Saturday, 1 December 2007

Why good domains cost much and for how long?

Diamonds never lose value, the guy at the jewellery shop tells you. He would say that, wouldn't he, with shelf-fulls of diamonds on his hands.

Slovak realtors always tell the newspapers Slovak real estate is going to keep rising, it's still the right time to buy. They would say that, wouldn't they making a living from commissions on actual sales.

Quality "meaningful, powerful or generic" domains are going to keep rising in value, Frank Schilling, a star domainer tells us.

They give you free type-in traffic - in some cases "millions of yearly visitors forever; for nothing more than the price of the renewal fees", there are only 5-10 million good generic domains so they are bound to be scarce. "That shortage of supply and global demand keeps prices high… and will for years to come. In fact if the examples above show anything, it’s that great domain names are “still” cheap."

I believe Frank's prediction, especially as long as he keeps a sizable collection of domains. But I do also recognise that when a guy sitting on a load of domains says they will only get more expensive, it is something he would say, isn't it.

Ultimately I would expect the Coase Theorem to hold in the domain market (Freakonomics explains the details): when transaction costs become sufficiently low each asset will end up with the party that stands to make the most with it - an efficient outcome.

I don't believe this will be the big domain holding guys with Google for Domains, Sedo ads or one of the 'nameless' domain advertising platforms on generic domains. The pages they serve are often of low relevance and poor quality.

For these sites there is often someone who could develop them and make a lot more money. What do you really smart people with eye for persuasion architecture reckon would happen to the clickthrough rates on this guy's website if he actually showed a few photos of glass cabinets (the way these people do)?

The reason he doesn't bother is probably that he registered numbers of sites like this. Many of them could be developed and monetised at multiples of what he makes per site and the day will come when he will simply be better off selling or leasing the site for someone to develop.

It is easy to compare domains to real estate - you have property in a prime location so you're better off building an apartment building than using it as a parking lot. If you have loads of properties in a prime location you will develop them, sell them, or at least rent them for someone to develop. After all a prime location is made prime by the development.

So if you fail to develop, people learn to go elsewhere to shop. Maybe to a market or library? You will be left with the passers by looking for YourGenericProduct.com, sometimes finding rubbish. Meanwhile someone like this who is aparently a domainer (landlord) is not so much different from a normal jeweler (although he doesn't make the jewelry onsite).

But if you develop a prime location you have an advantage over your competitors doing the same (or better) in a less prime neighbourhood. Your generic domain name will give you a search engine placement boost through the keywords it contains. If developed it can help collect natural links, help build customer trust by sounding 'official' and of course make it easy for customers to find their way back later. That is where to me lies the value of a domain.

There will come a time when domains as a piece of real estate (call it a storefront) will be obsolete. I can not tell what the replacement will be and how soon it will come but it needn't be too long. The longer some guys sit on undeveloped domain estate the more risk of a paradigm shift take place and render domains worth less:
  • search engines taking place of direct navigation
  • social network sites/communities taking that place
  • browsers taking place by capturing certain user actions
  • new internet rules (new top level domains? perhaps a new extra layer? www.greatdomain.com.new?
  • new technology (thought-navigation? you think of a site and your browser takes you there without any typing)
or something completely different.

But before that happens there may be serious cash to be made for people who but low and sell high.

2 comments:

Lids said...

Montenegro's internet domain will be .me
If you know anyone who's into sites like look4.me and allabout.me and other narcissism, get them in touch with someone in Montenegro....

Andrej said...

Wow, I think there is huge branding potential in these .me domains - it would be worthwhile to set up a little operation to register a few (hundred) to sell on as novelty on the secondary market. Also huge potential in adult names...

I am sure some clever guys in Montenegro will play hard to get their hands on the good .me domains.