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New gTLDs Investment Mistakes and Opportunities (Part 3 - big guys, flippers and builders)

Labeled as advice in gTLD Discussion started by lolwarrior, Sep 16, 2017.

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  1. lolwarrior

    lolwarrior Founder, Brands.International VIP

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    Hello friends,

    this is third 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 differences between various investment approaches people have when it comes to new gTLDs, particularly we will learn why it is not always best to be first. Articles here are short extracts from my book "new gTLDs - investment mistakes and opportunities", which will be ready on October 30, 2017 and you will be able to get it here.

    If you have not done that yet, you can read the first 2 brief articles here:
    New gTLDs Investment Mistakes and Opportunities (Part 1 - pizza.diamonds & short domains)
    New gTLDsInvestment Mistakes and Opportunities (Part 2 - chaotic versus structured portfolios)

    Disclaimer:
    all ideas here are just my personal opinion. This is not an investment advice of any sort. My opinions 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 I 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 3 - big guys, flippers, and builders

    Timing - so what is the best time and best way to invest in new gTLD domains?

    This is, of course, the million dollar question. Different investors approach this differently. As per my observation, there are basically 3 main groups of investors: I will call the first group "big guys", second group "flippers" and a third group "builders". Following text is an only very rough approximation of what is going on, as almost no new gTLD investor belongs purely to 1 group - some people combine two of those styles, and some try to go for a combination of all three. Anyway, here we start:

    Style 1 - big guys:

    People in this group generally have a lot of money. They are either professional domainers who earned a lot in a .com era or simply rich investors. Because of a large amount of money they spent (they buy usually directly from registries) registries love them. Big guys are spending usually $50k-100k+, some of them invested in a range of hundreds of thousands of dollars.

    They are in general not afraid to buy premium-priced domains, sometimes the premium renewals for domains they hold are in thousands of dollars, although most typically those renewals can be anything between $100 - $1000. As they tend to buy directly from registries, they are able to get various deals (usually it is 1 larger payment when they purchase domains, and then registry agrees that it will remove premium pricing from the domain name and renewal will become just a standard renewal - this type of deal is very common).

    Big guys usually invested very early. Many large purchases were made in 2014/2015. Particularly when we speak about .com domainers who decided to invest in new gTLD names, we can see some very early investments, as those investors usually know their stuff well and understood that to be first means to be able to get best names. They usually hold few hundreds/few thousands of very good names. Of course, when someone holds let's say 1000 names and average renewal is $200, a total renewal fee of a portfolio is appr. $200 000. That means this style of investment is suitable only for a very limited amount of people who are well-funded and not risk-averse.

    Advantages which this style of investing usually bring:

    You can get best possible names available to private investors in new gTLD space. In case new gTLDs will rise high in future, you profit will also rise high in future. Potential profit is very big, but risks can also be seen as large IMO.

    Main problem which this style of investing usually bring: no or smaller aftermarket

    One thing is obvious. Domain names need time when it comes to their value growth. We all know stories when someone bought fantastic keyword .com domains in 1997 and sold it in 2010+ for millions of dollars.
    It is clear that if the person tried to sell the domain in 1998, he might get some profit, but because the aftermarket for .com domains was just fraction of what it was years later, the profit would be not comparable to what was achieved with patience. Simply said, in most cases, you need to wait years to sell domains for larger profit. This is valid for .com, and this is valid for new gTLD domains as well.

    As early big guys bought early, and for large premium renewals, they are now in a situation that they need to pay high renewals every year, while aftermarket is still developing. Thus in many cases, they are still in red numbers. Based on individual luck and investment skills, some big guys are already profitable, while many of them are still in loss. Because a large part of their portfolio consists of premium-priced domains, they can not utilize transfer and renewal promotion in the extent described in my second article.

    You can then ask: so why they have invested so early when no aftermarket (or just a small aftermarket) have existed? The answer is, of course, the competition. Good names will not stay unregistered forever, and those investors are smart enough to know it. You can basically get in early and get best names, or you can wait until aftermarket is developed, but then no good names are available anymore to register (maybe only those with very high renewals).

