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Hello friends,
this is second of 10 brief articles, which, I hope, can help members (mainly those which are just starting) to get some unbiased overview of investment opportunities, but also investment traps which one can face when investing in new gTLDs. Today I will discuss why any investor should really avoid building what I would call "chaotic portfolio" and instead focus on building nice and very probably also profitable portfolio, which, in the following text, I will be calling "structured portfolio". Articles here are short extracts from my book "new gTLDs - investment mistakes and opportunities", which should be ready in October 2017.
If you have not done that yet, you can read the first article here:
New gTLDs Investment Mistakes and Opportunities (Part 1 - pizza.diamonds & short domains)
Disclaimer:
all ideas here are just my personal opinion. This opinion might prove wrong, as, despite the fact that I tried to understand things I describe here the best I could, I might fail in that in some instances. You must, therefore, do your own due diligence before making any investment. I am a private investor and have no ties to any registry or registrar (except the fact that I am a client of several registrars, where my domains are stored).
Part 2 - chaotic versus structured portfolios -> please AVOID THE CHAOS at all costs!
Chaotic portfolio
What is chaotic portfolio in new gTLDs.
Today I will start with an another great investment mistake something that many new gTLD investors are already familiar with (or are slowly becoming familiar with it, depending on the overall structure of their portfolio and when they have started). I have not found yet a term for that in the literature or forums, so I will create new term now. The term is "chaotic portfolio".
So what is it? We have now hundreds of different new gTLD extensions, all available for us, domain investors, to invest in. They are not only different extensions, they are also operated by different registries all around the world. They have very different yearly renewals, approximately ranging from 1$ to $120 000 (yes, $120 000 for some premium domains in particular extensions). They have also different TOS (terms of services), and therefore sometimes different conditions dictating who can register domain names, how domain names can be used, etc). Some registrars support most of the extensions, while some are not supporting some of them, etc.
This is how you create chaos.
Now, when investors who are totally new to this are starting with their investment/purchases, they usually are not aware of all that. They browse their favorite registrar and see a nice, reasonable name for reasonable renewal, so they register it. Then they see another reasonable name with reasonable renewal in another extension, and they register that too. You can be very talented as far as it goes for selection of good names (you can have for example years of experience from .com) and so you pick few hundreds of good gTLD names. Let's imagine that you purchased 1000 of such names. You have also used various promotions which are now usual and available at many registrars, so you managed to achieve average purchase price of $10/name. So you have paid $10 000 for your 1000 names. After you have organized them in excel sheet, you noticed that you have around 100 different extensions (all this is just an example, but it is actually a very common case and scenario). Most investors at the beginning do not mind that they invested in a lot of different extensions, some of them even call that "a well-diversified portfolio". What actually happened is that they have just created a "chaotic portfolio", with all the negative consequences which will appear later (btw, not much later - 1 year is enough, problems will become very apparent when first renewals will be due to being paid).
So basically I will use term chaotic portfolio to describe portfolio which consists of more than 10 different extensions, is large, and in addition, names are evenly spread across those extensions. Above described portfolio with 1000 names and 100 different new gTLD extensions is an excellent example of the chaotic portfolio.
Main disadvantages of chaotic portfolio
Everybody will probably agree, that there are always two sides of equations when it comes to profitability of domain investment. On the one side, we have purchase and maintenance/holding costs. On the other side, we have income from the sales.
In domaining, we have purchase costs, which is one time costs, and then, and this is much more important, we have maintenance/holding cost - yearly renewals. We need to pay a renewal fee to registrars every year.
In .com era, it was not difficult to estimate what the holding cost your for particular .com name will be - it was always around $10, putting aside very beginning of .com now. When it comes to new gTLD investments, having renewals under control is EVERYTHING. And luckily with some information, everyone can handle this.
