I recently had the privilege of being asked to speak at TRAFFIC Downunder on the topic of “Risk Analysis”. This breadth of the topic was a little bit of challenge as each facet of risk is a specialist topic in itself.In the end I developed a model to analyze what I saw as the dominant risks associated with expecting a reasonable rate of return on your investment. This model depended upon what business model you were applying in order to earn a return from your domains. I will be breaking apart my presentation across the next few articles in the series.
There are four dominant business models that have been adopted to a greater or lesser extent by the domaining community and they include treating domains as:
Stock Items
Having a large volume of domains where the goal is to move from 2% to 3% sales volume per year. The challenge is to develop the channel relationships for continuing to sell the domains while at the same time refresh your inventory for new potential purchasers.
High value sales
These are typically low volume high priced sales that are typically arranged via a broker. Often it is the case of the right domain at the right time in the right place.
Traffic
The goal is to identify domains with traffic that produce revenue in excess of the registration fee required to retain the domains profitably. Risks associated with these are centred around traffic decline and a reduction in earnings per click.
Development
Development is typically conducted in low volumes and requires turning a domain into a real business. True development has all of the problems associated with normal businesses – such as; staff, stock, customers etc. There is currently no scalable solution for large domain portfolios to be developed.
The business model that you choose for the development of your domains will greatly influence the levels of risk and types of risk associated with the domain.
Source: Posted on WhizzBangsBlog by Michael Gilmour -- Reprinted with permission -- Decemeber 12, 2008