Understanding the economics of big-time domainers...

[pakkman]

I'm trying to understand why big-time domainers pay seemingly-crazy sums for not-that-great sounding domain names in secondary markets / auctions.

Before I go further, let me start by saying that you don't need to sell me on why, say, baseball.com or computer.com are worth millions, despite it only costing $9 to reg a DN. I get it. RATHER what I'm trying to wrap my head around is why domainers are, in present-day, paying huge sums at auction for far inferior DNs. I don't see how it can be profitable for them...I just assume that it must be, since it seems like so prevalent a practice. So I just want to understand how the math works.

Here's a few (just from eyeballing Namejet auctions) just for illustrative purposes:

- steelfurniture.com sold for $11,100
- toogoodreports.com for $531
- uniformsupply.com for $4,066
- 17172.com for $3,633

Take steelfurniture.com ($11,100) and uniformsupply.com ($4,066), for example. They were both bought by a big domaining company, and are currently just parked pages. This domaining company obviously knows way more than I do and thought those were profitable buys. So my question is HOW?

How does that math add up? I obviously understand that every so often a big company will come calling and they'll be able to sell one of those names at a profit, but I guess the point is that when you're paying high-4-figures to win a name at auction, that's a bet that has to pay off an awfully high percentage of the time to be profitable, doesn't it?? Help me understand the math here. Are they making significant money from the parking alone? Are they making enough big-money sales such that dropping a few grand every day on so-so domains isn't that big a deal?

 

[Biggie]

Here's a few (just from eyeballing Namejet auctions) just for illustrative purposes:

- steelfurniture.com sold for $11,100
- toogoodreports.com for $531
- uniformsupply.com for $4,066
- 17172.com for $3,633

Take steelfurniture.com ($11,100) and uniformsupply.com ($4,066), for example. They were both bought by a big domaining company, and are currently just parked pages. This domaining company obviously knows way more than I do and thought those were profitable buys. So my question is HOW?

How does that math add up? I obviously understand that every so often a big company will come calling and they'll be able to sell one of those names at a profit, but I guess the point is that when you're paying high-4-figures to win a name at auction, that's a bet that has to pay off an awfully high percentage of the time to be profitable, doesn't it?? Help me understand the math here. Are they making significant money from the parking alone? Are they making enough big-money sales such that dropping a few grand every day on so-so domains isn't that big a deal?

Hi
actually, i would value uniformsupply more than steelfurniture.

but they probably snagged them for type-in traffic and future potential resale to end-user, if they don't have plans to develop themselves.

price may seem high for you but suitable to them.

uniform supply is big business as a market and steel furniture typically is priced on high-end, some as designer brands.

sometimes price paid today will seem low "retrospectively" in the future.

 

[Puckerhuddle]

It could also be long term money looking for a home. Carrying cost are low on a domain name in comparison to other investment vehicles and that could make them attractive as an investment. Most investment portfolios have a varying risk components in them and a certain portion of the portfolio may be suitable to the domain name risk profile. There is also the a portfolio investment diversity factor that could come into play. If I had $10,000,000 to invest there is a good chance that I may deem 5 to 10 % of the total to domain names.

 

[airmax]

Simple it is a big world out there, only a few can own single word generics. If you have to go out, and advertise in print for some industries, a single print can cost you thousands of dollars, a domain is a one time sunk cost, with less than $10 carrying cost a year, how can you go wrong, you have a worldwide audience to your products.

The majority of the names you mentioned above are good names for each specific industry they serve. They were not bought for development, most likely purchased to flip. Just like you buy a piece of land in a depressed area, where new housing development will occur eventually. These firms are speculating, and they if they can pay the invoice at the end of the day, then the highest bidder wins. They maybe right, or wrong, but they are putting their money up to find out, so more power to them. The prices being paid in aftermarket, in some cases are very aggressive, end users do not shell out these kind of dollars very quickly in most cases, this is not a fly by night industry.

