Oh boy, I can't believe I missed this thread until today. Now you guys will never get me to shut up about this.
I've been immersed in the domain name business for about 20 years, I've been running a managed DNS provider and ICANN registrar for 16 of those 20 years, there a few "silos" within this space, but most of this thread speaks to three of these silos:
Domain Registration (registrars - Tucows, Godaddy)
Domain Registries (.com - Verisign)
The domain aftermarket - buying and selling domain names, also in this silo is trying to monetize domains via pay-per-click (PPC), etc.
So the first thing to understand is what drove the heyday of the domain aftermarket, including PPC values and that was the anomaly of "type-in" traffic on generic terms, which peaked around 2000-2003. In those days two things drove value:
1) people treated the browser location bar like it was a search field, and just typed keywords into it
and
2) the browsers auto-completed non-FQDN's (non fully qualified domain names) by appending ".com" on the end of it.
There was a 3rd factor that enabled a few fortunes to be amassed:
3) the aftermath of the .COM meltdown (2000 - 2002/2003) kicked off the "drop game": a lot of generic (and because of 1 & 2) valuable domains "dropped" - they were not renewed by the original registrants and people who figured this out started re-registering the good ones as they expired. Guys like Frank Schilling, Gary Chernoff and Yun Ye created HUGE portfolios of domains like this, grabbing names for the price of registration and immediately monetizing them via PPC and earning $100 CPM or more, occasionally selling a name or two for hundreds of thousands or even millions.
In 2007
I wrote an article that basically said the golden age was over and I was widely reviled by "the domainer" industry (that segment which formed around this) for saying it, but pretty well over the next few years pretty much what I predicted came to pass:
- The browser location bar morphed into a search field
- "type-in" traffic entered secular decline
- competition from other segments would arrive: dns resolvers, ISPs etc would all start getting in between the browser and the destinations
But not before the space heated up so much that Big Money started entering the space. Yun Ye sold his portfolio for a few hundred million to Marchex, which was publicaly traded. A few other "domain incubators" came into existence, trying to make a model around "investing in undervalued domain assets and developing them" which basically translated in practice into "overpaying stupid money for over-valued assets and then wrecking them".
Because the golden years of 2002-2005 were still fresh in everybody's minds, the concept of "the category killer domain name" got a lot of traction and with it the erroneous belief that "if you owned the generic descriptor .com of given market, it would enable you to own that market".
Epic value destruction ensued.
I wrote another article about it (the lead off post in my WebvalueInvestor blog) and, once again, was burned in effigy.
My point in that article was that there was still money to be made in domaining, but it wasn't where everybody was looking.
Tucows was mentioned in this thread, but I think misunderstood. Tucows was for a long time, the 2nd largest domain registrar in existence (I think now 3rd or 4th), but was a penny stock. I bought them for between $2 and $4 (split adjusted) starting in 2005 and
finally sold them recently a little north of $17.
Tucows was my very first textbook value investment gone right for me. Totally within my circle of competence, I realized in early 2006 that Tucows (as could all registrars) was still able to amass expired domain names long after "the drop game" became too crowded for the non-pro to be viable, because they could front-run the drop and mine the expiring domains of their own customers. Because of this, my rough but hyper-conservative calculations, the value of Tucows stash of aftermarket domains was
worth more than twice the market cap of the company, that portfolio didn't show up on the balance sheet, and it wasn't priced into the shares at all.
It was a punch card investment, and I kept buying until it was the largest position I have ever held. I won't say this was a "life changing" transaction for me, but I did it all within my RRSP and suffice it to say that it has been a significant factor in my retirement fund.
Where are we now?
I too thought that the new TLDs would have a reciprocal effect on legacy TLD aftermarket prices, that .com, .net and ccTLDs like .CA would enjoy a lift from the confusion all the new TLDs would produce.
I was wrong.
In the year running up to the new TLDs I personally saw deal flow drop measurably in the domain aftermarket that I have personal visibility into. Both frequency and dollar amount of deals. Brokers I know concur on this - the only ones experiencing increased dealflow are representing sellers who have massively adjusted their expectations downward: domains they were holding out for a xx,xxx sale, they are now accepting offers in the x,xxx range, and so on.
After the new TLDs, the aftermarket has dropped off the cliff. The odd breathless, manic story you hear about some domain selling for millions are atypical and usually represent situations where the buyer had deep pockets and was completely over a barrel.
My plan is to write a third installment of my domain aftermarket commentary "Welcome to the Dark Age of Domaining", it's more or less what I indicated here but will have a lot of specific examples in it. I'll post the URL when it's done.
