HOW THE DOMAIN ECONOMIC MACHINE WORKS.

The most common question I get asked from my clients is what will happen to the prices of short .com domain names in the short to medium term.
If I own a 2 letter .com domain, will I expect its price to go up or down? What if I own instead a portfolio of 4 letters .com? After the boom and subsequent drop of 2015, do I expect the prices to continue to go down or will they pick up at some point?
With the premise that there is no sure way to predict the market, there are a few approximations and principles we can use to understand how the economic machine of the liquid domain market works.
I have recently been to China where I have met several people and companies in our industry. Most of them are heavily involved in the domain business; many of them are also looking very closely at blockchain technology and all its applications. As many have noted already, China has completely dominated the demand of liquid domain names in the past few years. Since we started to publish our LXDO report (link), Chinese registrants went from owning xxxx to xxxx in our last 2017 Q4 report.
With the purpose of clarifying and decoding what I have seen during my travels, the conversations that I had and the sentiment of the market, here is a short summary that explains what, in my opinion, is driving the price of domain names. There are 2 types type of players that are responsible for both demand and supply of domain names:
  • Investors
  • End Users
The investors buy domain names because they expect that they will buy a domain at a price X, resell it at a price Y, and make a profit resulting from the difference between buying price and selling price. Investors can own anywhere from 1 to 100,000+ domains.
The end users buy domain names because they want to use a domain name for their brand. Famous “End Users” include Facebook (FB.com), Tencent (QQ.com), Goldman Sachs (GS.com) and many, many others.
Generally speaking, investor tend to pay a lower price than end users, because 1) they are less motivated than end users and 2) they need to make a profit. We distinguish these 2 prices in investor price and end user (or wholesale) price.
The demand on domains from investors is affected by several factors:
  • How much is the return they can make on the domains they buy (differential between end user price and investor price).
  • How quickly can they make a return on their domain investments (for large volumes).
  • Liquidity of their domain investments (turnover + volume)
  • Safety of holding domains (# of domain Thefts and # of UDRPs filed and # of UDRPs won)
  • Income deriving from monetizing or leasing domains (overall parking and monetization revenue)
  • What is the expected return on alternative investments (real estate, equities, cryptocurrencies, etc)
  • What is the consistency of returns of alternative investments.
  • Other factors
The demand on domains from end users is affected by several factors:
  • New products and services launched (economic conjuncture)
  • Domain alternatives offered on the market.
The supply of domain names
Looking instead at the supply of domain names we might look at:
  • Number of ventures that fail or are going through a financial crush and realize they need to sell their IP assets. How do we measure that? One way would be to look at our development index on the LXDO report.
From the investors perspective, historically the the domain market is highly concentrated, meaning that a few owners control a very large percentage of domains.
The supply is affected by exactly the same factors.
If you are a large domain owner who own more than 10,000 domains, you have to spend each year roughly $100,000 in renewal fee. If you sell a larg
Now that we explained who are the players and what are their motivations for buying or selling domain names, let’s look at how the current trends might affect future prices.
FACTOR THAT MIGHT AFFECT THE DOMAIN MARKET
More Chinese companies are coming to market. Different market type where trust is more important. China has become the country with the highest application for patents. Not just that, but also China is the country with the highest number of TM filing in the world.
If we take TM filing as an approximation of new products and services coming to market, we might think that there is some sort of correlation between TMs filed and end user demand.
The growth is coming especially
Based on these assumptions, we can safely assume that the end users demand from China will slowly but surely increase.
A new brand or a new product/service does not necessarily mean that the related .com will be bought. There are many alternatives out there. Today for example I am writing this article from Second Home Lisbon, which still uses a .io domain and it does not look like they are going to buy the .com anytime soon.
We can assume tho
We can safely assume though that once a brand reaches mass appeal and has the revenue able to justify, they might very well go for a .com. Another number to look at would be the VC backed ventures which come to market, as they might not look immediately at revenue but could still afford to go for an expensive .com. Tesla and WebSummit for example waited until their revenue was above satisfactory before pulling the trigger on the acquisition of their .com version.
So overall, end user demand could be a function of companies who filed a TM, became successful
Xi JinPing has announced that housing is for living, not for speculation. (negative effect on housing speculation)
Stock Market is going down
New GDPR policy coming to market, probably lower turnover
Cryptocurrencies crashing.
People confuse blockchain
HISTORY
  1. PRE-Search EnginesBrand (traffic)
  2. SEARCH ENGINES Exact Match domains (SEO value of domains)
  3. CHINA Liquid Domains
Giuseppe Graziano
Giuseppe is the CEO and founder of GGRG.com, a domain brokerage and consulting firm based in Lisbon, Portugal. With a focus on the 586,848 short .com domain names defined as “liquid”, Giuseppe has helped his clients sell over 10 million dollars in domain names, receiving award nominations for „Blogger of the Year“ and „Industry Goodwill Ambassador“ in 2015 and „Broker of the Year“ in 2016. Escrow.com awarded Giuseppe “Master of Domains”, as one of the top 3 highest grossing domain brokers in the world in 2016. Giuseppe has lived in 5 countries across 3 continents, speaks 5 languages and holds a Master Degree in International Management from the Fudan University in Shanghai, China.