valuation

Going back to 2007 again for some perspective, there was much talk about this topic. What has really happened, or changed since?

For one, thanks to the efforts of many domain pioneers there was really a lot of force generated in favour of, and an almost universal acceptance generated for a ‘multiples of revenues’ approach. If a domain makes $500 per year, you could easily sell to someone for a multi-year rate of return, say 5yrs ($2,500). If someone wanted the name enough it might warrant purchasing it based on longer years worth of revenue, just to have the name. Of course, the more years you bid to, the less your financial return might become if your end-use for the name is to continue to monetize it in a similar way.

That model works well for domain owners who have acquired great traffic and therefore revenue generating domain names. For as long as there have been domain owners monetizing domains, it’s been recognised but I think the last 2 years have seen more and more people working strictly to this model.

It has its weaknesses in that people are buying these because of the revenue (not in itself bad, not suggesting that) but looking at 2007 and 2009 – I would seriously begin to ask if some more emphasis needs to return to the notion of domains with value outside of the traffic revenue.

There are of course all sorts of names with speculative qualities on which people bet all the time (brandable names, short acronyms etc) – but when the general market economy dips and down goes revenues, so might income from traffic names. So, that 5 year multiple you paid looks like 7, or 8 or worse now.. it’s going to take some years longer before your revenue pays off your domain.

It’s great in theory as it is part of market economics, and therefore however is also subject to these inevitable cycles. Which is fine for many who are prepared and know what’s going on in the economy etc. Not everyone can be so informed, although I obviously recommend it.

Having an easy to understand revenue model is great news for smart new-comers to domain ownership. If you wanted to tackle this end of things, you could theoretically buy and sell and generate income all the while and eventually in some years have a good income stream and strong value built into your portfolio off a modest investment, compared to getting a similar return in almost any other area.

There are so many places now to buy and sell domains that the above model takes a lot of betting out of the equation. As Bido.com founder Sahar Sarid would say, their mission is to create a liquid market for domains. I think that’s great. It’s a fine idea and a noble task. So far, it’s looking like getting more popular.

I also want to bring some attention back to some of the domains I love. Those domains that don’t necessarily have enough traffic to generate revenue on their own. There are a huge number of what I like to call ‘minor generics’ in that category. Although you can’t calculate a multiple of non-existent revenue, some of those names have obvious end-user value. It feels crazy to keep them sometimes, yet when you see similar names sell for thousands, it’s not worth quibbling over reg fee. Study values of domains – never just believe that MyGardenLightSolarBattery.biz is worth registering – find out if you’re happy to flip those kinds of names for a $2 profit all day, or if it might be better to save to buy a more obviously valuable domain instead.

When I talk about value here, I’m not talking in the millions or even thousands for many of the names I like to keep. But let’s have a look at a new tool which I think smacks of genius. Francois Carrillo from Domaining.com tipped me off to it – it’s Group Valuation, a website offering by WhyPark.com – you owe it to yourself to go there for a test run of this. It’s free and simple to use and understand. Honestly, had one of the most fun domain days in years yesterday scouring through it.

Try it for a minute and I think that you’ll agree, it’s kind of addictive and more than just interesting food for thought. The idea of Group Valuation, is that it’s a social valuation system. No calculations, just people’s candid valuations.

Here’s a quick play on how it works. You log in. You want to submit a domain for valuation, so before you get to, you must value 10 domains already in the system. So, simply, for every 10 domains you value, you get to add another of your domains into the system.

The effect is that over a day or so, you’ll get maybe 10 or more other people (domainers likely) who will say $0 or $5000.. after 10 valuations, you get a pretty good sense of what a mean price might be.. which may be a great price point to think about when selling your domain. Start at under the mean, or other strategies spring to mind.

The beauty is that we’re not dealing with an automated process, it’s real people who are somewhat active in the domain space participating. And you get a million times better outcome than posting in any domain forum’s valuation section. (Apologies to the forums about that, but this is pretty cool).

I can imagine that some might hate the idea, but I really can’t see why. As long as you don’t get too married to the prices some people set. You don’t get to know who valued your domain, and nobody knows your valuation of their names.

This is an area of domaining that has been kind of missing for a lot of the more casual domainers out there who can’t really imagine how to get a roll going with traffic names – the expense involved in that, the business-like acumen required etc.

This tool gives you a fine “off the cuff” or “back of the napkin” idea of what other real people are thinking in almost real-time about your domain.

Here’s one for discussion.. I was happy to see some of these nice minor generics getting some valuations in the thousands – logged back in after ten more valuations had occured, to find the average valuation was down to around $400 or less on some.