When we consider the first side of the equation, purchase phase, one needs to have a lot of experience to pick up a good name, plus a good network of contacts and selling experience will help too. This is something that can not be easily replicated and comes with years of hard work. So as far as it goes to this side of the equation, everybody should be really realistic as for how much of that skill they have. But even when you have the ability to get the first side of the equation right, the other side of the equation can negatively surprise you in new gTLD investments, and this surprise will come when your first renewal cycle will be approaching.
Let's use our example of 1000 good new gTLD domain names, purchased for the initial cost of $10 000, consisting of 100 various new gTLD extensions. Even when you purchased a particular name with a good discount, it is most often the case that second year at the same registrar will not be that favorable. You could purchase the name for $1-10, but the second year will be usually somewhere between $20-$40, depending on particular extensions (in further text I will discuss only domains with standard renewals, not even going to topic of premium renewals which I will discuss in future articles) So now, what to do? Suddenly it seems that to renew your portfolio after the first year of holding, it can cost you anything between $20 000 - $40 000. And combine this with the fact that in their first-year lot of people focus mostly on purchases, and neglects the sales...so we can quickly see how that can become uncomfortable, and also unsustainable.
Luckily, the reality is, that this situation can be avoided with some effort. Let me now introduce you to two additional concepts which will help you to keep your renewal costs under check:
a) domain transfer promotions
b) idea of structured portfolio
Domain transfer promotions - a must!
what are domain transfer promotions
You might be surprised to learn that there is a large number of various promotions ongoing every moment of the year for a lot of different extensions. How can such promotion look like? Few examples (the most important part of this article):
- I have used a promotion for an extension, which is usually sold at $40, and some registrars offered in 2016 to transfer names in this extension for a total cost of $4 per name. If you undertake such transfer, your domain name will be transferred to the new registrar who offers this promotion, and it will also automatically get renewed for 1 additional year (for the price of $4).
- I have used a promotion for an extension, which is usually sold at $30, and some registrars offered to transfer names in this extension for a total cost of $2 per name. So again, if you utilize that, you get your domain renewed for 1 additional year for the price of $2, instead of $30. if you hold 100 domains in this extension, you can pay $200 for their renewal, instead of $3000 which you would pay would you not use the promotion!
The list of various transfer promotions can go on and on. I will discuss them in much more detail in my book because this is one of the most important aspects of investments in new domains, but I guess you can get an idea from examples above.
you must use them - but can you?
We see now, that it is an imperative for serious domain investor to utilize transfer promotions, as it can save as much as 90% (sometimes even more) when it comes to your renewals. Of course, when you own small portfolio of 2-10 names, you do not need to really care. But when you have several hundred or several thousands of names in your new gTLD portfolio, ability to reduce your maintenance costs will become your second most important skill (just after your ability to select good names).
But you are only a human being. As per my best knowledge, you can manage 5, maybe 10 different extensions. What do I mean by that? At any given year, you will need to learn which registry offers which promotion for which extension and in which time period. When most of your names are at 5-10 extensions, you can manage to follow that. When your names are in 100 different extensions (chaotic portfolio) there is no chance for that and you will end up paying full renewals every year for all of your domains. A lot of very experienced investors (from .com era) did just that, and after 1 or 2 years, they were not happy at all with their results. Some of them became very vocal critics of new gTLDs. While I understand them, I would say it is the way they managed their expenses, combined with the fact they invested very early, when almost no aftermarket was present (naturally).
Structured portfolio - your best friend!
So let's define "structured portfolio" as a larger portfolio, which consists of 5-10 different extensions, 10 is maximum. For example, check my own portfolio: you can find out that I own 100 names.in extension1, another 100 names in extension2, 50 names in extension3, and so it goes. My portfolio is just an example of the structured portfolio - it does not mean that I say extensions I own are best investment options, but this is what I have apparently chosen for me. The idea here is that although I have names in some other extensions too, I do it only in "per case" basis - in case the name is really special, or I have some future intentions with it. But as a rule, I purchase mostly names in extensions which I already own.
