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part I, part II, part III, part IV, part V, part VI, part VII are here
Sahar has been writing a lot lately on accurate pricing. The question is why? Because there is no liquidity in the domain name market mostly in part due to inaccurately priced domain names and no real valuation method to determine the fair market value of domain names. This in turn creates a lack of credibility and interest from the outside investment world making it even more difficult to create the liquidity the market needs to fully expand upon its potential.
Will we be able to solve the issue at Bido alone? I doubt it but we will set a new standard I am sure that many will follow. The value of a barrel of oil is $44 today because I know when I buy it today I can sell it for $44 or near there tomorrow, the same applies to ANY liquid market and explains the enormity of such markets. The domain market has so many attributes of other asset oriented markets but more reflects in my humblest of opinions the baseball card/sports card market which has a price guide that is the purported valuation method but to actually sell at those prices (a very small portion of your inventory) you have to get really lucky or have found the right buyer at the right moment in time to meet their specific need! Is liquidation probably at those prices? Definitely not. Is it a liquid market, no, however (sports cards) at an accurate price will sell but rest assured it’s nowhere near the purported values displayed in the price guide, as will nearly anything when accurately priced. What other markets reflect the domain name channel? I think antiques, automobiles, gold coins, other collector items. Why? because at an accurate price ALL will sell. Developing an understanding of a cost basis and carrying costs will also give insight to the illiquid domain market. Many of the largest portfolio owners in the world have spent tens of millions of dollars on domain names and many are unwilling to sell at prices below what they believe is the value of specific names, why? Well many got into the game when the drop game was popular and profitable, highly profitable and used the profits to reinvest into more domain names, developing an average cost on their entire domain portfolio. What people fail to realize is many of these investors have some unbelievable names ($1 Million assets) at $10 cost basis and they do not have a need to sell or liquidate because they did not over speculate or overpay for their names based on that average. However, the same does not apply for the companies that raised money via investors; are publicly traded; are leveraged, etc. At some point in time, everyone needs to sell. Given the current state of the economy that time may be now for many.
The large commercial domain name companies like BuyDomains.com and Fabulous.com view their names as inventory and are always willing to sell at reasonable prices as long as their cost basis isn’t higher than the price that is being offered to buy in most cases, however I do know for a fact they will take a loss on some inventory to create turnover and cash flow. Fabulous.com’s Dan Warner has a great piece on domain name turnover that I have yet to track down but it gives really great insight to the revenue that is capable if everyone turned over just 1-2% of their inventory, I believe it equates to a 100% annual increase or more in revenues (while retaining 98-99%) for the average domain name portfolio.
Recently, there have been a few large portfolio owners that have decided liquidating a portion of their portfolio is a wise move, why? Probably a number of factors such as investor redemptions; the global economy; the recent decline in parking revenue (maybe afraid of another quality score update); carrying cost of renewals ( @ $8=100,000 names is $800,000 that is over $66,000 a month on a 90/10 revenue ratio that is a lot of dead weight); and potentially because their expected turnover ratio of domain names that expected to sell to end users was so low that they simply ran out of time…but none of which I have confirmed.
So, we have seen a number of these names end up on places like Snapnames.com and Namejet.com a lot of which sold, IREIT sold a few hundred names with an average price of $300, not bad as they raised $1.2 million or so in relatively short order, why? The answer is pretty simply, they priced the names accurately ($69 Reserve) and the domains sold like wildfire. While I don’t know the exact number of domain names that were listed I do know that to flip those domain names on ANY other marketplace most would still be for sale today.
Is the market price what a buyer is willing to pay or what a seller is willing to sell for? I think it’s neither. It’s the meeting point of these two. Why do we not see it then in the domain market? Well because unlike liquid markets, when I buy a barrel of oil today I know I can sell it tomorrow for at or near the price I paid (+/-30% in this market), however when compared to commodities which I believe the domain name market also reflects, as there is a limited supply at least of good names, it is nearly next to impossible to sell a name I paid X for today, for X tomorrow.