What happened is that, someone who likes the name, may see it in terms of some kind of end-user usage and can envisage it as having some value to say, a small business who would possibly like to use the name. The next valuation might be a seasoned domain flipper who deals daily in similar and better names and would not pay even $10 for it. Next – a person who see’s it fit in their portfolio of descriptive names in a particular industry, maybe not as good as the name they just bought for $1200, so they might see it as a $600 name. Next, $40 – next $750 – next $1,500 – next $30 etc etc.. until you get an idea that the name may be easily sold for a quick flip at maybe $40.. or it could be worth waiting around for the same kind of buyer who sees it as a $1,500 domain.

I really love this tool and I hope you get some super instructive benefits from using it. Those majority of $10 votes tend to drag a name to lower values, but I would like to remind casual domainers that you really shouldn’t completely overlook the fact that out of 10 valuations, at least 2 people saw it as being worth more than $1000.

You should definitely take note if most valuations say $0 or $10 – this is the equivalent of everyone in a valuation thread on a domain forum saying “only worth reg fee or less”. Probably cause to drop that one unless you want it for something like your own developed site.

In thinking about my valuations, my preference is to target those smaller numbers of people who see bigger values. That’s a choice that has seen me overprice domains and get some hard stares. I’m still casual and not at all wealthy from this yet, but I just prefer to gravitate towards a strategy that sees slightly larger transactions less often than lots of smaller sales always happening. Again, choice. After all, I am trying to add more valuable domains into my portfolio as a rule and I would be concerned that I just won’t be thinking in the same way, or looking for the kinds of names I want, if I get too involved in too many sales at low prices which must take up a lot of time. I do suffer financially for that compared to some people I know who sell a lot more at lower prices – that’s their choice and some absolutely love the work around it.

So to go back to the 2007 perspective again, I’m happy to hold many of the names I’ve registered and bought for years to come. I wouldn’t want to sell many of my domains for less than I think they are worth. I know there are people who view some of these names as worth more than reg fee and I’m happy to find or be found by the right end-users to do it – and it doesn’t matter if it takes some years or more.

It is my opinion that even if you’re earning an average or less wage, if you think of holding a one or two thousand dollars per year in registrations, it would take 10 yrs for you to have invested $10,000 in your names (assuming you started with some good minor generic long-tail domains and you’re not adding more). In ten years, what do you think one of your names worth $500 to the right person today will be worth to that same person in 10 years?

Let’s say it’s still $500 and in ten years you sell it for $500. You’ve paid possibly around $50 in reg-fees over that time. So it’s not a big decision. Still a decent profit margin.

Of course, the idea is to hold better and better names and by selling lesser ones, you may afford to enter into bigger buys and sales which will make all that academic also.

The caveat!

It is up to you to value your names and be somewhat certain that they will have some real value over reg-fee in 1, 2 or 10yrs or more. Nobody else can really give an absolute valuation which will always turn out 100% true. So, try the Group Valuation tool to see if you’re heading to heart-break or if you’ve maybe got some names (that may not have traffic) which might still have an intrinsic value of their own to someone else – OR of course to yourself. More and more domain owners are developing their names and adding value that way also. Everything is a choice – and you have almost unlimited freedom to choose what’s best for your situation.

Oh, and let me know what you think of the Group Valuation tool!

Here’s a video example of some of the kinds of segments that the media was producing about domain names in 2007.

The presenters talk about the huge numbers and the fact that people are doing deals for large sums of money. Nothing new, just that, in 2007 there seems to have been some focus on this because mainstream people were begining to, or going though another phase of realising the value proposition.

Two years later? Recently, with general market realities hitting home across all sectors in business there have still been some large numbers flying around.

This following video is still what goes on when some larger than usual amounts of money are at stake at a domain auction:

In that video Divyank Turakhia (of Skenzo.com) is seen bidding to USD $ 1.4 Million for Ad.com – inarguably, a top end of the spectrum domain name. A two letter .com by itself is going to be quite a big-ticket item, this one has some direct (Directi?) synergy for the company.

I don’t attempt to draw any conclusions for anyone or force a view.

I would like to kick off this new round of blogging on Casual Domainer by asking you – what value do domains have in this economic climate?

Here’s a quick summary of my basic outlook, I wonder if your ideas agree:

Valuable domain names will always maintain their top end value in comparison to lesser names? If so, the goal is to trade up to those names. This alone creates, or validates a real market where those with the balance sheets to enter the market will do so. This competition to reach the goal of achieving a substantial portfolio is inevitable in a free market system.

Although 2009 is less than a stellar year for business in general and there’s no doubt more to come along those lines, domains have been trading now for well over ten years. Let me say that it is my genuine opinion that some particular ‘curve’ in the long-tail to premium end of domains are still undervalued by a large margin. In 2007 new private and corporate end-user interest was shown and prices did reach some highs. In 2009, we’re still seeing some great prices for premium names sold – but less overall sales, if I’m reading things correctly.