There are various reason for that, but the main reason is, of course, the sustainability of portfolio. Unlike in chaotic portfolio, when the owner of structured portfolio notice there is a particular promotion action for transfer of, let's say, .vip, a person can simply batch transfer his or her names to registrar which offers this promotion. This allows us to achieve really massive savings. Because in the structured portfolio we have only 5-10 different extensions, an investor who invests like this needs to do this exercise 5-10 times during any given year (which is, btw, not so easy as it sounds, but still much more manageable compared to the situation when we try to manage chaotic portfolio).
If you correctly and systematically use various transfer promotion, you can keep your 1000 names portfolio with the total cost of $5000 -$10 000, or even less, depending what promotions you use, for what extensions, etc. If you do not use transfer promotions at all, you will end up paying usually around $20 000 - $40 000, the exact amount will again depend on the particular extensions you choose for your investments. The difference can be in some cases tenfold.
So where is the information about transfer promotions available?
The purpose of this article is definitely not to hype or dump any particular extension. It is the fact though, that for some extensions we have transfer promotions which are more frequent, while for some other extensions such promotion does not exist. This change every year, so nothing is really stable in this aspect. Everyone thus needs to do their own due diligence. The best source for this is, of course, to read various articles at NamePros, mainly gTLD section. The fact is, that sometimes information about promotions are hidden in various posts/threads, but anyone who invests in certain extension should read all possible materials/posts about it, so there is a good chance you will not miss the information when such promotion becomes available.
Another way to find out (my favorite one) is to look at portfolios at other domain investors: when I see that someone holds a larger number of good names in particular extension, the first thing I personally do is to check in WHOIS where exactly their domain names are stored. After I learn the registrar details, I check its web page and try to learn whether there is some promotion available. It is also often the case I simply write an email and ask. In many cases, I learn that person simply holds a large number of names and pays full price for them, while there are a lot of cases when I get information that yes indeed, there was a promotion 6 months ago for this or that price and therefore person transferred domains there. It is often the case that registrars/extensions which offered promotion year ago will repeat that in year cycles, at least this is what can be observed at the moment.
Be nice to your fellow new gTLD investors, registries, and registrars.
The ultimate way to get useful information is just to be nice and pleasant to others. This is unfortunately not a case in so many instances. If you are pleasant, people will send you information which might be helpful to you. If you act like a mean idiot to others, people will (pleasantly) not send you anything and will watch you to pay your full renewals. This is not valid only for promotions and various similar possibilities - it is also valid when it comes to providing information about potential buyers.
When you finally find it, act swiftly!!
It is important to keep in mind that most promotions are time limited, so when the window of opportunity for cheap transfers opens, it is really important to act. It happened to me and other new gTLD investors number of times that we were lazy to actually start our transfers, only to find out a few days later that the promotion has ended, and there is no promotion till the renewal time of our domains. This means we had to pay multiples of what we would pay if we would have acted more swiftly. Believe me, there is nothing more painful for the new gTLD investor than this
You will find out, that even when you are maintaining a structured portfolio, you will not always act in the optimum way when it comes to renewals. But maintaining chaotic portfolio is, in my honest opinion, a direct way to simply say "good bye" to ANY of the possibilities described above. Just imagine that: you have to manage 100 different extensions, and to search for 100 different promotions during given year - of course, you can not really do it.
Summary of this article:
Keep your portfolio structured - own your names at 5-10 different extensions at most. This is the number of extensions where you can keep your renewal costs at best shape.
Learn everything about how promotions for domain transfers work in relation to particular extensions. Learn which are the best domainer-friendly registries, and which are the best domainer-friendly extensions, when it comes to renewals and transfer promotions. I will give more detailed information about how to check that in my book. Remember, your savings can be more than 90% in some cases, and sometimes even more. And there is a really big difference between $4 and $40 when it comes to renewal of your domain name.
Remember also that all this changes significantly in time..what is valid in 2017 can change dramatically in following years. This is not .com game with its $10 +- stable renewal..things in new gTLDs are changing very quickly, so you need to stay at the top of your game.
In my next article, I will describe briefly another important topic - the timing of new gTLD investments, and its relation to the existence of relevant domain aftermarket.
