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November 05, 2013

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Lift Off:  How New Sales Platforms are Sending the Domain Aftermarket Into Orbit - The Domain Distribution Network (DDN)

Our readers will recall that less than a year ago Dark Blue Sea/Fabulous.com Chief Operating Officer Dan Warner broached the subject of overhauling the domain aftermarket in a white paper that we discussed. In remarkably short order, the company took many of his ideas from concept to reality by creating the Domain Distribution Network (DDN). In June, Warner gave a featured presentation on DDN  at the T.R.A.F.F.I.C. conference in New York (you can review his entire Powerpoint presentation here).  

Warner believes that registrars are the natural home for the aftermarket and will eventually become dominant in that space. DDN is meant to be a tool that enables registrars to fill that role. When someone searches for a name on a registrar site that is DDN enabled and finds their first choice taken contextual search technology will show them closely related domains that are available on the aftermarket and those domains will be offered at a set price and available for instant transfer.


Fabulous.com COO Dan Warner 
talks about DDN at T.R.A.F.F.I.C. 
New York - June 2007

If you use a DDN enabled registrar you will soon be able to upload your domains for sale through that registrar and they will appear across the network (this functionality is already in place at Fabulous.com). Sellers have to set prices between $350-$5,000 which Warner said covers the price range commanded by 90% of current sales. DDN’s current distribution partners include GoDaddy, Tucows, Moniker and Fabulous with others signed that are to be announced soon.  

Selling through registrar sites have several advantages including brand name recognition. For example, people trust the GoDaddy name more than the name of an unknown seller. Also, registrars are the only ones who can guarantee that the domain is owned by the person listing it and that it is actually available for sale. Warner said that kind of “quality control” currently does not exist.  

Warner said another major plus is that people searching for new registrations who then discover the aftermarket represent an entirely new source of traffic for domain sellers. Many current sales occur from traffic generated by the owner’s domains themselves – that is someone types in the name and discovers it is for sale through that method.

Registrars have already become one-stop shops where customers can get a domain name, hosting, development services, software, etc. so Warner feels this also makes them a logical candidate to be the primary source for aftermarket sales.

While DDN is frequently compared to NameMedia’s AfternicDLS, Warner said NameMedia (and other sales venues) are not competitors. “DDN is not a reseller.  It doesn’t compete with Name Media, Sedo, Afternic or GreatDomains – which are all legacy reseller portals.  Legacy portals that believe DDN is a competitor are misguided. The network simply enables registrars to access contextual GEO sensitive technology, and a database of domains which are pre-priced and available for sale using an instant transfer protocol,” Warner said.

“Registrars are the only ones who can guarantee a person actually owns a domain (when it is registered with them).  They are also the only ones that can instantly transfer those domains when the domain owner has contractually entered an agreement to sell the domain. Due to this they are the natural companies for domain owners to work with to enable global distribution of their domains.  Registrars are the only ones that can provide these checks and balances that are required to seamlessly run transactions – comparatively legacy portals are flying blind with no safety net,” Warner said.  

"Name Media is frequently compared to the Domain Distribution Network although they are not a competitor. They are the leading aftermarket incumbent that is very good at selling their own domain names.  However, in contrast they are directly in competition with the registrars for market share on domain sales and now hosting and marketing services.  It is easy for the market to be confused by this, but the only way DDN competes against Name Media is by enabling the registrars who are their 

most serious competitors. Registrars are destined to control most of the domain aftermarket for domains under $5,000.  Due to the scale and brand of the registrars it will be very difficult for the legacy domain portals going forward to compete against the registrars,” Warner opined.

Though it is a new entity, Warner said DDN is quickly reaching critical mass. DDN was seeded with the hundreds of thousands of domains directly owned by Fabulous.com but Warner said that is just the start. “The DDN domain database is just about to get much larger.  Registrars are beginning to roll out the second phase of the DDN implementation which enables a Registrar to upload and manage domains directly into the DDN system.  You will shortly be able to go into your account with most registrars and manage your global domain sales seamlessly through your normal registrar interface.This new innovation will not only enable domain sale functionality in a proactive secure environment, but will encourage recruitment of new domains for distribution that currently are not being used by registrants -domains that were previously completely inactive, even from a traffic perspective. GoDaddy.com and Moniker.com will be going live with their owner side instant sale protocol within weeks,” Warner said.

“The registrars are seriously seasoned competitors which add new traffic and exposure to the domain aftermarket. DDN enables the registrars to interact with each other, collects and distributes vetting data on domains, centralizes global domain distribution, and offers real time communication and settlement.  It provides a completely new source of domain sales traffic.”  

Warner also noted “Brand has become one of the defining issues related to market share of the domain aftermarket.  Our research has shown that through the use of co-branding and sales of domains via banners (directing sales traffic through to registrars like GoDaddy) that a 150% increase in sales volume can be achieved compared to conversions through sales portals. When brand is proven to be this powerful and important to the sales process, every domain portal manager should be rethinking their current aftermarket sales strategies.  Why would anyone send traffic from their domains to a legacy portal when they can send it to a registrar with a commonly known brand?” he asked.

When comparing the DDN system to other options Warner said you have to ask these questions: What are the other provider comparisons to DDN? Do competing technologies use contextual search or only simple character string matching?  Are their search results   

relevant to location specific domains?  Does the competing solution steal the customer away from the party providing the lead?  Is there an absolute guarantee that the domains in their database are still actively for sale or that is isn’t fraud?  Can a competing solution instantly sell, settle and transfer domains in real time for third parties (their domains shouldn’t be an issue and enabling only their own domains doesn’t really count)? Does their solution transfer domains and interact between different registrars in real time?  Are variable commissions supported on a domain by domain basis so all domain stock is actually distributed?  What protection is in place to protect distribution partners from legal conflicts caused by a lack of stock control?  Are the registrars they claim to have distribution deals with the biggest registrars or just a supporting cast?  Is the distribution in-line, on the same page as the new registration process?

