediate - who wants to get the domain cheap and then earn money by reselling it at a higher price

So YOU find the end users who are buying it at the higher price. If the 'intermediate' can find them, they are there. It's really that simple.

 

[disaac81]

Domaining is hard.

You just hit that nail square on the head!

 

[Domain Lead Finder]

People who got in early in any business made a lot of easy cash. I love comparing domaining to prospecting for gold. The ones who dug early got all the "low hanging fruit" the ones who got in late will have to be resourceful and not dig in sunny California but in bitter cold Alaska or underwater. They will have to wait for prices of gold to jump or find new ways to get gold. They will have to salvage gold from computer circuits and cigarette box papers and what not.

There is no way to do easy gold prospecting today. The same rings true for domain investing.

 

[Cdomains]

It is easy to see it this way. Especially for new domainers. To some extent this is true. Much of the activity is between domainers selling to each other, and many new domainers buy junk from more experienced domainers who have learned the hard way that they have picked junk they could not sell and had to drop.

Many new domainers buy junk at drop sites from others who have dropped the same name over and over again, and the name goes from new domainer to new domainer like a set of training wheels until they learn the right way to pick domains.
This benefits the registrars and auction houses who sell these junk domains over and over.

 

[Cdomains]

People who got in early in any business made a lot of easy cash. I love comparing domaining to prospecting for gold. The ones who dug early got all the "low hanging fruit" the ones who got in late will have to be resourceful and not dig in sunny California but in bitter cold Alaska or underwater. They will have to wait for prices of gold to jump or find new ways to get gold. They will have to salvage gold from computer circuits and cigarette box papers and what not.

There is no way to do easy gold prospecting today. The same rings true for domain investing.

This is a very good analogy.

 

[deez007]

@domainsoup - The bottom line is that as with almost any new market - the early adopters who have the balls to take a chance on it tend to make a shit load of money IF the market takes off. ... just look at bitcoin for instance in 2008 ---- $1 = 1309BTC so for $1000 you could have bought 1 309 000BTC ...Today that $1000 investment would be worth $535 381 000 - You wanna call that a Pyramid scheme as well?

 

[Al Cohol]

This domaining game is a game of patience. Patience cannot be stressed enough to new people starting out in the industry.

If you buy a good name at a good price patience will eventually reward your investment.

I think people get discouraged at low-ball offers because they wrongly interpret it as a sign a domain has low value but imo that is incorrect. It is a sign a domain has value and can eventually be sold for higher $.

Be patient!!!!

 

[WatchDogue]

IMO no, domaining per se is not a pyramid scheme.

There are an immeasurable number of ways to " buy in " given the number of extensions and an unimaginable number of name, number and, letter combos that can go with the extensions.

Each name / sale is unique and you can begin domaining for under $10.00.

And domain names are obviously sold for uses other than investment/reselling - people use 'em for websites and email etc.

Sellers / resellers may use hype, puffery or opinions to " sell a name " but what differentiates that technique from the sales pitch of a zillion other goods and services?

Buy a name with the expectation that if you plan to sell it it is incumbent upon you ( or me ) to find one person in the world that agrees with our price and wants to buy the name.

 

[brindle123]

It's not an easy thing find good domains and resell them.
It's not fun to lose money on any investment. I've lost more than I care to admit even to myself.

We seem to be very optimistic people or we wouldn't do this. Unfortunately we sing the praises of this business to own own demise sometimes.
You have to have a vision for the future, but don't let your eyes be bigger than your wallet.

I'm more of a long-time investor/speculator of domains. The right ones have tremendous value that I think even most domainers don't see.

LLLL.coms are gone for hand reg but I still think most are very undervalued.
You need to find that niche that isn't being bought up right now and invest there for the long-term.
Don't go crazy like some people.
Stick to the tried and true .com .net and a couple others that are more regulated and that the general public knows about and uses.