Happy investing
this is second of 10 brief articles, which, I hope, can help members (mainly those which are just starting) to get some unbiased overview of investment opportunities, but also investment traps which one can face when investing in new gTLDs. Today I will discuss why any investor should really avoid building what I would call "chaotic portfolio" and instead focus on building nice and very probably also profitable portfolio, which, in the following text, I will be calling "structured portfolio". Articles here are short extracts from my book "new gTLDs - investment mistakes and opportunities", which should be ready in October 2017.
If you have not done that yet, you can read the first article here:
New gTLDs Investment Mistakes and Opportunities (Part 1 - pizza.diamonds & short domains)
Disclaimer:
all ideas here are just my personal opinion. This opinion might prove wrong, as, despite the fact that I tried to understand things I describe here the best I could, I might fail in that in some instances. You must, therefore, do your own due diligence before making any investment. I am a private investor and have no ties to any registry or registrar (except the fact that I am a client of several registrars, where my domains are stored).
Part 2 - chaotic versus structured portfolios -> please AVOID THE CHAOS at all costs!
Chaotic portfolio
What is chaotic portfolio in new gTLDs.
Today I will start with an another great investment mistake something that many new gTLD investors are already familiar with (or are slowly becoming familiar with it, depending on the overall structure of their portfolio and when they have started). I have not found yet a term for that in the literature or forums, so I will create new term now. The term is "chaotic portfolio".
So what is it? We have now hundreds of different new gTLD extensions, all available for us, domain investors, to invest in. They are not only different extensions, they are also operated by different registries all around the world. They have very different yearly renewals, approximately ranging from 1$ to $120 000 (yes, $120 000 for some premium domains in particular extensions). They have also different TOS (terms of services), and therefore sometimes different conditions dictating who can register domain names, how domain names can be used, etc). Some registrars support most of the extensions, while some are not supporting some of them, etc.
This is how you create chaos.
Now, when investors who are totally new to this are starting with their investment/purchases, they usually are not aware of all that. They browse their favorite registrar and see a nice, reasonable name for reasonable renewal, so they register it. Then they see another reasonable name with reasonable renewal in another extension, and they register that too. You can be very talented as far as it goes for selection of good names (you can have for example years of experience from .com) and so you pick few hundreds of good gTLD names. Let's imagine that you purchased 1000 of such names. You have also used various promotions which are now usual and available at many registrars, so you managed to achieve average purchase price of $10/name. So you have paid $10 000 for your 1000 names. After you have organized them in excel sheet, you noticed that you have around 100 different extensions (all this is just an example, but it is actually a very common case and scenario). Most investors at the beginning do not mind that they invested in a lot of different extensions, some of them even call that "a well-diversified portfolio". What actually happened is that they have just created a "chaotic portfolio", with all the negative consequences which will appear later (btw, not much later - 1 year is enough, problems will become very apparent when first renewals will be due to being paid).
So basically I will use term chaotic portfolio to describe portfolio which consists of more than 10 different extensions, is large, and in addition, names are evenly spread across those extensions. Above described portfolio with 1000 names and 100 different new gTLD extensions is an excellent example of the chaotic portfolio.
Main disadvantages of chaotic portfolio
Everybody will probably agree, that there are always two sides of equations when it comes to profitability of domain investment. On the one side, we have purchase and maintenance/holding costs. On the other side, we have income from the sales.
In domaining, we have purchase costs, which is one time costs, and then, and this is much more important, we have maintenance/holding cost - yearly renewals. We need to pay a renewal fee to registrars every year.
In .com era, it was not difficult to estimate what the holding cost your for particular .com name will be - it was always around $10, putting aside very beginning of .com now. When it comes to new gTLD investments, having renewals under control is EVERYTHING. And luckily with some information, everyone can handle this.
When we consider the first side of the equation, purchase phase, one needs to have a lot of experience to pick up a good name, plus a good network of contacts and selling experience will help too. This is something that can not be easily replicated and comes with years of hard work. So as far as it goes to this side of the equation, everybody should be really realistic as for how much of that skill they have. But even when you have the ability to get the first side of the equation right, the other side of the equation can negatively surprise you in new gTLD investments, and this surprise will come when your first renewal cycle will be approaching.