 

[pakkman]

Thanks for the replies.

So I guess the consensus, if I'm understanding correctly, is that the math is as simple as this: yes, they are high dollar figures, but these domainers DO sell names like that often enough to make up for those they don't sell. Do I have that right?

I guess all I can say, then, is that I must not know the industry well enough to know just how often names like uniformsupply.com or steelfurniture.com are getting re-sold for $$,$$$. My noob brain, I suppose, just looks at steelfurniture.com, for example, and can't believe that a DN like that gets resold at a markup often enough to make aftermarket purchases like that make sense.

Are there any books written by big-time domainers...? I'd love to learn more about the workings of the big boys...but as far as I can tell, they prefer keeping everything as hush hush as possible.

 

[airmax]

It is a gamble, you can sit on a name for years, if you have enough money, and expertise to do it, by all means, no clear cut answer, you can buy a $2K name, and get a $5K offer next week, or maybe no offer for 5 years. The aftermarket has become very expensive, even namejet, a handful of names I was in a bidding on last week, I had to take a step back, as they were approaching prices end users might balk at. The Uniform name is a pretty good name actually.

 

[Gerry]

If you study and monitor trends, that will be a key indicator why things are priced the way they are.

Steel Furniture - this has a lot to do with the new resurgence of retro style, industrial style trends. "Repurposeing" is a huge marketing trend right now, taking something that just does not quite fit in and make it look new and fresh and current. Steel furniture can be easily restored, repainted, and repurposed. Many of the 50's, 60's, 70's homes and minimalist styles incorporate steel furniture either as a stand alone feature or as a uniformed design style. Many of these pieces of furniture were designed by some of the biggest names in architecture and design. It is still a niche market but with the proliferation of television shows and channels (HGTV, DIY network, etc), design ideas, trends, and unique look is an especially hot market.

UniformSupply.com for $4,066 is a crazy low price. Uniform supply and rentals has been and is currently a huge business nationally. I am actually shocked to see this name at that price. This is not a trend by a very viable business sector and has been for decades. Who ever bought that name got it for a bargain and they know it. There are well over a million google results when searching for that term. That equates to a pretty large business sector that would be interested in such a name to document the market. Aside from companies, you are also opening up the market to military, medical, police, FD, etc. Personally, this is a gem of a name and great for subdomains.

 

[airmax]

If you check the whois, seeing who bought it shows you what a great name it is, and how that price will never to be had ever again.

 

[pakkman]

Thanks for the replies. All very interesting. Although you don't necessarily need to sell me on why certain terms are necessarily popular, and I tried to avoid sounding in my OP like i was just asking "uhh....why would anyone want steelfurniture.com?" So the driving questions, I suppose was less "explain to me why these words are popular, or will become popular", but really I guess I wanted an inside look at the economics of a big domainer who spends (I'm guessing) 6- or 7- figures buying up these DNs.

Are they actually re-selling enough of these things to turn a substantial profit? I know that must seem like a dumb question because an objective view of the situation results in "um, well they're doing it so it must be profitable, duh." And that just leads me to thinking "man...I guess it just blows my mind that that's the case!" I have no doubt that steel furniture and uniform supply are sought-after terms...I guess it's just that I'm amazed that enough sales are taking place to make shelling out 4- and 5-figure sums left and right profitable long-term. Which is, I suppose, why I asked whether there's a book or podcast that gives a glimpse into a big domainer's war-room or something. I'd love to understand the process that goes into the purchase of a 5-figure DN meant for re-sale, and how prevalent such resales actually are. Thanks!

EDIT:

If you check the whois, seeing who bought it shows you what a great name it is, and how that price will never to be had ever again.

- But see I guess that's what's at the core of my inquiry...you're basically saying "look who bought it (i'm presuming it's a prolific domainer), it MUST be super valuable!"...and what I respond is that I want to understand what happens next. It's not worth a thing if it's not re-sold, so how often are these being successfully flipped for profit?

