Most big ticket domain purchases are by investors hoping to flip the domain or cash in on pay-per-click revenue.
Many high dollar domain sales are reported each week, but who is buying all of these domains? This is an important question to answer in order to understand the future of the domain name aftermarket.
Domain Name Wire just concluded a study of high value domain name sales on the aftermarket and determined that 65% of domains are purchased by investors and 35% by end users.
The study considered the top 100 domain sales of 2006, as reported by DNJournal. International domain names and domains that didn’t resolve to a site were removed from the data set and then the remainder were checked to see if they resolved to a real web site or a parking page.
It isn’t always clear if a site is being used as a real web site or parking page. For the purposes of this research:
A domain classified as a real web site sells a product or advertises a product or service. Domains that forward to a real web site that aren’t affiliates also count as real web sites. Also, domains with a “coming soon” page that do not include pay-per-click ads are considered real web sites because they will likely be used for that purpose. Real web sites are considered “end user” purchases.
A domain classified as a parking site either resolves to a traditional parking page or a “made for adsense” site. For example, the domain Bike.com is considered a parking page even though it’s designed to look like an e-commerce site. You can’t actually buy a product; the content is designed solely to get you to click on Google Adsense ads. The domain was purchased as an investment and not by an end user. These sites are considered purchased for investment.
The research shows that 65% of these domains were purchased by investors and 35% by end users.
Examples of domains purchased by investors include:
Cameras.com, $1.5M
Blue.com, $500,000
CD.com, $277,750
Farm.com, $200,000
Vegans.com, $73,000
Examples of domains purchased by end users include:
Vodka.com, purchased for $3M by Russian Standard Vodka
Nav.no, purchased for $717,978 by the Norwegian government
Blocks.com, purchased for $130,000 by The Block Company, LLC
Of course, these 100 domains may not be a proxy for the overall domain market. Here are three reasons the data may be skewed:
1. Some buyers may park a domain before converting it to a real web site. The purpose of this research was to determine if a buyer purchased the domain with the direct intention of using it for a business. I waited until now to research 2006 sales because most people intending to develop a site would likely have some sort of non-parking landing page at this point.
2. The top 100 domain sales may not reflect the rest of domain sales.
3. This data only respresents reported sales. Most large company sales are not reported, as are many investor sales.
4. Some of these reported sales may have been by investors who subsequently sold them to end users, artificially increasing the count of domains purchased by end users.
What does this data tell us? The domain community needs to continue to reach out to end users to educate them about the value of good domains. The industry can’t thrive by just selling domains to each other.
Ron Jackson says
Very interesting follow-up analysis on those big sales Andrew – good job!
Gary says
agreed. without end-user sales, everyone is effectively trading hype in a vacuum.
On the flip side, I assume that most end-user sales we never really hear about as they go NDA do to commercial sensitivity, whereas investors are much more likely to want the publicity as it publicly sets the benchmark for them to flip it – and all because its impossible to value a domain, all you can go on is past sales as a yard-stick.
JMO
Rob Chandler says
Thanks for the informative research on domain sales! Good reasearch and good point on the need to educate potential end users on the value of good domains.
Gary says
to the outside world, maybe it does look like we are just trading hype amongst ourselves.
What we really need is for someone brave to step up and demonstrate the revenue generating ability of pure generics and quote traffic/revenue facts and figures.
The popcorn throwers can argue its all just hype until the cows come home, but you can’t argue with facts and figures.
It’s not rocket science, looking at the lifestyles of the big boys in the domain game, it’s not going to take a genius to work that one out, but a little more transparency I think may just bridge that gap.
Andrew says
“investors are much more likely to want the publicity as it publicly sets the benchmark for them to flip it”
I don’t know about that one, Gary. When I get a good deal on a domain I want to flip I make sure the price isn’t disclosed. I’ve had people negotiating with me that say “well you paid only $3,000 for the domain a year ago”…
D. Ocean says
Interesting study although I’m glad you suggest that the data might be skewed. Many end users or people starting websites in the small business sector are not purchasing names with huge price tags.
While a huge Vodka company can afford that and some other large firms can, there are tons and tons of smaller end users with shallower pockets. They are buying the names in the 2-10K range more likely. It would be interesting to see the same study conducted on names in a lower price range.
I would imagine this study parallels many other industries where the largest purchases are made by investors and not by end users. Think about the stock market. Big firms and professional investors are making the largest trades, not individuals.
Andrew says
On the flip side, if you looked at BuyDomains’ data, you’d probably find most of the sales were to end uers. But for every sale to an end user, there are countless investor transactions as well.
Stephen Douglas says
Finally someone says something that makes sense. I’ve been warning that this industry’s like a big incestuous family. Are we selling to each other, each one trying to get the better deal? Domain values beyond their traffic revenue are overlooked and it’s always “What’s the stats” for domains that have clear brand power, but maybe not the stats at the moment.
The ultimate appraiser of our domains is the end user – the business community. If we don’t educate them on why they should buy domains, then eventually it will just be a merry-go-round of domain sales that eventually stalls, with great descriptive domains being sold for peanuts because they only make $20 a month in PPC. Tell the company that is selling galvanized steel tubing that owning the descriptive generic domain name of that product is an investment they will never lose money on.
Adam K says
Interesting comentary. I have both websites and parked domain names. The real value in a name should be based on the potential of the business. I should a domain back in 2004 for 5 figures called discountgolfsh***.com. It went to a business in the golf industry. I used to receive many inquires from business owners from 2000 to 2004 but the last few years I get offers from only domainers. The challenge for theses companies wanting to sell our names is the need to offer agressive marketing to specific target markets in the industry the generic domain name targets. Thats where the future is! Higher prices too. Considering the high commisions these seller reps want we should get more effort to target real end users.
Andrew says
“Considering the high commisions these seller reps want we should get more effort to target real end users.”
I think we need to pay 20%+ for active marketing. 10% is only good enough to list a domain on a web site.