What makes a domain sellable, part 4
May 26, 2008 by Rick Latona
Revenue, makes a domain sellable but tread carefully or you can get burned. For the buyers I have this one strong piece of advice. Unless the name has other intrinsic qualities i.e., has legs or is some obvious category killer, you can lose your ass. Today I’ll look at ways it helps and focus on ways it hurts.
People often talk about selling domains on a multiple of revenue. Heck, I do it myself often. However, there is a time and place for that. More often than not, you can get hurt by getting greedy while hunting income streams.
The most obvious thing to be worried about is the falling amount you can earn per click. There have been countless articles written about it so I won’t go into great detail here other than to point out that with increasing technology to thwart off click-arbitrage and monitor conversion ratios for your advertisers to make sure they are happy, Google, Yahoo and others are paying out less per click every year. What does that mean to a guy who paid 10 times earnings for a name 2 years ago? Well, he isn’t happy.
Unforeseen events are a real bitch. Take for example 4 or 5 years ago when the United States threatened media companies for taking money from gaming companies. Suddenly those holding domains with terms like Poker, Slots, Blackjack, etc saw their earnings drop by 70-90%! Yahoo and the others would now only advertise the .net free versions and clearly the gaming companies wanted to pay far less per click because they had to double wash the traffic. Surfers would go to the free version only to be later sold to go to the pay version. That had to crush conversion ratios. I’d give you more unforeseen examples but I’m tired and they are unforeseen.
Piggybacking other’s trademarks is simply bad business. FreeCreditCheck.com and CreditCheck.com sold for $3 million last year at a Moniker auction. I was there at the time and if my memory serves me correctly the buyer paid around 8 times earnings for the name. Now no one in the audience including the buyer thought there was any reason earnings were so high other than freecreditreport.com’s constant barrage of advertising. The name is clear from going down in a lawsuit but I certainly wouldn’t want to be caught holding the bag if something happened in year 4. This is a big dollar example but we’ve all seen this happen on smaller scales time and again. There are just too many other ways to double your money in 8 years to mess with things like that. Do yourself a favor and go for 4x or better multiples if you are going to play in the dangerous piggybacking arena. To the sellers, if someone offers you 8x on one of these, take it. Let’s not forget that falling PPC rates have probably affected this deal negatively as well.
Here’s some good news. Some names with high search traffic have low type-in traffic. I develop most of my names. I rarely park. Most of the times I put up very simple sites like you’d see on Makati.com. Yet that name did nearly nothing parked and is now a consistent earner for me due to it’s number 3 spot on Google. This tells you that buying on parking revenue alone for something that could obtain good Google rankings is a wonderful thing.
If a name has other redeeming qualities and is priced at 10-20 times earnings it is both sellable and buyable. I sell GEO names all the time in that price range and they sell fast for a good reason. Those earnings should be the least they ever earn. You only need a few advertisers or better search results to pump those numbers up.
One last point I’d like to make is that some of the biggest names in the business, whom I won’t mention to avoid a political backlash, have mostly non-sellable names in their portfolio. You’ve probably heard of the guys I’m thinking about. They’ve spent years buying drop names with traffic and they’ve gotten great returns but the retail value of their portfolio is hardly what you would expect. Hell, a recent front page article on dnjournal.com focused on one of the most famous domainers in the world and of the 9 names he mentioned he wants to develop I had sold him 3 of them. This is a guy we know owns hundreds of thousands of names. He’s done well, his way works and I’m not knocking him but buying names that earn money that aren’t sellable isn’t the business pratice I preach here on my site.
The bottom line is that domains with revenue that have legs, are exciting and have obvious usesare very damn sellable. Everything else is slightly less sellable and some of them are downright dangerous.
[...] Go here to read the rest: What makes a domain sellable, part 4 [...]
“This is a guy we know owns hundreds of thousands of names. He’s done well and I’m not knocking him but this isn’t the business pratice I preach here on my site.”
I think I know who you are referring to but is the “practice” you are citing the act of picking up dropped domains with traffic or owning/parking hundreds of thousands of names? Maybe I’m dense but I just want to make sure I understand you unequivably.
I just hand registered losangelesluxurylofts.com. Am I out of my mind to think this and others like it have good value or am I just wasting my time and money?
I’d like to thank you for this gem of a series you’ve put together and look forward to the next installment.
Hi Rick: This is a long one and good insight too; But I am losing my head here. If I get you right, are encouraging ‘developers’ bandwagon over passive or lazy ‘parkers’ or What?
Hi Rick: This is a long one and good insight too; But I am losing my head here. If I get you right, are encouraging ‘developers’ bandwagon over passive or lazy ‘parkers’ or What?
Let the truth be told. Excellent series of posts.
That is a good post. I often find that domain advice comes from the thought processes of the (very successful) economies of scale business model. The category killers often owned by individuals with passive small domain portfolios are the well placed long term investments,
text or speech search patterns the linguistics will only evolve around them.
Will / do the biggest individual names in the business trawl around and pick them up now they can afford to or wait for the eventual monopolies and mergers legislation to enforce the break
up (they all winge about Microsoft or Google ) on the grounds of Sir Timothy John Berners-Lee original philosophy : )
Great read
Anthony, I’ve edited the post to make the point clear.
Mark, I’ll be talking about developing names soon enough.
Rick,
I enjoyed this post, parking has obvious drawbacks and developing around solid names makes cents (double entendre). You get it and I would love to see you start a company with a lander that could auto-populate info for domain names like the one you created on Makati.com, let me know, I’ll be the first to sign up. Right now, I’m working on developing mini sites and am a bit overwhelmed at the amount of time it takes to create them. Here is a sample of a name, not a category killer, but a clear sensical, slightly brandable name that has done much better than just parking it.
http://CurlyHairExpert.com
Based on what you are saying, Rick. I think we need to be versatile and move fast with time. Otherwise one could face extinction, meaning some domainers could lose their “bread and butter” thanks to ever-innovating Google and Yahoo arbitrage. And with more people joining the industry, the fittest and innovative domainers would survive; the rigid ones would be dinosaurs in the industry that seemingly new. Correct me if I am wrong.
Rick,
Thank you for taking the time to write these articles. Honestly, you are one of the guys I listen to because it’s obvious you know what you are doing. There is a lot of talk in this business, but you back it up with action. Thanks.
Sully
@Sully - I concur with your comment. We need more action, alongside all the talk in the industry. @Rick - I’m looking forward to reading your development post.
I never understood why anybody would use revenue multiples…
every parking company is different so if you are parking with Namedrive your revenues will be completely different than Fabulous for example.
if we want to have a credible formula it must be based on unique visitors instead. and we need to be able to value unique visitors in different categories as well.
until we can do that - your domain worth exactly what you can get for it!
@ Yaron, I think it is not always based on unique visitors, but then it also depends where the unique visitors are coming from, typein, refferals, backlinks etc, these unique vistors will ever stop coming, etc etc.
@ Rick, a great strategy.
Great articles Rick! learned alot from you on your new blog . Where are parts 1,2,3 on this subject though?