 

[Gerry]

You ask a loaded question because how do you know that they are NOT constantly fielding offers for these names but turning them down.

The economics are simple (like stocks) - you buy low, sell high. Typically you can tell when a domainer is making the offer. They want this mysterious "wholesale price" or a "domainer price". You know when you are being lowballed and when an enduser comes knocking.

 

[airmax]

Thanks for the replies. All very interesting. Although you don't necessarily need to sell me on why certain terms are necessarily popular, and I tried to avoid sounding in my OP like i was just asking "uhh....why would anyone want steelfurniture.com?" So the driving questions, I suppose was less "explain to me why these words are popular, or will become popular", but really I guess I wanted an inside look at the economics of a big domainer who spends (I'm guessing) 6- or 7- figures buying up these DNs.

Are they actually re-selling enough of these things to turn a substantial profit? I know that must seem like a dumb question because an objective view of the situation results in "um, well they're doing it so it must be profitable, duh." And that just leads me to thinking "man...I guess it just blows my mind that that's the case!" I have no doubt that steel furniture and uniform supply are sought-after terms...I guess it's just that I'm amazed that enough sales are taking place to make shelling out 4- and 5-figure sums left and right profitable long-term. Which is, I suppose, why I asked whether there's a book or podcast that gives a glimpse into a big domainer's war-room or something. I'd love to understand the process that goes into the purchase of a 5-figure DN meant for re-sale, and how prevalent such resales actually are. Thanks!

EDIT:
- But see I guess that's what's at the core of my inquiry...you're basically saying "look who bought it (i'm presuming it's a prolific domainer), it MUST be super valuable!"...and what I respond is that I want to understand what happens next. It's not worth a thing if it's not re-sold, so how often are these being successfully flipped for profit?

The person who bought it would not waste their time, or money on pigeon type names, a simple google search, and what Gerry pointed out explains what a great name that is...

 

[pakkman]

You ask a loaded question because how do you know that they are NOT constantly fielding offers for these names but turning them down.

The economics are simple (like stocks) - you buy low, sell high. Typically you can tell when a domainer is making the offer. They want this mysterious "wholesale price" or a "domainer price". You know when you are being lowballed and when an enduser comes knocking.

Yeah, I guess that's what my question boils down to. How often ARE they getting inquiries for...well, let's use uniformsupply.com? I'd love to understand, for example: on average, how many offers does a DN get before a sale is consummated? How often does a would-be buyer make an offer that's immediately accepted (without negotiation)? How often does a domainer pay $$$+ for a DN only to let it drop from his portfolio in future years if he decides there's no value (i assume this never happens, for $9)? As I wrote: my unsophisticated brain finds it hard to believe (though I am most assuredly wrong) that domainers are flipping 5-figure domains frequently enough to make it profitable to purchase millions of dollars worth of domains every year. Which is why I guess I'm looking for a more educational / satisfying answer than just 'trust me, it's happening' -- while I've found that most high-profile domainers don't discuss the nitty-gritty of their businesses, are there any blogs / podcasts / books that get into the specifics of high-value-DN domaining?

 

[katherine]

Are they actually re-selling enough of these things to turn a substantial profit?[/I] I know that must seem like a dumb question because an objective view of the situation results in "um, well they're doing it so it must be profitable, duh." And that just leads me to thinking "man...I guess it just blows my mind that that's the case!"

It's not a dumb question, you are asking excellent questions.

To begin with, domaining has become very competitive. There is plenty of competition in auctions for the good names. As a result, prices are often driven toward end user levels and beyond.
So there is a real risk of overpaying for domain names. If you pay too much you will have a hard time flipping for a profit. You'll have to let it go at a loss when you need cash.
And the reseller market is depressed right now. Don't look to domainers for a lifeline.
That DOES happen. Domains are routinely sold at a loss.

.you're basically saying "look who bought it (i'm presuming it's a prolific domainer), it MUST be super valuable!"...and what I respond is that I want to understand what happens next. It's not worth a thing if it's not re-sold, so how often are these being successfully flipped for profit?

