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Knowing what your assets worth is fundamental business practice. It helps with insurance, taxes, attract investments and partners, marketing, selling, and various other business dealings. The benefits are there but how to do it? To understand better we need to look at related industries. Take gold coins for example. To understand the value of your holdings you look up comparable sales data. Various companies in the gold coin industry provide grading and authentication services (PCGS, NGC, ANACS, others). One of my favorite videos I often send to associates is of PCGS’s president/founder David Hall. See below:
As you can see, the process of grading coins is complex. It involves highly trained professionals, processing, blind testing, and some more testing. Over the years I bought PCGS coins “sight unseen” simply for the fact these coins were sealed and graded by PCGS. I could count on quality, authenticity, and a name behind the coins. Why grading is important? PCGS says this:
If rare coin dealers only dealt with other rare coin dealers, there would be no need for coin grading. The two would simply decide on the value of the coin and conduct business accordingly. However, the coin market has expanded far beyond dealer to dealer transactions.
When the rare coin market was limited to a small number of numismatists trading with each other, three broad definitions were enough to determine grade: “Good” — a coin with most of the detail intact; “Fine” — a coin with clear detail and some luster on its surfaces; and “Uncirculated” — a coin which had never been in general circulation and therefore retained its Mint State condition.
As the market grew, collectors realized that some “fine” coins were finer than others. Even some uncirculated coins rose above the rest in detail, luster, and general appearance.
Soon terms such as “very fine” and “extra fine” began to emerge, as collectors sought to further define the condition of their coins — and increase their value. In 1948, Dr. William Sheldon, a renowned numismatist, developed the Sheldon Scale, assigning grades from “one” through “70″ to coins on the theory that a “70″ would be worth seventy times as much as a “one”.
Although coin collectors agreed on the scale, they could not agree on the standard — and assigning a Sheldon Scale grade to any given coin was still a matter of subjective opinion.
And the solution, again from PCGS:
Industry leaders were deeply concerned that without standardized grading the rare coin industry could face major problems.
Over the course of many months of meetings, the blueprint for the Professional Coin Grading Service evolved.
The advent of the third-party appraisal of a coin’s physical condition, backed by a guarantee, and a national network of reputable coin dealers could provide an extremely reliable form of protection for rare coin consumers.
PCGS would create a climate in which consumers could participate in the coin market with greater confidence.
Selling these coins a day later for about what I paid for isn’t a problem as PCGS is recognized for quality and service within the coin trading community. Because of that price consistency, one can use PCGS price valuation for various business dealings, as mentioned above.
My two main questions in last few years are 1. How to build liquidity in the domain space similar to PCGS? and 2. How to push this further and even do a better job?
Before I go into my thoughts on this I’d like to invite all for a constructive discussion about this. What do you think? How would you go about achieving such goal? Is it even a goal worth pursuing? Is it important to you?
Looking forward to reading your replies here.
Have a great day,
Sahar
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In its current form, I think domain appraisals have only hurt this industry. Why? Because the companies that produce them don’t care about giving an accurate appraisal. It is in their best interest to quote an inflated value because it gets the customer excited about his portfolio, and leads to more appraisal purchases. I have yet to come across an appraisal company that cares more about their reputation than blowing smoke up their customer’s asses to get more sales.
I have come across countless inexperienced sellers that were holding a good domain name, but were also holding a bunk appraisal from a so-called respectable company. They would refuse to sell for less than the ridiculous value they were quoted. Ever tried convincing someone that the appraisal isn’t accurate, even using comparable sales and other [usually] convincing evidence? You’ll have an easier time convincing them the earth is flat. Their expectations have already been set at an absurd level, and there is little you can do to change that.
I firmly believe that, like physical Real Estate, the best way to determine a domain name’s value is by looking at comparable sales. However, unlike Real Estate, an overwhelming majority of domain sales go unreported. Sources like NameBio.com, DNJournal.com, and DNSalePrice.com have done a tremendous amount to further the art of domain valuations by giving us past sales to compare against. However, they are just scratching the surface of what is actually changing hands each day. Because we don’t have enough data, it is difficult to evaluate a majority of domains, especially when it isn’t .com.
So the first step is getting those that participate in the reseller market to report more (or all) of their domainer-to-domainer sales. The more data we have, the more accurate this process will get. The next step would be to clean up the appraisal industry. Unlike Real Estate, domain appraisers don’t have to be educated, tested, or licensed in order to practice. A 13 year old with a web site could be a domain appraiser. ICANN should consider having an appraiser certification process. Even if domain appraisals became more regulated, we would still need trustworthy companies that care more about their reputations than selling as many appraisals as possible.
I would suggest considering and evaluating active businesses with domain names similar to the name being valued.
While many other factors play into the success or failure of an Internet business certainly a good memorable and meaningful domain name is an important factor to consider,
If for example an Internet business with one or more good domain names at its core generated x million in gross sales per year then what portion of the x million in sales can or should be attributed to the domain name(s).
that’s my .02 on the matter.
Michael,
Good thoughts there overall. I think you are on track for the most part. Anyone can appraise anything, it’s who behind it that matters. I’d like to see a better system than simply an opinion of someone.
Scott,
The industry matters however when searching for liquidity it really what the market pays. With domains as well as with coins it is mostly the active traders which determine the liquid value. The others, end users, are always the cream, but unfortunately not always around. Seen it with coins before, and with domains as well.
Cheers
Sahar
This could all be automated in the first couple levels. At the lowest level the question would be is the domain name worth registering in the first place or not. If you could register it tonight for $8.00 and pretty much knew you could sell it tomorrow for $8.00 it’s worth $8.00. If not it’s some value less than reg fee from 0 to 8 dollars. There’s the bottom of the scale.
