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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.
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U.S.
President George Bush
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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).
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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.
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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 |
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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.
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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 |
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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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