accurate-pricing archive at Conceptualist.com, By Sahar Sarid

« Older

Loading Newer »

Less

Excerpts Headlines Full Length

Archive for the 'accurate-pricing' category

The Importance Of Accurate Pricing, Part VIII (Guest Post By Darren Cleveland, RMG CEO)

Published on March 11, 2009 in Liquid Value and accurate-pricing. 7 Comments

(image source)

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!

The Importance Of Accurate Pricing, Part VII

Published on March 10, 2009 in accurate-pricing. 6 Comments

(image source)

part I, part II, part III, part IV, part V, part VI are here

They are waiting to join in, but will we help them, or just wait for them to figure it out on their own, if they ever?

As with most liquid markets, casual end users come from time to time, but they are not the market. Markets for the most part are comprised of industry professionals, wether wholesale buyers or collectors, those who make their living from the market and have intimate knowledge how the market operates. Look at stocks (90% institutional investors, 10% individuals), gold, bonds, silver, oil, diamonds, and even art. All those are mostly traded between industry professionals. Understanding that most markets are made of professionals, the conclusion is accurate pricing must occur or buyers will shop elsewhere, and in this case, may simply take their money and bring it to other industries, rather than our own. The other part of understanding that markets are made of professionals is that in order to grow a market, you need to attract more such buyers. Again, casual end users are nice but they are rare, hard to find, and usually do not stick around to buy more. Professionals on the other hand, such as in the domain business iReit, Marchex, Name Media, Demand Media, come with much more money, and usually stick around for a while. They are not looking for one purchase, they are looking for many. They are not looking to spend once, they are looking to spend for a while. And while it is nice to see one domain such as Toys.com sells for over 5 millions, Toys R Us, the buyer, is not going to stick around and buy any more domains for those prices. Attracting professionals therefore, is the best option we all have to grow our market substantially.

But how do you attract professionals? It comes to one word: Education. If you read David Kesmodel’s The Domain Game you will remember the chapter about how Marchex first started (educated by Frank Schilling), which also was the cornerstone for one of the major deals in the business, the purchase of Yun Ye domain portfolio. When iReit first started they invited a number of industry professionals (myself included) to New York City for consultation. Ireit was co founded by Houstonian domain veteran Marc Ostrofsky as he teamed with financial backers from New York City. Name Media was founded on the purchase of an industry power house, Buy Domains. Buy Domains, Mike Mann’s company, had a proven track record, major revenue, as well as extreme intimate knowledge of the domain industry.

Attracting end users is how we all affirm ourselves we are in the right business. Attracting industry professionals though, it is how we noticeably grow an industry.

While we have a number of goals at Bido, an important one is to bring more such professionals to the domain industry. If such professionals can see how existing professionals buy and sell domains, grade them, analyze them, understand them, quantify them, there’s a good chance at some point they will be participants as well.

In addition, we’re working on an additional product within Bido to attract such professionals in a way which was never yet explored in the market, a new revenue stream for the professional investor that make it easier to get in the business. More on this at a later point as this product is scheduled for release late 2009.

Have a great day,

Sahar

The Importance Of Accurate Pricing, Part VI

Published on March 9, 2009 in accurate-pricing. 3 Comments

(image source)

part I, part II, part III, part IV, part V are here

Nobody wants to be a sucker. With auctions, the results of accurate pricing is a bidding war. Bidding war allows spectators to get in the game, assuring them that value exists in the marketplace, not just with one party, but with many. Marketing to spectators is different than marketing to end users. End users, as discussed earlier, are extremely hard to find, educate. I covered some thoughts about end users previously. This one I will focus on spectators. Spectators are within a given industry, they follow activities but shy from participating as they are unsure. Unsure of value, unsure of timing. In essence, spectators are there, sitting on the fence, not sure what to do. By viewing a bidding war they may tip and join in. Assurance is really all they need. Looking at today’s Bido auction (just ended) let’s see what some spectators have said after the auction was done:

FLIGHTDEGREE.COM

(Above: screenshot of Bido chat for the domain FlightDegree.com, auctioned off March 09, 2009)

Now some of these folks who commented on a good buy did not participate (bid) today however by being around the auction, seeing others, there’s a good chance they will at a later point. Without accurate pricing, without a bidding war, many spectators cannot relate to the auction, and if they cannot relate, they will vote, not with words - but with their money. When you have no bidders or one bidder, while many will not say a word, the feeling in the air is something went wrong. Maybe the item was overpriced, maybe a buyer is attached. Whatever the case may be, lack of activity is a burden on spectators. For those to participate they need activity. No activity is a clear indication of lack of liquidity. I’m not saying this will never happen on Bido, what I ‘m saying is this is something we are well aware of, and something we try our best to avoid.