    This is exactly why some people complain now in 2017 that it is getting harder to find great new gTLD combinations (where the right side match perfectly left side of the domain and that combination gives great sense) for renewals which make investing into them profitable. A situation in 2017 is definitely tougher comparing to a situation in 2014/2015, where many great names were available for standard renewals. This is imo mainly because new gTLD registries are also learning quickly. While early in the game they were not sure in many instances how to correctly price their names, they are definitely observing and learning about what are the registrations, which types of names are in demand for particular extensions, what names are reserved by domainers, what names are mostly developed by end users, which domains dropped, and so on. Based on those observations they are constantly updating their pricing. Those data were not available early, so experienced domainers were able to get many great names for standard renewals. This is becoming more and more hard in 2017 and it will definitely become much harder in future. After all, we must remember that registries are business companies founded to be profitable, they are not charities - so they need and want to make a profit too. (I will write more about new gTLD pricing and its development through time in my next article).

    So is this investment style profitable?

    Honestly, no one knows at the moment. New TLDs started massively in 2014, and we are now in 2017. It would be illogical to expect that we buy good quality premium-priced domains, and we can sell them for multiples of purchase price just within 1 year or two. But this was the same situation with very early .com too. And the actual lack of stronger aftermarket for some of the new extensions is further emphasized by a number of new extensions (we have several hundreds of them). On the other side, the fact is that those investors are holding now some of the best names available, the names which can make large sales in next few years. When (or if) such sales will happen, they will suddenly start to be very profitable

    Patience - is it a virtue, or not here?


    A lot of investors who invested early are in very good position value wise, but they need to pay renewals.

    Now, many big guys started to complain after a year or two that new gTLD names are not profitable. Some of them stated publicly that they use profits from their existing .com portfolios to offset losses they have in new gTLD area. For those people I personally think the big guy's style of investing is not suitable - they should shift more to "builders" style, which I describe in next paragraph, and start thinking more about how to manage those renewals. And this is what is indeed happening now in large part - many investors who did not care about renewals now learned that they need to care.

    There is, however, another group of those investors, who invested cleverly and have enough funds to maintain their portfolio. Many of them also understand how to park their names or to create some affiliate solutions, and they can offset some renewal costs doing so. I have seen examples when new gTLD name with very high renewal was parked, and income from that fully offset renewal costs, giving its owner even a tiny profit each year. This is a case of fantastic investment - name pays for itself, and because of its quality and a large pool of end user, it is just a matter of time when it will sell for big profit. I have to admit I do not know if this is a common case or not - almost no domain investor is willing to share details as of which names and in which particular extension is suitable for parking income. But this is definitely one way which can be used to make renewal costs easier in case you go big guys style of investing. People who can do that generally do not complain about new gTLDs, as they accumulate high-quality names all the time, make good sales, and will probably do even better in years to go.

    Summary of this style of investing:

    I think a lot of big guys went too early with too much money and did not carefully plan for cash flow. They also seemed to forget the fact that aftermarket cannot be created immediately when investment asset is brand new. We have some very experienced and known .com investors in this group. They focused only on the quality of the name, but after a year or two got "surprised" by total renewal costs - well, in the .com era, they did not need to care about maintenance costs, it was always the same $10 per each .com domain. But being fair, that early it was also not really possible to know how quickly or how slowly new gTLDs will catch on. Therefore, it is not possible to blame those investors retrospectively that they may have projected that aftermarket will be stronger than it really was. Anyway, a combination of higher than expected renewals, and slower than expected aftermarket for some particular extensions is imo the reason why they did not do well with new gTLDs.