“The Domain Distribution Network is a technological leader and a value innovator.  If a provider cannot provide at least the basics in the preceding paragraph then they are not a comparable provider,” Warner declared.   

Warner has long been an advocate for making sales a key component of any domain investment strategy. He told us, “The question to sell or not to sell is principally an economic question.  Domain owners often look at their domains as if they were their children.  In reality they are only linear strings of alphanumeric characters which are easier to type in than an IP address."

"The question I like to pose is, “What revenue multiple would you sell your whole portfolio for?” (not that I believe in revenue multiples to determine domain sale values).  The answer usually is somewhere between 10 to 25 years revenue.  Then if you ask what is principally the same question in a different way, “What would you sell  GenericDomainName.com for as a revenue multiple”, they usually state some multiple that is 10 or more times the multiple of the whole portfolio sale price.  This is usually followed by a statement that they don’t believe in selling domains.  In my view this is very flawed logic.  People don’t believe in selling domains at 

50-500 year traffic revenue multiples, but they do believe is selling their own portfolio for 15 to 25 years revenue?  Now that doesn’t makes sense,” Warner said.

“The second argument is one that says that if they hold out they can sell the same domains that they are not selling today for more latter.  To some degree that is true.  However, the stark reality is that even the best portfolios usually can only sell 1% - 2% of their portfolio per year.  In five years time you may have missed the opportunity to sell say 10% of your portfolio at 50-500 years traffic revenue multiple.  This doesn’t mean that all of a sudden you can sell 10% worth of domains in the next year, and if you do want to sell more then you will need to decrease your revenue multiple." 

Warner said, "The most bizarre is when someone refuses to sell at these huge retail revenue multiples, only to sell out later for a much smaller multiple on the whole portfolio?  Now, if you had sold out that 10% at an average of a hundred year multiple (10% x 100) and then sell the remaining portfolio at 15 years multiple  (90% x 15) = 2,350 vs. 1,500 if you wait.  This example shows that you lose 57% of the potential sale revenue by waiting.  Realistically, the domain prices will go up, traffic revenue will be earned, and you may be burning the furniture – but selling some domains all the time is a much lower risk profile for your business and these rough calculations still haven’t considered registration holding costs or use of proceeds.”

“Lastly, the theoretical portfolio of domains that don’t make back their registration costs in traffic revenue.  These domains cost you money every year to hold them.  The reality is that every portfolio has a sub portfolio that is the same as this theoretical portfolio.  Ask the owner if they want to sell the domains?  The owner says no.  Why?  They will be worth more in the future.  So, you don’t want to sell even though you don’t earn even your holding costs?  No, they are worth more than that.  But, they don’t pay for themselves?  Yes, that’s right.  Who’s on First again?  It is likely that on sale of your whole portfolio that these domains will have little to no value attributed the them and yet you still don’t want to sell them?”  

We also asked Warner about the sustainability of the current market boom (and how high the DDN system can fly if the sales environment remains as friendly as it is today). “The domain aftermarket after years of stagnation and a lack of innovation is finally speeding ahead in leaps and bounds.  The Internet is a grand new experiment that is still cutting its teeth, and yet everyone just happily accepted the status quo of how aftermarket domain sales occurred.  I found it bizarre that systems that were built to enable the sale and transfer of domain ownership would be so manual, poorly marketed, and cumbersome.  It is fantastic that so much new innovation and marketing is occurring in the domain space.  That people are actively seeking new markets and scrapping legacy systems and business models that were stale.”  

“I expect that domain values are going to strongly increase over the next few years.  The market is the market and now that it is being more fully enabled it will find its way to a balance. Like the stock market, domains should be seamlessly traded.  Their value should be what the market will bear and one cent more than the under-bidder. All of the domains that are not currently being used by authentic businesses should be traded and sold until the single best use of each domain is found or at least as close to a frictionless market that we can get.”

“The goal of the DDN system is to be the perfect enabler.  Even the 2% commission that the DDN takes as part of any transaction is designed to be part of the market balance.  The costs of development, management, technical resources, and ongoing effort of the DDN are roughly  in balance with the expected earnings from the endeavour.  A higher commission would have attracted hyper-competitors who would bid to control a system which should be inherently an open platform for global distribution.  Even now it attracts competitors when no profit is realistically to be gained. If the commission were to be any lower the work that needs to be performed and the robustness of the systems to run the network would be compromised.  The domain market would be a much better place if companies sought value innovation over hyper-competition.  When aftermarket domain sales transactions happen between all of the major registrars with seamless transactions in real time, and the domain aftermarket doubles in size to its current value – our goal will be achieved.”

*****

Addendum  - Charts from DDN showing steadily growing sales revenue and volume:

Some Other Interesting Data from Domain Distribution Network Sales

55% make less than $7 traffic revenue per year

36% three words or more

24% location based domains

10% include a single hyphen

18% have more than 20 characters in length

84% have no heartbeat

25% have no domain phrase search count

29% have no domain phrase bids

Profitable domains (more than $7 traffic revenue) sell for > 50 years traffic revenue

Domain Sales generated from 440,000 previously unprofitable domains now more than cover their holding costs


Go to Sedo and GreatDomains

Go to Moniker and Live Auctions

Go to NameMedia and AfternicDLS

Go to First Page of This Article - Introduction

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