Over this past week I've made a significant foray into valuing non-traffic domain names that have value as stock items. It's been an interesting process working out a series of metrics that will assist in creating a reasonable valuation algorithm. Initially I found the experience akin to staring at a blue sky and guessing. There had to be a better way.

Many, many people have asked me to value non-traffic domains and I've always found it quite difficult. More often than not I would answer fairly glibly that their value is precisely what a person is willing to pay. That statement may be true but it really doesn't help a person trying to establish a value pre-sale.

The obvious solution is to have your domain listed for sale in one of the many auctions but the question still arises as to what sort of reserve you should set. Being the analytical guy that I am I decided to begin a journey down this road and try to establish some sort of logical valuation system that went beyond my "gut reaction".

So as you read this article and the following series of articles realize that this is as much a journey as an event. Ideally, this is what blogging is all about!

Where do we start? How about at the very beginning? Is the domain a com, net, org, ccTLD or even mobi or biz? All of these factors impact the valuation of the domain for a number of reasons.

The first is that dotcom domains typically receive overflow traffic from all of the other domain extensions.

The second point is that most buyers are from the US market and typically have a strong focus only on dotcom domains. I'm not entirely sure why this is the case. Maybe it's the American culture? Whatever the reason, it's a fact and this will influence the final purchase price. In addition, because of the US centric focus on dotcoms there tends to be a lot more competition for "good" dotcom domains which constantly forces the prices of the domains upwards.

Thirdly, dotcom represents the US market, which is still the biggest economy in the world. Yes, I know that there is a .us for "United States" and that dotcom means "commercial" but despite this dotcom has become synonymous with the Internet and a large pool of money we affectionately know as the United States.

Fourthly, the domain industry is still very focused on dotcom domains. The majority of domain purchasers are other domainers and not from outside industry sources. In fact, if you removed about ten organizations in our industry from purchasing domains you may find that domain prices begin to collapse. In stock terms this is not a very good market depth.

So why has this happened? I think that it's happened because most of the activity for domains is still centered in the US. For example, I will be travelling to the US about five times this year, to Europe once and no where else (sorry forgot trafficdownunder.com).

I think that another reason why is that in the early days it was quite difficult to purchase a domain name for a ccTLD. A culture developed that a domain was important for a business but to own thousands of them was just crazy. In the US, it was the opposite and this spurred on the rapid growth and adoption of dotcom as the standard. As a result of this a burgeoning aftermarket developed on the back of the scarcity of dotcoms (there is only one dotcom available for your busines) thus pushing up prices.

This continued inflation in pricing has outstripped other ccTLDs making it even more important to get into as people are seeing larger and larger sums of money trading hands.

It's interesting to see that many ccTLDs are now liberalizing their policies and are slowly becoming more and more dotcom like. It shows that the business models pioneered by dotcom are gaining the attraction of the governing bodies for other ccTLDs as they can now clearly see that there is money to be made in domains trading hands.

So, does this mean that I'm against ccTLDs for investment purchases? No way. I love ccTLDs, but it does mean that when you're presently valuing a domain name you must consider the implications of whether it is a dotcom or not.

In a next article I will explore a methodology that I'm developing for the valuation of a domain and then how to link in the first aspect of the valuation. Is the domain a dotcom?

TrackBack URI for this entry

Comments (8)

Subscribe to this comment's feed

Name

Email

Title

Comment

Add Comment