    Some other early investors (many of them also .com veterans) budgeted and invested more cleverly, and are much in the game, happy with their portfolios and results. They do not need necessarily to speak about it, and analysis of whois, if you do it periodically, will show that some of the best new gTLD names have constantly whois protection on them. If that protection would be removed, you would see that some very well known .com domainers are holding them. How do I know? I am buying, selling and inquiring them - so I just know :)

    Style 2 - flippers:

    Flippers are people, who buy and try to sell domain names for a profit within a short time period of time, ideally prior their first renewals are coming.

    experienced flippers

    Some of the gTLD investors - flippers were in early and studied the market since 2014, therefore they are very knowledgeable, can use registration promotions, and are well aware of various domain marketplaces. They can be therefore profitable, as usually they buy names for $1-5 and flip them to other domainers for $25-100. Some of the members in NamePros are even more "clever", they have bought names using various promotions and selling them now with BIN prices of $600-900 on various venues. I am not going to hype particular extensions here, just see the reported sale thread here on NamePros and you will know. When names are carefully selected, that actually works and is profitable. Overal profit for average flipper with few hundreds of domains is not high, but few thousands of dollars/year is a nice addition to some people, so it is worth of doing for them. Numbers above are possible when we speak about experienced flippers, which are usually domainers with years of experience.

    newbie flippers:

    Another category of flippers are people who are new to domaining. They tend to buy a lot of names using various promotions. Those names usually are not of high quality, and often they drop their whole portfolio when first full renewals are coming without any sale. It again depends on the particular person: there are clever people who learn quickly about various promotions, and selling venues, while there is a large group of people who just register whatever nonsense keyword1keyword2keyword3.gTLD and try to flip this to another domainer, almost always without a success.

    Basically, when it comes to new gTLD names, I do not personally think they are the most suitable asset to be used for flipping in 2017 for people without experience. Only people who really learned a lot can be profitable with new gTLD and flipping these days, as it requires spending a lot of time on the topic. Complexity is quite high, as there are several hundreds of extensions and they differ very much. Therefore a lot of flippers prefer to stay in .com realm, where rules are established already for years, and once you learn them, you are basically good to go.

    Important not only for flippers - the existence of aftermarket!

    Flipping is particularly hard for extensions which went just live: there are many people who buy good names in brand new extension and try to flip immediately. This usually does not work, as aftermarket is naturally not present yet. Still, some of those people then complain loudly that it is new gTLD fault - they want to register a new name for $5 and flip it immediately for large profit. This is, in most cases, unrealistic.

    Summary of this style of investing

    - if you want to flip new gTLD domain successfully, you should buy names for as low as possible. They also must be good, best in keyword1.gTLD form (so not keyword1keyword2.gTLD form, of course, there are exceptions). And of course, you need to be realistic when pricing them.

    Also, take into consideration existence (or non-existence) of aftermarket, particularly in case you need to flip your names within 1 year, and can not afford to pay their renewals. I have read recently several posts of new domainers here asking "what is the best place where I can unload my new gTLD portfolio" - and them, when you check their portfolio, you see chaotic mix of "pizza diamond" names in "100 different extensions" - the answer is then, there is no way you can "unload" this type of portfolio. Try to get best possible names cheaply - I will try to give my view of what "good" new gTLD domain name is, and how this is usually reflected in pricing by registries, in my next article.

    Also, and this is important: do not try this kind of flipping if you do not have any money or you have just tiny amount of money, and you can not afford to lose money you invested in domaining: I am frequently contacted by people, who registered long lists of very bad new gTLD names (of no investment value whatsoever). This alone would be bad enough, but it in many cases continues with their personal stories which go like (latest example): "I am a mother of four children, living alone, jobless, we live in poor country, no money, I just started with domaining, took my last $100 and registered those 50 names - now, where can I QUICKLY sell them for profit? I need money for my kids!"... Please, just do not do that. If you want to start flipping, you need to budget for it properly, and to learn a lot before you start purchasing your domain names. Best place is imo right here - Namepros.