Let's use our example of 1000 good new gTLD domain names, purchased for the initial cost of $10 000, consisting of 100 various new gTLD extensions. Even when you purchased a particular name with a good discount, it is most often the case that second year at the same registrar will not be that favorable. You could purchase the name for $1-10, but the second year will be usually somewhere between $20-$40, depending on particular extensions (in further text I will discuss only domains with standard renewals, not even going to topic of premium renewals which I will discuss in future articles) So now, what to do? Suddenly it seems that to renew your portfolio after the first year of holding, it can cost you anything between $20 000 - $40 000. And combine this with the fact that in their first-year lot of people focus mostly on purchases, and neglects the sales...so we can quickly see how that can become uncomfortable, and also unsustainable.
Luckily, the reality is, that this situation can be avoided with some effort. Let me now introduce you to two additional concepts which will help you to keep your renewal costs under check:
a) domain transfer promotions
b) idea of structured portfolio
Domain transfer promotions - a must!
what are domain transfer promotions
You might be surprised to learn that there is a large number of various promotions ongoing every moment of the year for a lot of different extensions. How can such promotion look like? Few examples (the most important part of this article):
- I have used a promotion for an extension, which is usually sold at $40, and some registrars offered in 2016 to transfer names in this extension for a total cost of $4 per name. If you undertake such transfer, your domain name will be transferred to the new registrar who offers this promotion, and it will also automatically get renewed for 1 additional year (for the price of $4).
- I have used a promotion for an extension, which is usually sold at $30, and some registrars offered to transfer names in this extension for a total cost of $2 per name. So again, if you utilize that, you get your domain renewed for 1 additional year for the price of $2, instead of $30. if you hold 100 domains in this extension, you can pay $200 for their renewal, instead of $3000 which you would pay would you not use the promotion!
The list of various transfer promotions can go on and on. I will discuss them in much more detail in my book because this is one of the most important aspects of investments in new domains, but I guess you can get an idea from examples above.
you must use them - but can you?
We see now, that it is an imperative for serious domain investor to utilize transfer promotions, as it can save as much as 90% (sometimes even more) when it comes to your renewals. Of course, when you own small portfolio of 2-10 names, you do not need to really care. But when you have several hundred or several thousands of names in your new gTLD portfolio, ability to reduce your maintenance costs will become your second most important skill (just after your ability to select good names).
But you are only a human being. As per my best knowledge, you can manage 5, maybe 10 different extensions. What do I mean by that? At any given year, you will need to learn which registry offers which promotion for which extension and in which time period. When most of your names are at 5-10 extensions, you can manage to follow that. When your names are in 100 different extensions (chaotic portfolio) there is no chance for that and you will end up paying full renewals every year for all of your domains. A lot of very experienced investors (from .com era) did just that, and after 1 or 2 years, they were not happy at all with their results. Some of them became very vocal critics of new gTLDs. While I understand them, I would say it is the way they managed their expenses, combined with the fact they invested very early, when almost no aftermarket was present (naturally).
Structured portfolio - your best friend!
So let's define "structured portfolio" as a larger portfolio, which consists of 5-10 different extensions, 10 is maximum. For example, check my own portfolio: you can find out that I own 100 names.in extension1, another 100 names in extension2, 50 names in extension3, and so it goes. My portfolio is just an example of the structured portfolio - it does not mean that I say extensions I own are best investment options, but this is what I have apparently chosen for me. The idea here is that although I have names in some other extensions too, I do it only in "per case" basis - in case the name is really special, or I have some future intentions with it. But as a rule, I purchase mostly names in extensions which I already own.
