You can read the previous articles in this series by clicking on the following links:Part 1 - Domain Industry and Valuations
Part 2 - The domain bubble
Part 3 - What caused the domain bubble?
Part 4 - Domains and the sub-prime shock
Part 5 - Domain values and opportunities
Part 6 - The Pressures on PPC
Part 7 - domainers under the magnifying glass When an asset increases in value then the investment community begins to take notice if an only if they perceive value for their investment. Value will be achieved if:
1. New revenue streams can be developed (eg. build out the domain)
2. Sales potential is greater than the investment
3. Existing revenue streams continue and increase.
Let's tackle each of these three options separately. Item one will normally be applied for a company already in a market vertical and they wish to expand their presence or if they wish to enter a new market. Each of these involve an expansive outlook that is unlikely to occur within the next 12 months.The second item is where an investor buys low and sells high. For instance, you can see many people picking up absolute bargains at the moment in anticipation of selling them at point C.
This is largely the space where BuyDomains and Fabulous have developed their business to business resale models. They register or purchase low and leverage their sales channels to sell high.
For external investors to enter this market space with a serious amount of money they need to be confident that they are buying low but have the capacity to sell high. This means that they need to either aggregate enough domains to provide sufficient depth of inventory for the mass market or have sales teams that broker domains on a piece by piece basis.
The first method is covered off by BuyDomains and Fabulous and it would almost be more worth an investor's while to purchase Fabulous (publicly listed) for a discount rate, pick up their 600,000 domains as well as their whole domain directory network (DDN). If it wasn't for the fact that Dark Blue Sea (Fabulous) stock is so tightly held then I believe that it would be likely that this would have happened a long time ago.
What am I really saying in all of this? The sales channel for domains is completely fragmented. Unlike the stock market there is no central sales mechanism to achieve liquidity in domains. Should an investor use the DDN, Sedo for auctions, Moniker for live auctions, Aftermarket, FUSU, TrafficZ or a host of other solutions to recoup their investment? It's all just too hard.
Ultimately the only way that point C sale prices will be maximised is if there is a centralized listing system of all domains for sale. The system would need to reward the seller, intermediary (ie. sales channel such as a parking company).
At the moment the various sales channels mentioned above are competing for domains to be listed as well as traffic to view those listings. Many of the parking companies are currently using the traffic generated by the domains themselves to be the prime marketing means for sales. The modest commission that they extract pays for escrow facilities, transfer assistance and technology.
Sadly, it's unlikely that there will be a co-operative effort between the various sales channels to achieve a maximized point C and a centralized listing system will end up remaining a domainer's dream. Who knows, an agnostic player operating out of a garage somewhere may be building a system to do just this.
Like all business models a centralized listing system would need to overcome multiple barriers to listing domains as well facilitating the sales process. These barriers provide a capital challenge to overcome but can also be a potential defensive barrier that can thwart potential competitors.
Source: Posted on WhizzBangsBlog by Michael Gilmour -- Reprinted with permission -- October 24, 2008 Michael Gilmour