Quantity vs. Quality: What Makes a Domain Valuable on the Left of the Dot?
Perhaps the number one mistake domain investors tend to make is assuming more truly investment grade domains exist than there actually are. It isn’t the least bit difficult to understand why that is the case, with the reasons primarily revolving around the fact that most investors do not have what one would call an impressive bankroll at their disposal. It is therefore impossible for them to afford a blockbuster one=word dot com, a three-letter dot com or another domain about which there is zero in the way of doubt that it truly is investment grade.
As such, their natural tendency is to be a bit (too) lenient with respect to the criteria a domain name needs to fulfill so as to be considered investment grade. They settle for extensions other than dot com or if they do stick with dot com domain names, the previously mentioned leniency manifests itself on the left of the dot: domains that are too long, domains that are short but anything but memorable and the list could go on and on.
How Many Truly Investment Grade Domains Exist?
This ultimately depends on whom you ask but as a general idea, it makes sense to assume that it is somewhere around the 50,000 domain names figure indicated by MediaOptions’ research and right off the bat, many readers will be surprised at how low this figure is. Back in the short domain mania days for example, there were quite a few investors who snagged 5L dot com domains and assumed that just because they are short and dot coms, they can automatically be considered investment grade. Unfortunately for them, that is hardly true.
As appealing as the idea of hand registering 5L dot com domain names may be (in the minds of many investors, just like the early adopters hand-registered the gems they currently own), it is simply no longer a viable strategy in 2020 and beyond. More likely than not, absent genuinely impeccable timing with domain categories such as future trend domain names (where you can do well enough if your timing enabled you to hand register the category killer but if that is not the case, settling for lower value alternatives has for the most part proven to be a surefire way to lose money), you will have no choice but to reach for your wallet when investing in domains at this point in time if you are serious about doing it right.
Saying Goodbye to Low-Hanging Fruit
No matter which asset class we are referring to, it is the dream of any investor to be able to easily pick low-hanging fruit or in our case, snag ultra-premium domains at the registration fee and ultimately sell them for 5-6-7 figures in the more or less distant future. The proverbial low-hanging fruit dream seems achievable because after all, many of today’s active domainers have been able to do just that, so why not replicate their success?
For the most part, the answer to this question revolves around understanding that the goal of replicating the success in question when it comes to today’s domain investment landscape is just plain unrealistic. Why? For the simple reason that the industry has matured quite a bit since the nineties, with the positives as well as negatives this comes with.
In terms of positives, it is worth noting that today’s domain investment beginners have literally libraries full of 100% free information at their disposal so as to learn the ropes. This is in stark contrast to the early days of domain investments, where pioneers not only didn’t have today’s level of information at their disposal when starting out, they had literally nothing. Worse yet, they risked ridicule whenever mentioning their intention of investing in domain names to those within their social circles.
As tempting as it may be to assume that today’s veteran domainers had it easy just because so many blockbuster domains were up for grabs is short-sighted at best because it would be intellectually dishonest to ignore the various hurdles that had to be overcome: the lack of information and clarity, rudimentary or even non-existent monetization options, pretty much nothing in the way of liquidity and the list could continue for a few more paragraphs.
The positives most definitely don’t start and end with the information argument, not at all. From the ultra-cheap and professional domain registration companies to monetization options, a reseller market which at least exists (even if it isn’t always the most liquid entity in the world) and various brokerage companies and/or platforms to facilitate both end user and reseller market sales, let’s just say that domain name investors have a more than reasonable infrastructure at their disposal.
On the negatives front, today’s investors need to understand that there is a price to be paid for the increased comfort associated with investing in domain names at this point compared to the early days. Think of it as a spectrum. At one extreme, you have assets such as US Treasuries that you know carry practically zero default risk (thank you Federal Reserve!) but if you invest in them, you have to come to terms with the fact that your returns won’t be impressive and might even be negative. On the opposite end of the spectrum, we have domain names in the nineties or bitcoin in 2009-2010 as examples of assets in their Wild West stages. Assets that have created numerous fortunes but which were completely unproven during the early days, to the point of early investors being ashamed to admit that they were allocating their valuable time conducting research and money on the acquisition front (admittedly, not necessarily a lot).
Today’s domain investing landscape obviously falls somewhere between the two extremes and a valid case could be made that we are (still) closer to the Wild West one than the US Treasuries extreme. This essentially means that there is still career-defining money to be made but that the days of easily picking low-hanging fruit are for the most part gone. But who knows, you may very well come across risk-adjusted opportunities that are even in line to what the veterans were working with if you are diligent enough.
Are those opportunities abundant?
Is there likely to be considerably more legwork involved?
Is it necessary to secure more robust financing compared to the early days of domain investing?
At the end of the day, it’s all a matter of common sense. Opportunities still abound but there is more competition involved, with the pros as well as cons even this reality comes with. For example, while it isn’t great that other investors are competing against you by for example engaging in bidding wars for one domain or another, at least we have a reseller market which enables you to quickly liquidate inventory at relatively fair prices if you are in need of urgent financing (medical emergencies, a better opportunity, debt-related deadlines, etc.)
Pragmatism is the operative word if you are serious about not only surviving but downright thriving in today’s environment. When it comes to this particular article, it has one goal and one goal only: making it clear that there are far fewer genuinely investment grade domains out there than people think. And as frustrating as it may be that so many investors are competing for the let’s say 50,000 investment grade gems in existence… what’s the alternative? Deluding yourself into thinking that lowering your domain valuation standards is the way to go? Most definitely not.
For better or worse, at least we have what can be considered an active domain investing market at this point, with various market participants who have helped investors out in one way or another as their business model: platforms that provide historical sales figures, various solutions on the acquisition as well as divestment end, everything you could have possibly asked/hope for in terms of 100% free information, premium content for those who can afford it and are willing to go the extra mile, it genuinely is nothing short of impressive that we have this ultra-wide selection of tools at our disposal.
As a conclusion, it ultimately all boils down to making informed decisions, with everything this objective encompasses. From understanding how things stand as far as today’s market is concerned to putting in the legwork as well as capital it takes to get and stay at least one step ahead of the competition, being realistic is the name of the game. Today’s investors are facing their own set of difficulties, just like their predecessors but with context-related differences. Make no mistake, the common denominator is always represented by the fact that no matter at what stage of an asset’s life cycle you are investing in, there will be challenges to overcome and there is absolutely nothing wrong with that.