Have a great day,

Sahar

The Importance Of Accurate Pricing, Part V

Published on March 6, 2009 in accurate-pricing. 5 Comments

part I, part II, part III, part IV are here

You know that you have priced accurately when there’s a bidding war happening. Pricing accurately does not occur when one bid happens to buy at the reserve price. This isn’t an auction at all, it’s a sale. In most industries, in order to price accurately you need to attract the most likely group that will buy, that is, the professional traders. Attracting professional traders is usually more than simply stating the highest price one will go for. What you want to do is state a lower price, a price which will draw few of them to participate. Participation means attachment, interest. Yesterday at Bido we auctioned off the domain JuryLaw.com. Many Bido experts thought the domain makes no sense at all and will fail to sell for a good price. Starting the auction at 1$ and no reserve we were able to sell the domain for 128$. Looking back, more importantly, this auction attracted some 34 total bids. This domain on Snapnames or Namejet likely would not attract that kind of activity, for the mere fact the starting bids are in the high double digits range. Barrier of entry creates lack of interest, attachment from would-be bidders. The magic here happened because the low barrier set by the 1$ no reserve auction. High reserve, or high entry price to bid, would have blocked the excitement and resulted in a lower sale.

Accurate pricing is not a selling price. If you price inaccurately in auction, you either get one bidder or you get none. In either way, the auction house loses, either credibility, time/energy/money in relation to marketing, an actual sale, or all of the above. Efficiency comes from attracting bidders. Rarely bidders show up in order to pay retail or more.

So how do you price accurately? You research. You use message boards, price indexes, you ask professionals. Stuff you own, no one can tell you what to sell at what price, however we believe the auction house has a duty to bring accurately priced items to the right market at the right time, Bido maintains that philosophy and will continue regardless of what transpires in the industry (domain names at the moment) and will have the final say at what ends up in our auctions and what will not.

Have a great day,

Sahar

The Importance Of Accurate Pricing, Part IV

Published on March 4, 2009 in accurate-pricing. 3 Comments

part I, part II, part III are here

Let’s look at what a professional trader looks like. As I know a couple I will try my best to give you an idea here. So who is the professional trader and how does he think? The professional trader is not attached to the deal. He buys because there’s a good deal to buy and he is well aware there are others out there. He buys because he is interested in revenues, either recurring (with domains, PPC) or sales. At times, he buys because he collects. In the domain business, the professional trader may spend well into the six figures a month to build his portfolio. The number one asset the professional trader holds is his time. Bore him enough and he will walk away elsewhere, voting loudly with his money rather than with words. The professional trader is extremely patient. He works out methodically, systematically. He automates whenever possible, he collects data, he analyzes, he budgets. The professional trader knows waiting is an action, he understands that sometimes doing nothing is the best move he can possibly do. But don’t mislead that with hesitation, he is far from it. When he decides to act, he sets goals, and he acts with complete determination. When he does act, he is well aware he can stop at any time, take a step back, analyze, and act again if needed. He is well aware of his surrounding, the markets, other sellers, other buyers, and the marketplace in general.

Understanding the professional trader is a must if you try to cater to him. I happen to be one. Over the years there were many months we spent six figures a month buying domains. We bought from Snapnames, Afternic, NameJet, Sedo, rarely at eBay, other traders, but mostly, from individual domain owners. With most of these we’ve dealt with frustration, not because good inventory wasn’t available, but because there was endless amounts of useless inventory, inventory which to look over cost you time and energy, which equals of course to money, to opportunity cost. To give you an idea let’s take a quick look at eBay .com domain listings. While eBay was never great it sometimes had decent listings, it took 5 minutes to scan through if you sorted by “highest first” and went over listings until 500$ range. I used to do that a lot because the sweet spot was (and still is) between 500$ to 10K range. If you look at the link above, it takes some 60 pages to get to 10K range, and another many pages to get to 500$ range. I tried this earlier today, complete waste of time. eBay makes money on each listing but as a buyer, professional buyer, I cannot possibly justify going through this list, not even once. So.. I walk away, and since I went through this painful experience, likely to not come back anytime soon.

Many of the auction houses in the domain space have improved on eBay model. Instead of charging to list though like eBay does, they let you list your domains for free and only pay when a sale is made. In essense, they become to be a combination of auction + classifieds. With millions of domains in inventory, it’s good for them but does not do much justice for you, as your listing is really lost in the shuffle. Professional buyers for the most part are not interested in sorting through, so most buyers left are end users who accidentally find your listings. This sort of arrangement does not really serve your needs if you need to move inventory.

When there is balance the professional trader comes back. Years ago it happened, when SnapNames first came out and started to auction expired domains with low reserves (29$ if I remember correctly). There were a lot of weak listings, but much gold as well. There was enough balance for the professional trader to invest his time and money sorting through. These days, the balance is lost. Too much weak quality, too few deals to be found. The professional trader walks away.

Worse, it is not only the professional trader who walks away, it is other professional traders from other industries who cannot come in. They look at the marketplace, cannot understand how in the world they can trade here, and decide to go elsewhere, maybe invest with real estate, technology, startups, anywhere where there is balance. Back in 2004 things were a little different. We’ve seen the proof when Marchex got in the game, and later iReit. Professional traders could quantify their time and energy and could find balance. These days they cannot.

At Bido we take all this into consideration as we are building the platform. In order to create liquidation the auction house must cater to the professional trader. Until that happens none of us will have control over the sales cycle, all at the mercy of an end user finding us. I don’t know about you but we’re not willing to live like that anymore, hence why we have decided to tackle this problem heads on and change it.

Have a great day,

Sahar