    Style 3 - builders

    Builders are investors whose aim is to build larger new gTLD self-sustainable portfolios, which can be carried into future without additional external investments. They believe (or let's put it also differently, they "bet on") that new gTLD domains will be accepted more and more in the future among end users and the general public, and that their value will rise in years to come. Their investment horizon is long term, 5 - 10 years. I am not hiding that I am one of them.

    If you believe that new domains will become more accepted and more valuable as time goes, your objective is to hold as many good names as is possible for you. This is also what big guys do. The difference between big guys and builders is financial - while big guys can basically buy what they like (while some profitability calculations are often well present too), builders can usually spend just a few hundreds or few thousands of dollars initially, and are trying to build their portfolios from there. As they do NOT wish to fund their renewals from external sources (or they maybe would wish, but simply they do not have those sources available) they try to make their portfolios self-sustainable and profitable from year 1. This means, their yearly sales must offset the renewal cost of their portfolio, and if there is any profit, they are using it either to buy additional names or to renew their existing good names few years into future. Therefore I will such new gTLD investors "builders" - they are patiently building the value in their portfolios.

    Of course, when they are doing a lot of smaller sales and using the money also for their personal needs, this shifts them more to Style 2 - flippers. Boundaries between those 2 styles are not solid, there are a lot of domainers who try to flip their worse names, and to keep their best names in hopes of a larger future sale, which is perfectly logical. But if you are a pure builder, you use profit of the sales to make your gTLD portfolio larger, and with your domains renewed in years ahead.

    (Btw, why you should renew your domains for years ahead? Are you not just locking your capital which you could utilize maybe somewhere else? A short answer is, to save money. You do not do it always, you do it ONLY when there is a good renewal or transfer promotion available - learn about promotions in article 2). It will really save you lot of money when done properly).

    I would say that builder investment style is hardest of all 3 styles to execute properly. Being pure flipper, you will never keep in your hand's anything really valuable for future, but, you can enjoy money earned from domains, and buy something nice to you or to your family. Being a builder means constantly reinvesting profits of your sales to your portfolio. It requires at least some discipline, patience, and a lot of work and strong confidence that investment asset you invest into, in this case, new gTLD domains, will have bright future. How to be a builder is a large topic, so I will not write about it here, but you will find a lot of tips and tricks for this investment style in my book.

    In next article I will write more about pricing of new gTLD domain names, and about what creates a "good" new gTLD domain name, when it comes to profitability.

    Happy investing :)
     
    The views expressed on this page by users and staff are their own, not those of NamePros.
  2. ecalc

    ecalc Top Member VIP ★★★★★★★★★★

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    lol, Thanks for another quality post, it's always a pleasure reading different lucid points of view. Just wanted to point out the bias contradiction. I'm biased, you're biased, all NPers are biased about domains. We can try to be objective but it's easier to eliminate the parasites in our gut than to shake our biases.
     
  3. lolwarrior

    lolwarrior Founder, Brands.International VIP

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    absolutely true :)
     
  4. Bob Hawkes

    Bob Hawkes formerly MetBob NameTalent Gold Account VIP

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  5. lolwarrior

    lolwarrior Founder, Brands.International VIP

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    Thank you, I very much appreciate that!
     
  6. jaseon

    jaseon DMDToken.Com CTR.Mobi DiamondCoin.DE

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    Another solid piece. Building is how I learned that there existed this "domaining" in the first place. I could see the long term goals of the new gTLD's and hope that the specific ones I've invested in will not take the path that .build recently has :ahhh:
    Glad I left that one alone.
    Building has landed me other opportunities here. I am currently building a site for the new Microsoft GPD Pocket at GpdPocket.com. I have it on beta at my site
    Jason.Paden.Review right now if anyone wants to check it out.
    Great job on the piece lolwarrior

    jasonpaden
     
  7. lolwarrior

    lolwarrior Founder, Brands.International VIP

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    I have just finalized update of this article, more relevant for 2018 - you can read it here :)
     
  8. 1Darko

    1Darko Top Member VIP

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    Nice written - thanks!(y)
     

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