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I wrote the article below. I know the article will be contentious but it is how I see our industry. I placed it in the exclusive area so it will not count as duplicate content should it be published on the internet. I am looking for feedback and recommendations on where to post/publish. Cheers, Bob
Why the Domain Industry Desperately Needs Liquidity
You can learn a lot about an industry from the liquidity of its underlying product. In many instances, if the product is highly sought after, an organized trading body is required to facilitate the smooth transfer of assets. This is common in industries such as oil, orange juice, stocks, and even pork bellies.
While the price of these highly sought after commodities fluctuates with demand, that daily variance is often less than 2%, outside significant industry news. More importantly though, there is always a standing order to buy or sell, and the difference between the bid price and the ask price is very small - perhaps only 1-2%.
How does this apply to domainers? On Wall Street, liquidity leads to price stabilization. The domain name industry could learn from this principle.
Quantifying Liquidity
Let's face it - the domain industry suffers from a lack of liquidity. If you purchase a quality domain name today, it often takes a long time to turn around. It's difficult to garner offers, especially ones that meet the high expectations of the seller.
How does this compare to other commodities? Not well. In the stock market, for instance, a liquid stock trades at about .5% to 2% of its total float (the amount of available stock) in a day. Comparatively, a poll that is used to sample the direction of an election needs less than 1% of a population to be within 5% of actual results.
There are roughly 75 million dot coms registered. If we label just 20% of these 75 million registrations the float, or those names available for purchase on the secondary market, we can derive a reasonable turnover, which would indicate that the domain market is operating efficiently. Using this figure, if just .5% sold per day, 750,000 premium domain names would change hands every 24 hours. Comparatively, GE or other liquid stock turnover is just over .5% of the float.
So how is the domain industry performing?
Based on posted sales in popular forums, we can see that the actual percentage of domain name turnovers is much less. One of the best sources of documented sales, DNJournal, rarely logs over 100 dot com sales per week. This is not unusual, given that many domain name sales are less than $2,000, and are not listed.
When we look more closely at lower priced transactions, it becomes apparent that they actually represent the majority of premium domain name sales. Never the less, the secondary market is still falling well short of the required 750,000 domains per day necessary to mark an active, healthy, and efficient market.
Perhaps the majority of domain names available really are of lower value, and should indeed be listed for much less than $2,000 - but then why do we see prices significantly higher in the online domain shops, where anything under $2,000 looks like a bargain? And of course, there's the ubiquitous request to "make an offer" that still haunts our industry. If domain professionals don't have a methodology for determining the value of their domain name, how do we expect the general public to do it?
If we dig a bit deeper into the secondary market, we will see that liquidity does occur with regularity in the "short" domain name markets of CCC.com, LLL.com, and LLLL.com.
Transactions here can and do happen quickly, based on a more easily understood and quantifiable commodity among quasi-professional traders. Price any LLLL.com at $30-$40 and you could easily complete a deal within minutes on an active domain name forum. This kind of healthy liquidity is based on many factors, the most important of which are:
This fundamental understanding between traders, and the recording of the value of short dot com domain names, provide comfort to the buyer and seller by allowing them to keep tabs on the trading status. This knowledge also allows buyers and sellers to be able to identify those who price domains outside the norm, and quickly dismiss such fringe offers as outliers and not real sell prices. In this setting, domains listed more for ego than a legitimate desire to sell can't affect the perception of the market.
Today's environment poses a challenge to serious and professional domain traders, who find themselves constantly struggling to educate the general public on what a "premium" domain name is, let alone why its price is far and above something they could register a variation of for $7. On the opposite end of the spectrum are those egocentric domainers who seemingly base their relative importance to the world on how outlandishly they can price their domain names. The latter, and their unfortunate ability to easily post their naïve perspectives and unreasonable price expectations online, detract from the ability of dedicated domain professionals to establish fair and reasonable pricing.
One problem the domain industry faces is the lack of a standardized means of documenting the large bulk of premium domain sale prices, or an authoritative guide on fair domain pricing. The lack of these resources is, in my opinion, keeping many potential buyers on the sideline. While I may enjoy the dollar slots in Vegas, it's a bit too rich for my blood to buy a domain name for $500 or more, and hope that it is worth more than the following year's renewal fee (not to mention the fact that trying to sell it in the future will cost a hefty 10-20% commission to have fair shot at finding a buyer).
I suspect that the general public shares this perspective on domain names as an investment.
It should be clear that changes are needed in the domain industry for us to be seen as legitimate brokers of a valuable commodity. First and foremost, our goal should be to promote liquidity, which is the byproduct of an efficient market. An efficient market perpetuates the buying and selling of a product, has traders who actively buy and sell, and has access to plentiful and accurate information on past transactions.
A domain value book or similar domain, name your color (Blue, Red, Green, etc.) book is a key step toward becoming a solid and respected industry. Just as Kelly Blue Book can tell you the value of a used car for free, the domain industry should be able to present a similar and trusted function. A paid appraisal may be in order for high value names, but having to spend $30 to find names valued at $100 is a black eye on our industry. Additionally, a general public that understands the difference between a premium domain and an available domain name requires an education campaign to upgrade our image from cyber squatters to domain brokers.
Unless the domain industry organizes around fair pricing for premium domains, establishes a transparent sales recording mechanism, gains traders in the hundreds - if not thousands - who actively buy and sell domains, and educates the general public about our industry, domainers will continue to suffer in the doldrums of a stagnant market.
