It doesn’t matter whether you’re selling cars, homes, financial instruments, religion..  everyone sells something.  Some of us are hard-sell : Timeshares on Maui spring to mind.  Some of us are soft-sell: Water in the desert for example. Make no mistake, the global economy functions on sales and whether you’re paparazzi or a politician, a plumber or a pastor, everyone sells something.

A few years back I was approached by a company and encouraged to place my domain names for sale through their marketplace. I was given a host of reasons why this was a good idea. “These names don’t make any money”.. “ Selling the names will actually improve my overall portfolio’s value”..  “Selective pruning is just prudent”. Shortly thereafter, a second domain marketplace called. They suggested I sell my names through ‘them’ and that I should cap my purchase prices at $5,000 because that was the limit of automated credit card processors in their scenario..  They even sent me a list of names that I should sell..  tens of thousands of them that don’t make enough to cover their renewals..  and If I could get $2,000-$5,000 each wouldn’t that be Fabulous?!  The problem as I looked through my list was that many of the names they suggested I sell were pretty good.  I’d pay more than 2-5k for many of these names if they were dropping at auction.  I politely declined their offer.

Understanding the Ecosystem

Years ago before I began in the domain business, before I had built the grubstake in real-estate which I’d ultimately use to kick-start my move to the Caribbean, I worked for a glass manufacturer/distributor and sold crates of flat glass to assorted manufacturers. Glass (like domain names) is a commodity business. Everyone is going to need glass at some point, whether they know it or not. The guy who hired me was named Ralph. I watched Ralph in awe as he took orders and worked his calculator selling hundreds of thousands of dollars in glass, pushing buttons on his phone to get trucks moving and called on clients who seemed genuinely delighted to see him.

Ralph was a great salesman in the pure, honest and wholesome sense.  He was a facilitator and he made things happen.  The most important lesson Ralph ever taught me was never to sell your product too cheaply.  We’d make sales calls and very convincing glass buyers would swear up and down that the maximum they could pay for a crate of glass was .75 cents a foot. They’d threaten to purchase the product elsewhere, they swore they had a lower offer, they’d beg and cajole using the carrot and the stick. Ralph would switch the conversation to a personal tack, disarm them with his personable manner and elegantly decline to sell.

On the drive to lunch I’d ask Ralph why he wouldn’t fill the order when we were making 20 or 30 percent margins on that ton of glass.. “Because they can easily afford to pay more” he’d reply..  “and once I sell that crate it’s gone, it will take 3 months before I get another crate..  somebody else will buy it because it’s a specialty size with low cut-loss”, and if I sell it at that price, next time he’ll ask for another nickel discount.. “

Ralph knew his customers, he knew their business and most importantly he intimately understood the ecosystem of the pond in which he lived. Ralph knew that if he discounted this glass then his competitor wouldn’t get the order and his competitor would have to sell something else at a discount, hurting Ralph’s margins on that other product which would potentially unravel Ralph’s other orders for the other product at ‘that’ price, forcing Ralph to compete against his competitor on yet other products he wasn’t as strong in – In the final analysis, there were a dozen good reasons not to take the order at that price.

I was a young sales-guy-in-training and this ran completely counter to my order-taking instinct,  but as time wore on I came to respect and appreciate the eco system of our pond and Ralph’s logic. I could bust my hump running around town to sell ten crates of glass for 10% margin or I could put my feet up on my desk, sell just two crates at a 50% margin, making the same profit and still have another 8 crates to sell on another day!

“Good” Domain Names — more like Oil than Glass.

The domain name business is much simpler than the glass business.  If you look at the names which people want, you’ll find that sales (and sales inquiries) occur for names which get some kind of traffic.  I’m not talking about revenues from PPC.  You can have poorly implemented domain names which make no money from the traffic that comes to them, that still get some trickle of type-in traffic.  I am talking about a heartbeat folks..  Names which somebody will either type into their address bar because the string means something to them, or names which people look-up the whois record of, to see who owns it.  Names which compell other human beings to take some form of action. Some domain sellers suspend this law of physics by baiting and switching — taking buyers who are looking for XX.com domain name because it has meaning, resonance, gravity, traffic and switching them into Y-Y.info domain name because it “feels similar” or costs one tenth / one-hundredth as much.  Those plays notwithstanding, the fuel that drives the machine and makes the magic possible are good meaningful domain names with resonance, gravity and a heart-beat of some kind. Unlike glass which is made of sand, these meaningful gems which bring warm bodies through the turnstiles are of a finite quantity — more like oil.