Don't fall for most of the new gtlds. I see many of them as pump and dump domains.
Lots of money is spent telling us how great they are and that they are "the next big thing."

Some good advise that I got when I started was that you can't own them all and don't show and tell too much about what you have or invest in.

Don't buy crappy domains or anything that is Trademarked!
Shorter domains are usually better, but in the right extensions. Getting a short .stinky domain doesn't cut it unless you sell to the next sucker who bought into the .stinky marketing campaign that .stinky is "the Next Big Thing!!!"
Yes I think .stinky=.pyramidscheme
domains and the general idea behind domains do not=.stinky

 

[Domainzy]

Do you view your glass as Half FULL or half EMPTY? Its easy to read each post in this thread and know who is who....



I created a business plan with a $100 Budget. And turned it into a liquid portfolio worth over $100K in my first year and a 1/2 of domaining. I did it with hard work and networking. You can watch my interview on the DoaminSherpa

Luck? A little..it was calculated luck! I studied and researched and found a market that was undervalued.

All that said, I honestly know and believe that success in any industry is more about YOUR mentality! If your someone who focuses on your glass being half empty(pessimist) then it should be no surprise that success is hard to achieve, and most likely impossible.

However, success is often a side effect of being an optimistic business man(or woman).

 

[frank-germany]

of course you need a little luck

but what you need more then luck is

1) negotiation skills
2) knowledge about your counterpart(ner)
3) a liitte insight and understanding what people will need in future
- not want : NEED

 

[Casey L]

I understand how the domain industry can be viewed this way, but "pyramid scheme" is the wrong label. Unlike most other common investments and assets, domain names do not have a salvage value and they do not have transparent marketplaces.

That being said, for about 70% of the domain names being bought and sold, there is a common science behind why and how value is created. (for example: porn is extremely popular, .com is the best extension, therefore porn.com is immensely valuable)

Domain names are a great way to invest your time and money, but they are more comparable to baseball cards than stocks, because traits like age, rarity, commonality, etc., are what create value.

 

[imadoer]

@imadoer - Yes some people do make money out of domaining and thats great. But to the rest of us in the industry - when we try to sell it - we dont find any users and its usually through some intermediate - who wants to get the domain cheap and then earn money by reselling it at a higher price. I have posted numerous keyword domains - aged domains - but most are interested in paying you say low rates - say $1~$10. Once in a while you may be lucky enough to get some rare offer at a higher price but all these are reseller rates. So in the end say me having around 100 domains each year am just paying renewal fees and developing a domain at a time. Have tried listing on @FlippaDomains / @NamePros and each time its all low low offers in the above range I mentioned. And suddenly you hear some odd domain being sold at XXXX rates makes me really wonder if really domains sell! Actually I even have my signature with the same line - Do Domains Sell? I don't think so! When users here talk of big numbers my only message has been - I have many keyword domains - sell me one domain I have and take a percentage out of it - and you wont believe no one has ever responded to that!

You need to rethink your strategy I went 7 months with NO sales over xx.... I studied my balls off namebio and the auctions where my bible. If this is all about luck how did I figure out how to make a consistent income from this? I been making money for 7 months? Luck? How is that luck? I make money every week GOOD money at that.. you need to learn you dont know as much as you think. Theres a lot of ways to make money in this buiness.YOU NEED TO THINK AND LEARN.AND THINK SOME MORE!! Have you tried selling domains to resellers? Have you tried brokering? how big is your network? Who is in it? Did you take time to build one? Do you understand how to source buyers? Do u go to extremes to try and sell? Do you call people on the phone? How much time do you put in? I work hard sometimes I stay up til 4 am domaining.

domaining is like playing chess and connect the dots nothing like a piarmid

I'm a success story from hard work coming from a guy who had a rough life I'M NO genius I can't spell for shit I didn't graduate high school.any one can do this even you.. but I work Hard as hell and I flip domains like pancakes because of that. I'm not patient I'm not a passive guy who's going to wait and pray a sale happens get off your lazy ass and work. Stop whining about how domaining hasn't worked for you. Because I did it and you can too