Why the Domain Industry Desperately Needs Liquidity
You can learn a lot about an industry from the liquidity of its underlying product. In many instances, if the product is highly sought after, an organized trading body is required to facilitate the smooth transfer of assets. This is common in industries such as oil, orange juice, stocks, and even pork bellies.
While the price of these highly sought after commodities fluctuates with demand, that daily variance is often less than 2%, outside significant industry news. More importantly though, there is always a standing order to buy or sell, and the difference between the bid price and the ask price is very small - perhaps only 1-2%.
How does this apply to domainers? On Wall Street, liquidity leads to price stabilization. The domain name industry could learn from this principle.
Quantifying Liquidity
Let's face it - the domain industry suffers from a lack of liquidity. If you purchase a quality domain name today, it often takes a long time to turn around. It's difficult to garner offers, especially ones that meet the high expectations of the seller.
How does this compare to other commodities? Not well. In the stock market, for instance, a liquid stock trades at about .5% to 2% of its total float (the amount of available stock) in a day. Comparatively, a poll that is used to sample the direction of an election needs less than 1% of a population to be within 5% of actual results.
There are roughly 75 million dot coms registered. If we label just 20% of these 75 million registrations the float, or those names available for purchase on the secondary market, we can derive a reasonable turnover, which would indicate that the domain market is operating efficiently. Using this figure, if just .5% sold per day, 750,000 premium domain names would change hands every 24 hours. Comparatively, GE or other liquid stock turnover is just over .5% of the float.
So how is the domain industry performing?
Based on posted sales in popular forums, we can see that the actual percentage of domain name turnovers is much less. One of the best sources of documented sales, DNJournal, rarely logs over 100 dot com sales per week. This is not unusual, given that many domain name sales are less than $2,000, and are not listed.
When we look more closely at lower priced transactions, it becomes apparent that they actually represent the majority of premium domain name sales. Never the less, the secondary market is still falling well short of the required 750,000 domains per day necessary to mark an active, healthy, and efficient market.
Perhaps the majority of domain names available really are of lower value, and should indeed be listed for much less than $2,000 - but then why do we see prices significantly higher in the online domain shops, where anything under $2,000 looks like a bargain? And of course, there's the ubiquitous request to "make an offer" that still haunts our industry. If domain professionals don't have a methodology for determining the value of their domain name, how do we expect the general public to do it?
If we dig a bit deeper into the secondary market, we will see that liquidity does occur with regularity in the "short" domain name markets of CCC.com, LLL.com, and LLLL.com.
Transactions here can and do happen quickly, based on a more easily understood and quantifiable commodity among quasi-professional traders. Price any LLLL.com at $30-$40 and you could easily complete a deal within minutes on an active domain name forum. This kind of healthy liquidity is based on many factors, the most important of which are:
- an existing customer base (domain traders),
- a price range known among the community as a fair price,
- and limited and understandable product variation.
This fundamental understanding between traders, and the recording of the value of short dot com domain names, provide comfort to the buyer and seller by allowing them to keep tabs on the trading status. This knowledge also allows buyers and sellers to be able to identify those who price domains outside the norm, and quickly dismiss such fringe offers as outliers and not real sell prices. In this setting, domains listed more for ego than a legitimate desire to sell can't affect the perception of the market.
Today's environment poses a challenge to serious and professional domain traders, who find themselves constantly struggling to educate the general public on what a "premium" domain name is, let alone why its price is far and above something they could register a variation of for $7. On the opposite end of the spectrum are those egocentric domainers who seemingly base their relative importance to the world on how outlandishly they can price their domain names. The latter, and their unfortunate ability to easily post their naïve perspectives and unreasonable price expectations online, detract from the ability of dedicated domain professionals to establish fair and reasonable pricing.
One problem the domain industry faces is the lack of a standardized means of documenting the large bulk of premium domain sale prices, or an authoritative guide on fair domain pricing. The lack of these resources is, in my opinion, keeping many potential buyers on the sideline. While I may enjoy the dollar slots in Vegas, it's a bit too rich for my blood to buy a domain name for $500 or more, and hope that it is worth more than the following year's renewal fee (not to mention the fact that trying to sell it in the future will cost a hefty 10-20% commission to have fair shot at finding a buyer).
I suspect that the general public shares this perspective on domain names as an investment.
It should be clear that changes are needed in the domain industry for us to be seen as legitimate brokers of a valuable commodity. First and foremost, our goal should be to promote liquidity, which is the byproduct of an efficient market. An efficient market perpetuates the buying and selling of a product, has traders who actively buy and sell, and has access to plentiful and accurate information on past transactions.
A domain value book or similar domain, name your color (Blue, Red, Green, etc.) book is a key step toward becoming a solid and respected industry. Just as Kelly Blue Book can tell you the value of a used car for free, the domain industry should be able to present a similar and trusted function. A paid appraisal may be in order for high value names, but having to spend $30 to find names valued at $100 is a black eye on our industry. Additionally, a general public that understands the difference between a premium domain and an available domain name requires an education campaign to upgrade our image from cyber squatters to domain brokers.
Unless the domain industry organizes around fair pricing for premium domains, establishes a transparent sales recording mechanism, gains traders in the hundreds - if not thousands - who actively buy and sell domains, and educates the general public about our industry, domainers will continue to suffer in the doldrums of a stagnant market.