As mentioned previously, I’ve spent the better part of the last decade sifting through expiring domain name lists and I’ve gotten pretty good at telling the good ones from the bad ones.  I’ve also watched other people who do what I do, and learned how they interpret “good-ones” and “bad ones”.

In my 6 years of scanning expiring domain name lists I’ve found that only 7-12% of all names that expire mean anything to more than one person..  The rest are such poor made-up quality that they have no resonance or gravity and they will likely never be looked up on whois, or typed into the browser by anyone other than the name’s registrant. This other 88-93% of names are meaningful to the sole distinctive entity that registered them.  They include odd/trademarked strings, made up words, disjoined phrases. They are the trees in the forest, falling, that nobody is there to hear.  The successful people I see at domain shows who spank my wallet pocket with their bidder’s paddle seem to share my viewpoint of what constitutes a good name.

Domains Expire Every Day

In the past, the average daily-list of expiring domain names was reflective of the broader registered namespace. If 20,000 names expired, that would mirror a random sampling of 20,000 names from the registry zone file. Today, quality expiring names are even scarcer due to registrar/auction-house name withholding. Additionally, the high renewal rates and exhaustion of the name-space mean that a diminishing percentage of ‘all names’ meet this meaningful , resonant criteria. Today it’s 7-12% of names that fall into my “good bucket”..  in 5 years as more made up schlock gets added to the zone-file mix, it will be 5-7% of all names registered that have meaning.

To put this in perspective, the types of names which constitute my theoretical “best 7-12%” of all names registered include all 2 and 3 character names, nearly all 4 letters, any search-term no matter how far down the long-tail. It includes zip codes and popular screen-names, first/last name combos that are popular/less popular, pretty much anything that means anything to anybody and a second or third person. It includes the best .info’s .us names (even .mobi’s)…  All the “good ones” amount to just 7-12% of all names registered. The rest is an ever circulating torrent of backfill which expires and gets replaced in a grand water like cycle, with new garbage..  A never ending boulevard of broken dreams to come.

If you’ve read this far and you buy into my viewpoint, or just suspend your disbelief and follow my thought process, you will see why blanket-selling names that mean something for $2500-5,000 is not as sustainable as it may seem.  Businesses will think nothing of spending $10,000 or $15,000 for a one month, one-time insertion into a trade publication, or for 2 months employment of a junior staff member.. yet the meaningful domain name which quietly keeps on giving and can itself be resold at a profit is somehow worth whatever you can get, simply because it hasn’t generated any PPC revenue yet? I believe a  great deal of overall portfolio value is lost as large scale sellers accidentally burn the furniture, selling names with even 30 uniques a month but no PPC revenue,  I see it as destroying long-term portfolio value in the name of short-term EBITDA.

A Hundred Million Bucks Ain’t What it Used to Be.

Forget the correction in commodities and the rise in stocks this last week, the bottom line is that papering over problems with more paper, and bailing-out ‘the troubled’ will only hasten the demise of the currency doing the papering.  If a credit expansion renews and continues at all cost, then warm up your wheelbarrows folks..  you’ll need one per name.

The supply of meaningful and generic domain names is tight as a drum today. In an effort to increase revenues for itself and to simultaneously ease that demand, ICANN plans to start entertaining proposals for new namespaces in about a year’s time. I predict this will do little to quell the desire for meaningful .com, net and CC TLD names. Corporate IT departments overwhelmed by the task of managing existing .com typos simply won’t be up to the challenge of managing a corporate GTLD such as .COKE or .IBM.  Even with the help of a presently absent killer app from the likes of Godaddy, Enom or Tucows such sideshows will be an uphill push in a recession year. If my hunch is correct then .web .blog and other new .extensions will come to pass and they will marginalize the .info, .us, .eu, .asia and .mobi namespaces just as those namespaces relegated .ws and .cc to obscurity before them.  I predict that .com and other established namespaces will continue to thrive with some very minor marginalization at the fringes . The failure of former would-be contenders such as .travel, .biz and .pro to satiate demand for coveted names, shows us that adding more skim milk to the mix will not stop the cream from rising, and that cream is .com.

I suppose all this brings me back to my first point..  With 6+ billion would-be “sellers” on our planet and just 10 to 18 million “meaningful” domain names across “all extensions” good enough to do the selling, this might just be the right time to put your feet on your desk and triple your prices – or to not sell at all.