There are various reason for that, but the main reason is, of course, the sustainability of portfolio. Unlike in chaotic portfolio, when the owner of structured portfolio notice there is a particular promotion action for transfer of, let's say, .vip, a person can simply batch transfer his or her names to registrar which offers this promotion. This allows us to achieve really massive savings. Because in the structured portfolio we have only 5-10 different extensions, an investor who invests like this needs to do this exercise 5-10 times during any given year (which is, btw, not so easy as it sounds, but still much more manageable compared to the situation when we try to manage chaotic portfolio).
If you correctly and systematically use various transfer promotion, you can keep your 1000 names portfolio with the total cost of $5000 -$10 000, or even less, depending what promotions you use, for what extensions, etc. If you do not use transfer promotions at all, you will end up paying usually around $20 000 - $40 000, the exact amount will again depend on the particular extensions you choose for your investments. The difference can be in some cases tenfold.
So where is the information about transfer promotions available?
The purpose of this article is definitely not to hype or dump any particular extension. It is the fact though, that for some extensions we have transfer promotions which are more frequent, while for some other extensions such promotion does not exist. This change every year, so nothing is really stable in this aspect. Everyone thus needs to do their own due diligence. The best source for this is, of course, to read various articles at NamePros, mainly gTLD section. The fact is, that sometimes information about promotions are hidden in various posts/threads, but anyone who invests in certain extension should read all possible materials/posts about it, so there is a good chance you will not miss the information when such promotion becomes available.
Another way to find out (my favorite one) is to look at portfolios at other domain investors: when I see that someone holds a larger number of good names in particular extension, the first thing I personally do is to check in WHOIS where exactly their domain names are stored. After I learn the registrar details, I check its web page and try to learn whether there is some promotion available. It is also often the case I simply write an email and ask. In many cases, I learn that person simply holds a large number of names and pays full price for them, while there are a lot of cases when I get information that yes indeed, there was a promotion 6 months ago for this or that price and therefore person transferred domains there. It is often the case that registrars/extensions which offered promotion year ago will repeat that in year cycles, at least this is what can be observed at the moment.
Be nice to your fellow new gTLD investors, registries, and registrars.
The ultimate way to get useful information is just to be nice and pleasant to others. This is unfortunately not a case in so many instances. If you are pleasant, people will send you information which might be helpful to you. If you act like a mean idiot to others, people will (pleasantly) not send you anything and will watch you to pay your full renewals. This is not valid only for promotions and various similar possibilities - it is also valid when it comes to providing information about potential buyers.
When you finally find it, act swiftly!!
It is important to keep in mind that most promotions are time limited, so when the window of opportunity for cheap transfers opens, it is really important to act. It happened to me and other new gTLD investors number of times that we were lazy to actually start our transfers, only to find out a few days later that the promotion has ended, and there is no promotion till the renewal time of our domains. This means we had to pay multiples of what we would pay if we would have acted more swiftly. Believe me, there is nothing more painful for the new gTLD investor than this
You will find out, that even when you are maintaining a structured portfolio, you will not always act in the optimum way when it comes to renewals. But maintaining chaotic portfolio is, in my honest opinion, a direct way to simply say "good bye" to ANY of the possibilities described above. Just imagine that: you have to manage 100 different extensions, and to search for 100 different promotions during given year - of course, you can not really do it.
Summary of this article:
Keep your portfolio structured - own your names at 5-10 different extensions at most. This is the number of extensions where you can keep your renewal costs at best shape.
Learn everything about how promotions for domain transfers work in relation to particular extensions. Learn which are the best domainer-friendly registries, and which are the best domainer-friendly extensions, when it comes to renewals and transfer promotions. I will give more detailed information about how to check that in my book. Remember, your savings can be more than 90% in some cases, and sometimes even more. And there is a really big difference between $4 and $40 when it comes to renewal of your domain name.
Remember also that all this changes significantly in time..what is valid in 2017 can change dramatically in following years. This is not .com game with its $10 +- stable renewal..things in new gTLDs are changing very quickly, so you need to stay at the top of your game.
In my next article, I will describe briefly another important topic - the timing of new gTLD investments, and its relation to the existence of relevant domain aftermarket.
Happy investing
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