Not too often I guess but when you are running a volume business the dynamics are different.

The tale of two domainers:

Big Buck: the big domainer has large inventory and millions in the bank
Little Joe: the wannabe domainer living from paycheck to paycheck

One day Little Joe decides it's time to grow up, he wants to emulate Big Buck, he wants to be famous, join the 'club' so he starts spending serious money on quality names.
A couple auctions later, Little Joe has spent a lot of cash and he now has a nice little portfolio.
He may have nice domains but he has a lot of money tied up in illiquid assets. Surprise: 6 months later he has yet to receive an unsolicited offer from an end user, or even an inquiry.

Big Buck doesn't make a lot of sales, but since he has cash flow and is structured as a business, he can afford to hold out for the very best offer. He has enough volume to make the whole thing not only sustainable but self-sustaining. He has multiple income streams like parking that make up for the ups and downs in domain sales.
On the other hand Little Joe has to pay the rent at the end of each month, but he doesn't make a sale every month. He has no money left in the bank and he maxed out his credit card at Namejet.
He had money but he had no business plan. Because he wasn't a business, and he isn't a business yet.

The bottom line:
It takes money to make money, but don't bite off more than you can chew.
What works for the big guys may not be good for you.

 

[Biggie]

It's not a dumb question, you are asking excellent questions.

To begin with, domaining has become very competitive. There is plenty of competition in auctions for the good names. As a result, prices are often driven toward end user levels and beyond.
So there is a real risk of overpaying for domain names. If you pay too much you will have a hard time flipping for a profit. You'll have to let it go at a loss when you need cash.
And the reseller market is depressed right now. Don't look to domainers for a lifeline.
That DOES happen. Domains are routinely sold at a loss.


Not too often I guess but when you are running a volume business the dynamics are different.

The tale of two domainers:

Big Buck: the big domainer has large inventory and millions in the bank
Little Joe: the wannabe domainer living from paycheck to paycheck

One day Little Joe decides it's time to grow up, he wants to emulate Big Buck, he wants to be famous, join the 'club' so he starts spending serious money on quality names.
A couple auctions later, Little Joe has spent a lot of cash and he now has a nice little portfolio.
He may have nice domains but he has a lot of money tied up in illiquid assets. Surprise: 6 months later he has yet to receive an unsolicited offer from an end user, or even an inquiry.

Big Buck doesn't make a lot of sales, but since he has cash flow and is structured as a business, he can afford to hold out for the very best offer. He has enough volume to make the whole thing not only sustainable but self-sustaining. He has multiple income streams like parking that make up for the ups and downs in domain sales.
On the other hand Little Joe has to pay the rent at the end of each month, but he doesn't make a sale every month. He has no money left in the bank and he maxed out his credit card at Namejet.
He had money but he had no business plan. Because he wasn't a business, and he isn't a business yet.

The bottom line:
It takes money to make money, but don't bite off more than you can chew.
What works for the big guys may not be good for you.

i like the big buck and little joe scenerio

you framed it quite well, but most newbies only focus on 'big buck', because bigbuck gets the most headlines.

littlejoe will often grab some goodies and flip up for a minute

but there are so many below littlejoe

and they too are only focused on bigbucks

still, there is a group just between bigbuck and littlejoe

and they flourish in the cut.

 

[krest]

I have also wonder about this issues, am glad to see some insight that has expanded my thought. I was listen to an interview of Rick Schwartw, he talked about when he first started investing in domain names, it was like he was betting toward the future. But today it's a good bet that paid off. So when i see some domainer spending a lot of money on domain names that might not be of value now but have a trend of future success, they are also taken a bet toward the future. Like what katherine said, i really like her story because she explained the two types of domainers. So if you are going to be betting for the future, you will need to have a long term perceptive and plan so as not to run into short term problem. So that's the game i think more of the big time domainers are playing.