At a time when huge missing chunks of Wall Street are being pumped back up by bail-out programs, we are in for interesting times no matter how we make a living. The coming years will offer us all a great many new challenges. Anyone with a budget for savings or investment will likely be tossing around options they would never have imagined in 2007.

I have heard many stories of massive losses of savings and investments on various traditional market investments, even so-called ’stable’ packaged retirement funds cut in half or worse, houses valued at less than the mortgage – more times than I’d like of course. There are people who own domain names doing much the same thing – complaining about sales being down or revenue from their efforts lower than 2007.

There are always a few here and there who will tell you the opposite too. Same as anything. Catching any fish? “Nope” – “Tons!”. Some will say no, because they don’t want you coming here to fish. Some will say yes because they won’t be there tomorrow to hear your gripe about no fish in this spot. Truth is, fish move around of course.

The point is, we can’t lose perspective. We have to get with reality and understand that the markets everywhere are in very dangerous situations. Something that goes great for one country one day may cause currency problems the following week when some large sell down of assets (treasuries etc) happens, the needle draws a red line lower etc. Somewhere else they’re popping corks while some team of grey-suited bankers run around writing new bond agreements, an enquiry is held etc etc.

Here’s the main point I want to make: I believe good domain names, not throw-away names, are going to be quite stable compared to many other markets. There are bear investors (I nearly reg’d BearInvestors.com last year knowing crash was coming at some point in coming years) who are shorting daily on huge positions while the markets are air-lifted to impossible heights by plunge protection systems. I don’t know what you think about that, but to me, that’s going against fundamentals.

What happened to VW shares a few years ago: a huge bearish position was taken, the “attempts” to force the shares lower was outrageously successful. Ah but when all the bear positions were so successful on a single day, automatic buying back on the next day after the plunge, sent the shares rocketing. A lot of bears got burned because although MANY knew the stock would break down, there were so many of them making that play that when their lower price became a “buy” all those automatic buys (for technical reasons, the type of short they ordered) kicked in – you guessed it, buy orders on the following days forced the price way higher than the short price. Long paragraph, again the point being – perhaps it sometimes best to get thinking outside of those boxes.

With the delicious sense of being outside of the flow of the downward trends, and not playing a sucker’s game – you may still make mistakes as bad or worse of course – even if you think you’re smarter than the crowd.

I suppose it boils down to having an open mind to all possibilities and do what you feel appropriate and what you are comfortable with. My position is that the downturn in the general world-wide economy has made me drop some domain names certainly. Probably for the best. I never want to be hyping some kind of buy buy buy mantra here. I will laugh at blunders, cheer at successes and trade friendship with anyone interested in domains, but my opinion is LONG on domains.

Not long on every or any type of domain. I’m interested in short generic domains, preferably .com – however, I do like .net .org and some specific sub-sets of domains like geos and country specific names (co.uk .com.au .in). Impossible to write out a readable piece in this post.

The domain space is maturing slowly but surely. There has been a quantum fall down the stairs since 2007 in the general world financial markets – not such a big drop for quality domain prices.

What will this mean to the casual domainer? It will probably mean there will be a lot of people dropping more than 50% of their portfolios – large and small. I would love to be a cashed up investor looking to hoover up the best of those drops. That being said, and I do think it probably needs to be said, many of those dropped names should be tagged and never hauled in again without a warning. Use DomainTools.com to check the age of some domains. Not all tools accurately tell you everything, but you can get a picture. If someone dropped MyMortgageBestQuoter.net (made up name) there may be a reason; being worth little may be but one amongst many.

This brings me back to the original reason for this post:

How do YOU value your domains? This will be the first thing you need to seriously address when looking at your holdings. If you’re having trouble with renewals, think seriously about it, perhaps drop what’s not earning, not valuable or “liquid” enough to sell. If you’re not pressed to drop, double check your bets on future earning/value etc. I’d still suggest most casual domainers might suffer (like I do) from holding some domains that we know are not really worth holding, but for sentimental or other reasons. Hold ‘em if you like ‘em and can do so but if in a hard place, you can do worse than to let some go.

I used to worry that “yes, but someone else will back-order it, and I won’t ever get it back if it drops”. If you feel like that about a domain, then it obviously has some value to you, even though it may have no value to anyone else. (incurable optimists my be shocked to find out that yes, that is not only possible but highly probable if underexposed to domains). If it’s the difference between eating this week or keeping 15 dud names – they should probably drop. Keep to your comfort zone, budget wise – maybe give up some luxury or skimp on something if keeping them is important. But I’d suggest thinking of them like you’d think about anything else. Need or not?

Habit has it that I write long posts sometimes. Hope you found that it was worth the read. I’ll be kind of running threads between posts, the next one may be more specifically about valuation of domain names. There’s a lot of variance in perspectives on that topic. However, I think the new financial odd-world we find ourselves in demand that this issue be addressed often.