Part 2 - The Domain Bubble
You can read the first part of this series on domain valuations and the journey through the bubble and out the other side by clicking on:Part 1 - Domain Industry and Valuations
As domain prices continued to rise most domain owners held onto their portfolios in the belief that they would keep on increasing in value. This created a lack of domain liquidity which further pushed up domain valuations. Prior to Point A if you sold for less than 4 years earnings you were thought of as a bit of an idiot.
Point A represents the classic mini-bubble where almost everyone involved thinks that it will never end. I was constantly told that domain valuations would continually increase and that the sky was the only limit. The parties got ever more extravagant and huge sums of money swapped hands almost on a whim.It was during this time that I chose to sell a portion of my portfolio. I did this for the following reasons:
1. When I saw two domain magazines get launched into this incredibly niche industry I definitely knew we were in a bubble.
2. Everyone said don't sell.
3. No one is upset about having cash in the bank.
4. I didn't have to sell everything, just some - it's a risk management strategy.
During this time I constantly recommended to domain owners to sell down some of their portfolio and ensure that their family is looked after in the event of the bubble bursting.
Just before point A in the graph I remember presenting at a conference and tossing a coin into the air and asking the question, "What am I doing?" Of course the response was tossing a coin in the air. "Wrong, I'm trying to work out what I'm getting paid for next months PPC revenue," I said.
PPC rates and why we get paid what we get paid underpins much of a domain's valuation. If we don't know why we get paid what we get paid and we really aren't in control of our own destinies then there should have been no surprise when the shock hit the industry just after Point A.
The following article will expand upon some of my experiences at Point A and what will be the journey forward that we are all experiencing right now.
Source: Posted on WhizzBangsBlog by Michael Gilmour -- Reprinted with permission -- August 20, 2008