Some would argue that not selling anything may be a bit extreme.. and that may be.  Fortune favors the bold after all.  But we live in unprecedented times, amid an unprecedented sea-change. In the future, fortune could well favor those who didn’t sell their good domain names too cheaply, or too boldly.

The night I left town Josh sent me this link which focuses on an interesting observation.

  While $4+ million worth of domain names just sold at the Las Vegas TRAFFIC auction, the real story is that actual bidding totalled more than $30 million..  I bid at least a million dollars for names that I didn’t win.. Others did too.  All-tolled there was more than $20 million of unrequited love, bids never to matter, a desire to own domain names that would not be satiated.

Again for impact, more than 20 million dollars of cash-money was bid in about a day (8 hours over two days) by a handful of people who wanted to own just a smattering of domain names.  Some of these names were good, many were just average, few would have blown the average man-on-the-strip’s hair back.  The would-be suitors were there with cash in hand, and many (like yours truly) went home empty handed..  or nearly empty handed.

All this happened during a week in which markets corrected, new credit/banking problems came to light, mortgage rates inched higher, inflation made headlines and other generally bad stuff happened or was foreshadowed to happen in the broader economy. It happened with less than 600 would be bidders worldwide in attendance!  How can that be?  Several reasons..

–1–  Because for the most-part, domain names are un-leveraged..  they have no debt on them..  and sellers can afford to tell you how they really feel by declining what you view as a generous overture. There is no incentive to “sell now” when your cost of carrying the investment is nil to low.

–2–  Because the shift of offline publishing to online is only getting warmed up.  Much promoted but under-delivered, just 7% of advertisers are online vs. 93% offline..  Domain registrants who understand the significance of their investment are sitting on the sidelines whispering “come to Papa” under their breath, knowing that you are not the first (or last) guy to try to wrest a name away with the siren call of cold hard cash.

–3–  Because a good domain name is like a storefront..  and you can’t buy a decent storefront for 50,100, 200 thousand dollars these days. You can’t buy a bad storefront in Rachel Nevada for that, you can’t even buy the bathroom fixtures in a storefront on the fabled Vegas strip for that. Not good ones..  not a bad ones.. Not any-ones.  Only about 7% of all domain names registered (11 million names worldwide) mean anything to anyone at all..  The rest are pretty much speculative crap that somebody has convinced themselves are good.. a virtual boulevard of broken dreams – or breadcrumbs of back-fill massaged into the meat of good portfolios; painstakingly built by smart investors like you. 

Those truly good domain names are what constitute the entire “visited” Internet. The “Internet that matters” exists on the domain names which matter to anyone other than you.. More on that another time.

If there’s one thing I know for-sure folks,  it’s that Las Vegas is not the only home of lonely hearts and unrequited love. What happened in Vegas the other day, happens all around the world each and every day..  Hundreds of millions - billions each year are offered for domain names which will never sell.

What’s a domain lover to do?!?  Sigh..  Perhaps I’ll have more luck at the Affiliate Summit Domain Auction at the Rio Suites this coming week.

What a world we live in..  and what a great deal a man (or woman) can learn in a month away from the blog-sphere.. Deals announced, partnerships strategized and all roads lead to the ability to reach our fellow-man.   I’ve been traveling for family issues (nothing serious folks) over the past month –  I’ve been home and away from home. It will be great to reflect on the industry and vent some thoughts about the way things are ..  and the way they might go in the coming few weeks (go easy on me.. I’m traveling here).

Some thoughts for you to consider..  This blog has been inactive for 30 days and has somehow managed to add 400 subscribers since I took a posting sebatical.  In that time it attracted 1200+ spam posts..  It’s all about the eyeballs folks. 

In a world where people still operate 800/900 numbers to capture users “phoning in” common numbers (Good work folks) – In a world where new billboards are appearing on the LA skyline month to month –  In a world where those Sunset Blvd billboards generate more revenue than the buildings they are emblazoned on; what are your unique domain-name visitors worth?  The battle to reach (and win) the hearts/minds of our fellow man has been raging since Gutenberg invented the printing press. How much greater is a medium’s value when that ability to connect can be quantified and judged against its peer group?  Is a unique visitor the same as a phone-in, a qualified lead or paid introduction? 

Stay tuned folks. You live in exciting times.