Domaining In a Minor Slump?

Yah’ll regular readers know that I’m pretty bullish about the value of premium generic domain names. In general, I believe the macroeconomics will drive the market up handsomely in the long term.

But after 6 months of budding domainer glamour, I’m beginning to see some signs of a minor slump. Signals: the really big domainers–the public companies–have sh*t the bed recently, with both and Marchex taking a small nosedive. Meanwhile, the results of the highly-hyped Domain Roundtable auction were somewhat underwhelming. A majority of the domains did not meet their reserve, which doesn’t bode well considering the staff tried aggressively to keep the reserves as low as possible.

So what’s up? Is all the domainer hype already beginning to fade? Have valuations leveled off? Why is the domaining industry in a minor slump?

Well, I can’t attribute it wholly to my SEO friend’s reasoning: “Domainers are cheesed*cks.”

I do however think the industry is going through a period of sh*t, the easy money’s over shock. When you buy a domain in 2001, park it, and its value rises 1000% over 5 years, you look pretty smart–really, the macroeconomic trend made you look smart.

We’re not going to get those growth rates in valuations any more though (maybe 20% a year, rather than 50-100% a year). And especially if you’re paying a retail price for a domain–or even a “fifth time wholesale/resale” price–you sure as hell better know how to SEO and make a quality, defensible, highly-monetized Web site… or good luck making your initial outlay back.

And there’s the rub. Domainers–in general–have no clue how to make a quality, defensible, highly-monetized Web site (at least, the Marchex’s and’s of the world don’t). They never needed to know how to before, so they never bothered to acquire that skill set.

Enter SEOmainers.Â

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#1 ekal on 08.16.07 at 4:21 pm

I’d disagree. I think the auctions may prove to be a false indicator of a slowdown. Too many names that are better off targeted to endusers rather than domainers:

#2 Shane on 08.18.07 at 9:27 am

It definitely looks like things might have changed a little bit, but I still think it’s too early to really tell. I think there are still plenty of people interested in premium generics, and those two examples don’t indicate otherwise.

The public companies have stockholders to answer to and “Do you realize what these domains will be worth in 5 more years?” simply isn’t a satisfactory answer.

As for this week’s auction, it just didn’t seem to be smoothly run. It took a long time to finally get started, and even then it took a long time for the auctioneer to get comfortable with this obviously new process. They clearly hadn’t run through things very well (witness them changing the bid increments midstream when the auctioneer said out loud that he wasn’t used to working with such small increases). Not to fault the guys at all — everyone’s still figuring this out as they go along — but at least a little of the poor showing has to be blamed on the process itself.

You’ve also got non-sales like for $1.5mm. That domain isn’t worth anywhere near that. The business itself, on the other hand, apparently is worth that, but a domain auction seems like a poor place to auction a real business.

(I have to admit, though, that I was a little stumped by only going for $95k.)

I think what we may be seeing is the end of the rapid, almost blind accumulation among those who have been buying and holding for 5 to 10 years. At this stage, phenomenal returns going forward are much less of a sure thing, so if they can’t build a business under the domain (due to a lack of resources or a lack of knowledge, either one), they’re really rethinking whether it’s wise to add it to their portfolio.

However, I think that might change again soon. The aftermarket is still incredibly inefficient. How many people outside the domain industry knew about the auction this week? Likewise, how many who want to buy or sell a domain or two know where to go? There’s no public market, prices are still all over the map, and very few people really get the whole process.

I’m confident that will begin to change within the next few years, though. The process will start becoming more transparent, many more people will enter the market, and we’ll see something that resembles more and more the other, more efficient markets that we see around us every day (stocks, used cars, homes, etc.). As we see that starting, I think we’ll see another surge in accumulation at the onset as people buy low from the inefficient market as often as they can with the knowledge that they’ll soon have great liquidity at a higher price.

That may be the last time we ever see pure accumulation, though, as prices become stable and the only real money to be made is in knowing how to actually develop the domains. Once the land rush is over, the only ones who’ll be making good money are the ones who know what to build on the land.

#3 modernnomad84 on 08.19.07 at 3:51 pm

I think that domains are still a great investment, even though sellers are F****** outrageous with the prices they are asking.

All is well, just don’t be ignorant as a seller and you’ll be fine.

As with any investment, if you can take a $50 website and make it worth $1000, you’ve done a whopping and insanely good job.

And, if you know a shred about SEO, domaining is a natural path.

-Brad Spencer
Columbus Web Design

#4 modernnomad84 on 08.19.07 at 3:52 pm

PS: Great mod to copyblogger. I didn’t even recognize it!