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Fourth Quarter Tailspin Saddles 2008 Domain Aftermarket With a 10% Sales Decline From 2007

As I am writing this it is the last day of 2008, making it the perfect time to break down the final statistics on the year's domain sales before we reset the clock and head into 2009. In our last newsletter I reviewed 3Q-2008 domain sales results noting that at that point in time, total sales volume for the first three quarters of the year were running slightly ahead of the same period in 2007. 

However the third quarter alone didn't look as good, dropping 22% from the same quarter a year ago. It was late in the 3rd quarter this year that the depth of  the current financial crisis in the general economy was revealed in a shocking announcement from U.S. President George Bush who declared a massive bailout would be needed to try to right the ship. That blow sent the markets and consumer confidence reeling and solutions to the problem remain elusive today. 

U.S. President George Bush

The bad news from the third quarter now turns into worse news for the 4th quarter. Total reported aftermarket domain sales in 4Q-2008 were $21,546,705, a whopping 37% drop from the $34,089,484 recorded in the final quarter of 2007. It is also a 12% drop from the previous quarter this year when $24,554,704 worth of domain sales were reported.  

The precipitous drop in the fourth quarter took the entire year of 2008 down with it. After running about $700,000 ahead of last year after three quarters, the meager 4th quarter results left the final 2008 total for reported sales at $108 million, a 10% drop from the $120 million reported in 2007. 

This is the first time since we started tracking aftermarket sales in 2003 that we have seen the aftermarket decline year over year, based on our sales sample (as we have stressed in the past, our numbers only reflect publicly reported sales. The majority of sales are subject to non disclosure agreements or kept private as the buyer or seller desires. The kind of large data sample that we collect does however provide a good measuring stick for how the market as a whole is performing). 

While a 10% decline from 2007 is disappointing, the thing that is most troubling is that the fall off that started in the third quarter accelerated in the fourth quarter which has traditionally been one of the strongest for domain sales. Conversely, first quarters have tended to be the weakest quarters since we started tracking the aftermarket, leaving scant hope that we will see the downward trend reversed in the first three months of 2009. 

As disappointing as the fourth quarter and annual numbers from 2008 are, there is some good news among the bad. The aftermarket fared much better than the PPC (pay per click) sector of the industry in 2008. While no hard numbers are made available by PPC companies, domain owners have typically been reporting a drop of around 50% in PPC earnings from the year before. 

Obviously a falloff in earnings will cause a big drop in the value of domains that are sold on the basis of revenue earned. The nice thing about domains is that they have more than one attribute that make them valuable, with the most important one depending on the needs of the buyer. For many, especially small to medium sized businesses (SMBs), PPC revenue is a non-issue. They are buying a memorable domain as a platform for their web based operations. So even though the drastic fall in PPC revenues took a big chunk out of the aftermarket's hide, it wasn't wounded as badly as the PPC sector.

In addition to the PPC decline the other key factor in the drop in the dollar volume of domain sales was the reluctance of buyers to spend extremely high sums for domains in the face of such a bad economy. In fact virtually all of the aftermarket drop came from the very high end of the market. In looking at just the top 100 sales from 2008 (out of more than 13,000 reported sales) versus the top 100 sales from 2007 we found that the premier sales from 2008 totaled $31,102,323, a drop of over $8 million from the $39,245,569 produced by the top 100 sales the year before. Just that tiny sliver at the very top of the market (well under 1% of all sales reported) accounted for two thirds of the $12 million drop in the entire market.

In 2008 there were only five 7-figure sales reported compared to almost twice as many in 2007 when nine were reported and two others just missed (changing hands for over $900,000). 

While the high end sagged, the middle to low end of the market, favored by SMBs, remained largely unaffected, a point reinforced by the fact that the median sales price of domains (the price at which half of all sales were higher and half were lower) in 4Q-2008 was $2,688, exactly the same figure as in 4Q-2007 and down only slightly from the $2,788 median in 3Q-2008. 

The AfternicDLS which specializes in selling to the SMB market reported their best year ever in 2008. This is also the market I have always targeted and anecdotally 2008 was the best sales year I have ever had as well (there is no statistical value in that observation as it involves just one person, but I have had others who sell to SMB end users tell me the same thing). 


Small business interest in 
domain names remains strong 

So what is ahead in 2009? For some prognostications on that I will be turning to a group of industry experts who are smarter than I am for our 5th annual State of the Industry report that will be published as our January Cover Story later this month. If you are on the subscriber list for this newsletter, we will send you an email as soon as that major report has been published. 

One point that 2008 really underscored is how important it is to have multiple revenue streams from your domain portfolio. Those who relied entirely on PPC revenue have seen their earnings decimated in just a year's time. However, those who focused on domain sales to the SMB market (typically at a low four-figure price point) or who have successfully developed sites that earn revenue from selling a product or service or direct advertiser relationships were able to offset PPC losses. My strategy has always been to employ all three means of revenue production through (in my personal order of priority); 1) development, 2) domain sales and 3) PPC revenue.

As has often been stated, development is currently not a viable solution for every domain in a large portfolio. I believe the key to success there is to focus on one site (or at most a small handful of them) devoted to a topic you are passionate about. If you are not passionate about the site and its subject matter you certainly can't expect your visitors to get excited about it. 

It also helps to find an underserved niche where you can shine. It is a lot of work, requiring lots of fresh content that is continually updated so people have a reason to keep coming back. Though it involves more than a little bit of sweat, the payoff can be huge. 

With a financial storm already upon us, you might think it is too late to work on diversification now, but it is never too late, especially in an industry with the long term growth prospects that the Internet in general and domain names in particular have going for them. You can now pick up higher quality domains at lower prices than we've seen

in years and if you want to get serious about development you will find lots of advice on that topic online and at the domain conferences in 2009 (starting with DOMAINfest Global in Hollywood, California January 27-30 where the entire theme of the show will be building out domains).

While everyone else is distracted by downbeat business headlines you can start building for a bright future. Don't forget that some of today's wealthiest domainers got their start in the last downturn that followed the 2000 .com bust (read Frank Schilling's story for an especially inspiring example of that). Think positively and remember that no one is beaten unless they quit.

 

*****

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