Supply & Demand: 5 Factors Driving The Rising Values of Short Domains

The value of short domain names continue to rise, seemingly without end or limit.  This leaves many asking if this is a temporary bubble that will burst or a more intrinsic shift in value; in other words, the “new normal.” It’s smart to ask this question, and often.  If you are an investor it’s critical to either pay very close attention to the current movements in these markets or simply take your names out of the market and don’t participate in order to see how this all shakes out.

You might look to history and consider past trends, long and short, and think about whether or not they apply to today’s market.  Are we at the apex of a cycle or are we seeing a new floor being set in domain asset values (short domains / liquid domains)?

Ultimately, listening to an expert opinion (or two) can shift your perspective and allow you a wider scope of vision in your analysis of a market like we have today.   And we’ll be the first to say that there are a lot of mixed signals out there! As one of the leading domain name brokers, Media Options has a finger on the pulse of the market itself and on a close eye on the factors driving that market. Since our inception, Media Options has always been focused on short domains, not just on the brokerage side, but in our owned/operated investment strategy.

We have owned in excess of 500 LLL.com (3 Letter .com) domains and have traded at least 26 LL.com (2 Letter .com) domains, might be more than that!   It’s hard to be in a better position to judge the market than being at its very epicenter through ownership and deal making!

Every single day we negotiate with the biggest Chinese buyers as well as Western buyers and owners.  We constantly test our hypothesis and strategies through real buying and selling. Daily.

With each negotiation, we need to research in depth what could drive a potential buyer, who that buyer is, are they the best buyer, etc. In the thick of the negotiation process, we encounter these factors on an even more intimate scale. Understanding the difference between an end user and an investor in the current market is essential to the difference between a $459,000 sale like qua.com (as reported by DNJournal) and a $17,000 sale such as pqa.com (just one letter difference, but oh what a difference!).

That’s not to say that every sale can or even should be a record breaker, but marrying an owner’s objectives, the market dynamics and a buyer’s potential interest is the key to a successful sale. After navigating through the feeding frenzy of the last 18 months (first it was LL.com, then Numerics and now LLL.com), we’ve come to a conclusion that we are facing the new normal.  The days of $5,000 – $10,000 three letter .com domains are done and I don’t see them coming back.  Ever.  For a long time I’ve felt that domain values were not in line relative to their importance, scarcity and brand value on a global scale.

At this point, I think we are seeing a shift upwards and in fact positive correction towards more efficient pricing and a real time market.

The sheer size of the economy in China, India, Brazil and other growing markets is driving exponential consumption online.  More people have access to the internet, more businesses are coming online, plus we’re seeing a globalization of those businesses as well as the ones already online.  Businesses which were local are now targeting a global audience.

Short domains provide the path of least resistance across cultures, languages and borders – and there is no better vehicle than .com.  Simple. These markets are hungry for these premium and increasingly scarce .com domains –

the internet is all about expanding access from your region out to the entire world, and .com is its universal language!

In the end it’s to be expected.  With less than 100 two letter .com domains left on the web in investor hands, the window is closing fast to join the elite group of companies that operate on one.  The same goes for all the other short names, although none as pronounced as NN.com and LL.com.

The numbers tell the story: Brazil’s online population, 78 Million, is larger than the actual total population UK, France or Spain! And that’s just who’s already online- and there are 116 cell phones per 100 people in Brazil!

That’s serious- this really is the mathematical definition of exponential growth!  If a city’s population were rising as quickly as the users on the internet, real estate prices in that city would be out of control!  Why should the correlation between the internet population and internet real estate be any different?

Let’s delve into the power of a short domain and the value that power drives:

• Increased ROI from any advertising (consumers can remember)
• Increased open rates (consumers trust it)
• Increased social shares (it’s short enough to fit & to share without having to leave your ecosystem to use a shortener – thereby missing out on a further contact point for your brand)
• Even the Memory & Credibility after a handshake at a business conference or when handing out a business card is empowered
• Staggering significance to a mobile internet!  Nothing says value like speed and easy access!
• And lets’ not forget about typos!  Two and Three letter .com domains are far less prone to typos than a long keyword or several…

Mobile is a significant driver in relative values of premium domains; it’s so important that we would be remiss not to discuss further. Google just made another change, and it’s all about how well your site performs on mobile. Short domains are proven again and again to be the most visited, best performers for traffic as well as mCommerce. Let’s execute on capturing our emerging markets – as of June 2014, 84% of China is accessing the internet via mobile use. That percentage grows every year…

There is a premium placed on all relatively liquid assets worldwide right now.  Domains included.  Returns are low and so investors are looking for safe places to park their money.  5% is now considered a premium return in most financial markets!  So any asset with little downside pressure, high likelihood of appreciation in value & relative liquidity is going to not only command a premium, but the values are only going to increase as the almost endless amount of money on the sidelines pours into these scarce assets (and I’m not just talking about domains).

Residential and Commercial Real Estate, small and medium businesses, art, collectors items, you name it.  Premium domain names are no exception, especially one word, numerical (NN.com – NNNNN.com) or 2-4 character .COM domain names, are highly liquid and desirable. Sometimes we’ll get a call to broker a domain because a client would prefer to put a down payment on a house or has income taxes due: a supply and demand exists for this asset class that allows for liquidity as needed.

These assets can be cashed in at highly predictable prices at any time like poker chips at the casino.

The ever-increasing scarcity, especially in the 2 and 3 character .com market (LL.com, LLL.com, NN.com & NNN.com), continues to drive up premium domain prices and I believe this will happen even faster than ever going forward as scarcity increases exponentially, not in a straight line.

Regardless of what other TLDs emerge, .COM supply is rare. So long as we are still using domain names as the core for internet navigation and addressing, it will remain the default domain extension.  Anyone who argues differently is simply wrong.

Yes, I said it. Trillions of dollars have been spent building mind-share for .COM.   So much so that

I need to discuss the domain I own!

Brands no longer even need to say .com; it’s assumed.

Tremendous trust has already been established with almost every 2, 3 or 4 letter .COM domain listed as most visited sites on the web, or owned and operated by a Fortune 500 or even Fortune 100 company. Whenever you see prices moving as fast as they are in the short domain name market, it’s important to question.

It’s logical to assume a bubble.  But taking a step back and looking at the forest from the trees, I think you’ll find that we have begun a complete paradigm shift.  Not only is the race for the best .com domains, and along with that the best remaining brands, heating up faster than ever; but the process of acquiring a domain- the ability to finance it, the vehicles, contracts and processes for structuring more creative deals – are coming to the forefront and being made seamless.

Globalization, consolidation in the market and innovation through investment and capital allocation is paving the way for a whole new world when it comes to domain name values. Fasten your seatbelt.