Next rung up the scale would be, “Is the domain worth renewing?”. The scale would be from $16.00 to $80.00. In other words 2 to 10 years. Or some multiple of whatever the normal reg. and renewal fees would be.
Now if you had a pool of seasoned domainers who were committed to judging domains to this first level (say a hundred people) and a system where they could login and cast one vote with a numeric value added for each submitted domain within so many days of submission. These 100 people would judge a domain worth the original fee and the renewal fee(s) and establish a beginning value. The names that hit a average of some number within the 16.00 to $80.00 range (or x the normal renewal fees) could then go to the next level. You’d need some perk to offer each member of this first level to make it valuable enough to participate here.
This next level would probably use fewer but much more experienced people. The seller’s asking price would be averaged with the “bid” prices from the first panel to give a triplet of values as in mean, median, and average. This panel would then look at each number and vote yes or no on each value and then they’d be shown the asking price and asked to vote yes or no on that. Passing all four 2nd level tests would then promote the domain to the third panel. This panel would get better perks than the first panel.
The third panel would be experts in the field and they would then establish what they feel is the actual value. If they chose lower than the second panels value the domain would be sent back to the first panel again to start over.
If they choose a value under the sellers asking price the seller would be advised and Bido itself could then decide to actually offer the domain for auction or not or else wait on the seller to decide. This could even be modified to do nothing but set an appraisal value for a domain that isn’t even submitted for auction. And this system could be used to appraise domains submitted by anyone.
Now this is to establish liquidity potential and not the same as actual value. There would be no guarantees but over time this system could grow and possibly establish a value for every registered domain. This could lead to a searchable database of domains with values and possibly a service Bido could offer in various forms to assist the market.
It sounds somewhat cumbersome and complicated but once it’s working, extablished and modifed as needed I think it could self maintain and perpetuate itself. And another panel could be added to log selling prices when revealed for a domain and even judge that as too high, way too high, below perceived value, dead on or just about right.
Well, maybe it’s my gaming background showing through here again, but I would think you could simulate the auction and have “price discovery” that way. What I mean is that if you had a system where each of the “buyers” had fictional dollars to spend on buying a certain number of names from a lot of domains then you could come up with at least an approximation of what the domain is worth to those buyers who play the game. The sellers would be motivated to make it very clear things like traffic and existing revenue in order to get the best prices. The buyers would want incentives for getting the most domain for their money and yet still win the auction.
In terms of the length of the auction or how often the auction ran, or the reward systems in place for people to “play”, there are obviously a lot of choices. If you don’t put the proper incentives in place than the price you come up with won’t be accurate. An interesting twist would be that at the end of the auction, whatever the discovered price was for each of the names could be used as a ‘buy it now’ price for anyone who participated in the auction
theoretical,
A while ago the idea of a game came up, but since it’s fictional dollars, price won’t be accurate. Now if people used real dollars..
Jeff Hawkins,
Not sure about this one..
Cheers,
Sahar
Well, I stink at games (I’ll install them though for others), but you could combine my idea and theoretical’s game idea just a little of each maybe and try to get the level one part working. Rewards are key to getting participation. Some software would take care of accounting and building the database.
As to rewards…. access to the results data, a nice Bido Tee Shirt and a miniscule monetary reward for anyone guessing a value that hits a future sale price……….. Might work.
And panelists from level one gets a shot at the next open seat on the second panel where rewards are better yet. Bido hats and Bido Polo shirts maybe? Double the dollar amount for getting the price right?
Throw the ideas on the table at the next brainstorming session and let the ideas flow. That database at the end would be worth a lot of effort once it started running.
I see where you are coming from on this Sahar. I do have to disagree with a scale or definition of value for a domain name. The reason i say this is because coins are a physical product and can be valued based on definition and history. Where as a domain can not be classified as having definition or any type of sight to eye valuations.
I think this is where Rick Latona really has it right. It depends really on how much someone wants the domain name. You can see domains that are completely off the wall for for $10k. If the domain is exciting or is something that is at the heart of the buyer the domain can sell for amazing amounts. Putting a definition on it or value is extremely subjective and IMO will never happen. The best we got is a metric valuation. I think the best we can do is to know if a domain will sell or not, if you got that down you are gold.
—-answer—-
I tend to be more optimistic. I know it seems like a far-fetched dream, but as a dreamer.. I dream.
Cheers
Sahar
Alright Sahar, that statement was a little bold. Lets put it this way, “Its unlikely to happen in the near future.” ;)!
Going back to the game idea - there are two ways to keep it realistic. As I mentioned, if the incentives are correct (the example I gave was that you could buy the domain at whatever the winning in game bid was at the end of the “simulated” auction - though obviously you’d need stipulations such as meeting reserve and such). But you can also have incentives and get accurate “pricing” based up on entirely made up currency or points. If you keep the economy balanced properly then the simulated auction prices could be used as at least part of the valuation process for a domain.
Say domain A received 5 bids with a max bid of Q2,500 where Q is some made up currency. The mean bid was Q2,000. Based on the volume of bids and mean/max bids, you can come up with a desirability rating or a certainty rating based upon the number and quality of the bidders and a Q value of, say 2,250. Now Q2,250 may seem completely meaningless if you only wanted to sell one domain. It could be worth $50 or $50,000… but if 50 domains actually sold at auction and they all had been given Q values prior to the auction, you could come up with how accurate the Q value was in relation to actual auction prices.
I say forget made up money and figure on the real thing. It was good enough for the Monopoly Game. Hee Hee.
But the main thing is to keep thinking about this idea. Game or data base input system. They’re both interesting ideas.