 

[frank-germany]

I'm not patient I'm not a passive guy who's going to wait

thats for sure

 

[Templr]

You need to rethink your strategy I went 7 months with NO sales over xx.... I studied my balls off namebio and the auctions where my bible. If this is all about luck how did I figure out how to make a consistent income from this? I been making money for 7 months? Luck? How is that luck? I make money every week GOOD money at that.. you need to learn you dont know as much as you think. Theres a lot of ways to make money in this buiness.YOU NEED TO THINK AND LEARN.AND THINK SOME MORE!! Have you tried selling domains to resellers? Have you tried brokering? how big is your network? Who is in it? Did you take time to build one? Do you understand how to source buyers? Do u go to extremes to try and sell? Do you call people on the phone? How much time do you put in? I work hard sometimes I stay up til 4 am domaining.

domaining is like playing chess and connect the dots nothing like a piarmid

I'm a success story from hard work coming from a guy who had a rough life I'M NO genius I can't spell for sh*t I didn't graduate high school.any one can do this even you.. but I work Hard as hell and I flip domains like pancakes because of that. I'm not patient I'm not a passive guy who's going to wait and pray a sale happens get off your lazy ass and work. Stop whining about how domaining hasn't worked for you. Because I did it and you can too

Chill dude! This has nothing to do with a 'pyramid' though.

 

[Templr]

There will always be pyramid type formation sale patterns, but the whole industry is not identified by this.

Take 4L. Com CHIP, before the boom. Buyers with mixed knowledge or with interest were buying for $15+. If these buyers flipped for $60+ (BASE), or invested long term (TOP, the pay off). Then there is the multi selling domainer to domainer inbetween the pyramid which can TOP too. Pay too much and you're stuck at the PEAK.

You can sell too earlier, buy too late or pay too much in trend domains.

 

[Recons.Com]

The reason why you get very low offers for premium names (and provided they are really premium) is the low liquidity of absolute majority of domains. At end user prices, only 1-3% of good quality portfolios sell each year. While, renewal fees make 0.5%-5% of a good quality portfolios value priced at end user worth (reasonable, not DNS level pricing).

And you have to work really hard to make sure that, wherever you are in 1-3% of sales, it is bigger than 0.5-5% in renewals. And add to this that while the former is uncertain, the latter is as certain as death and taxes.

And even if you managed to get a good portfolio names that will eventually sell in 2-10 years range for much higher than renewal fees prices, you still risk that negative cash flow in the meanwhile will get you or, even worse, you'll need money asap and will liquidate at dirt cheap.

Example. Let's say you buy 100 LLLL.coms of mixed quality (no CHIP) for average price of $500. They will sure all sell for average of 2000$ within next 10 years with average sale time of 7 years (just assumptions for now).

You have invested $50,000 and your cost of capital or opportunity cost is 10% or $5000 a year, your renewals will eat up around $7000 during the period. So, we do the math. $200,000 sales - $50,000 investment -$35,000 opportunity cost - 7000$ renewals = $108,000. That is a solid return above your opportunity cost, but the reality is many will sell before and for cheap, as they do here. I got a quality 3 prem letter quite pronounceable LLLL.com for less than $280 here on NP on days. People here keep flipping for pennies, especially after deducting brutal transaction fees that exist for the industry from paypal, escrow.com and the likes, without any respect for their own time spent finding the names, promoting them, even carrying out the transactions.

And this example focuses on very liquid and pretty much gold standard category for domains. It is even worse for other categories. And, yes, most of domain categories are clear pyramids, because there are no fundamentals for them that would show that there is an income above opportunity cost with long term view of holding and selling to end users. You should consider them if you are confident you can get quickly in and out and time the market.

 

[Ali]

Hello, welcome to planet earth. A place where achieving success takes knowledge, determination, focus, and a lot of hard work.