Let’s take a look at reserve prices for a moment. A reserve is not an asking price nor market price, it is the lowest offer a seller is willing to take TODAY! The problem with reserve prices in the domain market is they are too reflective of market prices or asking prices which I will refer to as retail prices for this post. If you need to sell domain names today, you have to accurately price your inventory. Those who followed know that most domains IREIT posted for sale on NameJet.com was worth much more than the $69 Reserve. That’s why they sold. If you are expecting retail prices for your domain names then it does not reflect on your need to sell. However, if you do need to sell then like anything else, price it accurately and it will sell. That applies as I mentioned earlier to nearly every market in the world; sports cards, antiques, cars, art, gold coins, etc. etc…
I want to close with a discussion on valuations. What everyone needs to understand is there is no real method to value domain names, sure Moniker has a great system that has been approved by the IRS but there are many names I would not dare buy at some of their appraisals nor think about selling at their appraisals, where is the balance then? I don’t know, I wish I did. What I can hope to achieve in this market at some point is that regardless of the inventory at hand, it can be sold, quick. That is true liquidity and is what will bring the credibility this market needs and will obviously raise the entire value of the industry to all its participants.
At Bido, We do not want to become the next Sedo, Afternic or Buy Domains. while we admire those companies they are not what we are striving for. We are striving to assist in creating liquidity and a platform that is accepted across any number of verticals. With that goal in mind, we have created the first and only social auction platform and to date, we are extremely satisfied at how well people have responded.
More liquidity options coming soon to Bido. Watch out for our announcement next week.
Thanks for reading! Have a great day!
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Very good post.
This is a good series that should be reviewed by all domain investors.
Darren,
This series on accurate pricing is pretty informative and on point! It is very important that prices are set at the right level, especially in this economy.
For example, the great thing about Bido.com is the fact that “the market” is the determining factor behind the final price of each sale. As you correctly pointed out concerning other venues, the high prices that some sellers set as their reserve are what make buyers “pass” on great domains!
I know from experience in both cases (I’ve bidded on names at Bido and I also sell domains at other venues).
So in the case of Bido, the $1 start is the greatest pricing point possible, especially considering worldwide economic conditions; but when you start an item at $1…it would most definately have to be:
(1) something that is in high demand (e.g., a great domain name), and
(2) enough qualified buyers looking to buy (once more people sign up & the economy improves…I’m sure that we will see better names being sold at much higher prices).
Bido will have great success eventually, because of the great business model (maybe Bido should continue to feature the one-a-day $1 auctions…but also incorporate other types of listings on the site as well - that’s just a suggestion)…but it might take a little time for the skeptics to see that it really is a good concept.
Best Regards,
Ron
This is indeed a great article, and the whole series has been a lot of fun reading.
This is a great resource for all domainers, especially those who actively buy and sell domain names.
The domain industry is changing daily, and we need to adapt in order to survive. Pricing domains right is a strategy that one should definitely learn to master.
Bido is a great platform. I believe domainers are still a bit hesitant to take the bold leap of faith in submitting their treasured domains in a zero-reserve auction.
However, as I have mentioned before, I believe Bido has got a qualifying audience. If you put a quality domain name up for sale, it should receive attractive bids.
“Fabulous.com’s Dan Warner has a great piece on domain name turnover that I have yet to track down ”
Darren,
Maybe you’ll find it here in one of the 2 Reports Dan offers at:
http://www.domaindistribution.com/resources.htm
Thanks for the great post.
I am new to the domaining world and to Bido. I still do not fully understand the concept of “Reserve price” and whether it is visible to the bidding public or not. If it is indeed visible to the public then does it defeat the purpose of auction where one intends to get the best price?
—-answer—-
The reserve price isn’t visible. All auctions start at US $1.00
Cheers
Sahar