April 2008                 DNJournal.com               The Domain Industry News Magazine

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Recession Worries: Is the Domain Glass Half Full or Half Empty?

We usually send out our monthly newsletter near the end of each month. Our April letter has actually slipped into the early days of May while I have been digesting a lot of news that relates to a single topic I wanted to address this month - how the domain industry is coping with a downturn in the general economy.

The answer has been hard to pin down because there has been both good and bad news over the past 30 days. I just came back from the Domain Roundtable conference in San Francisco and those who think the domain business is slowing down pointed to the lackluster live auction results there as proof of that. Total sales fell from $3.8 million last year to just $400,000 this time out. 

However, it's hard to say if the economy was the real cause for the fall off. The auction ran into a lot of technical problems and others said that subpar names and high reserve prices were largely to blame. We should get more

insight into how the aftermarket is holding up at Moniker's live auction at the upcoming T.R.A.F.F.I.C. Orlando conference that will run May 20-24 at Disney World.

In the meantime, the data we get for our weekly domain sales reports continues to show the market holding steady. Speaking personally, my own aftermarket sales so far this year have been the best ever and I am hearing anecdotal reports from friends who are saying the same thing. Most have told me that what they are seeing is slower domainer to domainer sales, but much stronger end user sales. That corresponds with my own experiences thus far in 2008 (I rarely sell at wholesale domainer to domainer prices).

DN Journal's sales database certainly showed no evidence of a slowdown in the first quarter of 2008. As I reported in early April, 1Q-2008 wound up being the best domain sales quarter reported since we started tracking the market back in the fall of 2003. A total of $38,029,543 in domain sales were reported in 1Q-2008, a spectacular 78% jump over the $21,253,105 reported in the first quarter of 2007 - before the current dislocations in the general economy started appearing. 

1Q-2008 was also 12% better than the $34,089,484 registered in the fourth quarter of 2007. For all of 2007 $120,805,509 in sales were reported - an average of $30,201,377 per quarter. So the latest quarter was 26% higher than the average quarter last year.

Rick Schwartz
T.R.A.F.F.I.C. Co-Founder 

During a luncheon at the T.R.A.F.F.I.C. conference later this month in Orlando I will report on how the second quarter stands at that point in time (we will be half way through the current quarter when I speak) and that should provide some further insight as well. We just published our exclusive T.R.A.F.F.I.C. Orlando preview article and in that piece, T.R.A.F.F.I.C. co-founder Rick Schwartz had some interesting comments about the relationship between domains and the general economy.

"In an economy like this, marginal domains will be the ones that will suffer the most," Schwartz said. "The majority of the domains I see, are just plain worthless. In times like these folks get more choosey. But they donít stop buying. I think the market is still expanding. New investors are always coming in and some are coming in with deeper pockets and looking for a new area to invest in. The things we have taken for granted for a decade or more are now being realized by others. I would expect volume of domain name sales to continue to go up."

Of course return on domain investments is closely tied to the Internet advertising market. As long as advertisers keep spending on pay per click ads and buying domains to gain direct navigation traffic (or start new business on), then the domain channel will continue to do well. There was a lot of new evidence this week that Internet advertising is still going strong.

In our Lowdown section May 1 we told you about a new Forrester Research study that said 72% of 333 interactive marketers surveyed expect to keep their interactive spending on plan or increase it in a recession." Advertisers are especially committed to performance marketing, with more than 80% planning to maintain or increase investments in e-mail and search engine marketing channels.

Then on May 2 we reported on a Portfolio.com story headlined Recession? Not in the Ad Biz in which author Willow Duttge wrote ""Sure, the U.S. could be in a recession. Consumer confidence is declining. Food and gas are so expensive itís more cost-effective to stay home and diet. But the advertising business (of all things!) is actually benefiting from the painful spectacle of the traditional media landscape fragmenting into shards."

Duttge added "The internet is continuing to oust broadcast TV, print, and radio from their once-secure position as the automatic repository for ad dollars, and the complex

The online advertising business 
continues to fly above the economic 
clouds.

environment thatís been rattling the advertising and media industries could actually function as an economic buoy during these hard times."

At the end of next week we will be publishing what I think will be a great May Cover Story on Kevin Ham, who may be the world's most successful domainer. In the extensive interview we 

Kevin Ham

did with Kevin for that piece he said the domain business could experience some short term pain, but that the long term outlook was still rosy

"The global recession is something that is natural, as all things have a very cyclical nature," Ham said. "The seasons, the economy, product life cycles, and our lives all have a very cyclical nature. So the recession and downturn are something we should expect and plan for."

"In the short term, I see some hard times coming in the industry. It is similar to the real estate market -  the hype is believed by everyone," Ham said. "In the short history of the Internet, we have already gone through it once in 2001 and seven years later are in danger of going through another correction. However, long term, if you are wise, as was Joseph during the seven years of riches and the seven years of famine, it will be a time of great opportunity, much in the same way 2000-2003 was. The Internet is still in its infancy."

Opportunity was also a theme Schwartz stressed in our recent interview. "If you are sitting in a strong cash position, there will be some great opportunities whether itís buying a great domain name or a piece of property at a fraction of what the cost might have been a year ago. Or even a company in trouble," Schwartz said. 

"Those short of cash will be forced to sell domains they otherwise would not sell. So that creates a great opportunity for those sitting on cash and forces domains to the market that otherwise would not be on sale. So that is why I have said that 2008 will be a record year for domain sales. There really is little question in my mind. The recession actually forces folks to do more business," Schwartz concluded.

The current circumstances are certainly going to make for a very interesting year. Stay tuned - we will be here to tell you about it as it happens.


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