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August 27, 2012

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Aftermarket Domains Value Segmentation

By Dan Warner
COO, Dark Blue Sea & Fabulous.com

(Editor's Note: Well-known domain industry executive Dan Warner has just released a comprehensive and engrossing 52-page article on the domain name aftermarket. Below you will find some excerpts from this important publication, followed by a link to the complete document. We believe the information and points raised by Warner will be of value to every domain owner and encourage you to take the time to read and consider his take on how the aftermarket business can be grown for everyone's benefit.)

This document offers a unique view of the aftermarket domain sales value chain. Business online is similar to but not the same as traditional business. With that realization come the pitfalls of assuming previous norms and biases as also being true online.

Dan Warner
COO, Dark Blue Sea & Fabulous.com

Highlights of Discussion 
(detailed discussion of each of the points below can be found in the complete article).
  • Aftermarket domains are a niche market and not a mass market.  Buyers are rare and need to be targeted with deep narrow spectrum marketing techniques.
  • All representatives in the value chain need to realize that there is a diverse set of requirements that may be fundamentally needed by various parties in the process.  An open market system does not require that all parties agree on every potential transaction.  It does require that every party has a choice to select which types of transactions they participate in.  A technology platform needs to be established to enable selective participation.

  • Centralized distribution of domain names for sale in the aftermarket is the most efficient way to establish continuity, maximize distribution, and avoid legal disputes.

  • Marketing is drastically under-funded. The commission structures in place are not high enough to push the current market beyond reactive sales to proactive market development.

  • The lion’s share of the marketing commission needs to be attributed to the lead generator.  Lead generators are the major contributor of growth to the value chain. 

  • Revenue distribution needs to be managed so that proactive marketing is strongly encouraged whereas reactive services should be paid a commission in accordance with the lesser value that they represent.

  • Affiliate marketing for aftermarket domains is almost non-existent.  The amount of commission revenue that has been available to encourage affiliate participation is sub-standard to the common CPA environment.  The risks and efforts comparative to the rewards are untenable.

  • Support services need to be recognized and valued.  The most important purpose of support services (stock control, distributors, and clearance houses) are in maintaining stability and creating new avenues for penetrating distribution.

  • Growth companies are not great threshold technology providers.  These companies need to focus on growth, whereas threshold technology companies need to concentrate on efficiency.

  • Most people do not need a domain name. Only a select few of those who do need one can afford one of broad appeal and substantial cost.  Domain owners tend to mirror their belief in domains on to consumers.  Unlike domain portfolio owners, only buyers who have been qualified and are primed to buy are real consumers.  Most domain sales are not window shopping – the buyers have an established purpose for the domain when they buy.

  • Many domain owners do not understand the nature of aftermarket domain sales and draw too close a comparison to the real estate market.  The vast majority of domains are priced for sale at less than $5,000.  Selling domains is more like selling high value electronics in a retail environment than selling real estate. 

  • Commission rates on domains need to be established on an individual domain basis.  Domain level commissions offer domain owners a means to clear less valuable stock and give the lead generators an incentive to sell selective domains more aggressively. 

  • Establishing ownership of domains prior to sale is a fundamental requirement of the process.

  • When a domain name is sold the owner needs immediate access and ownership.  Instant transfer of domain ownership and control is paramount to aftermarket growth.  Anything that stands in the way of instant and efficient transfer needs to be marginalized or eliminated.

Retail Buyers

Most retail buyers have a specific purpose in mind when they buy an aftermarket domain.  They have started a new business, want to upgrade their current domain to a better one, or have a personal interest.  Generally, retail buyers want to develop a domain into a website with a unique look and feel and original web content.  They are not typically holding the domain as an investment; rather they are using it as “land” for a website. 

These buyers, unlike many others, have little interest in the volume or revenue of traffic from their domains of interest.  When sales agencies offer traffic and revenue statistics to potential retail buyers they severely compromise the retail buying process. Effectively they influence the buyer perception towards a wholesale buyer’s mentality. Retail buyers have their own esoteric value of the domain brand.

These buyers are willing to pay any price that is below their own perceived value of the domain.  Usually they are prepared to purchase these domains without any external valuation or advice as they are fulfilling a business or personal need.

(Editor's Note: It is important to know who your potential buyer is. Warner also discusses Auction Buyers, Wholesale Buyers and Portfolios Buyers in the complete article).

Selling Domains

It is instructive to understand why people sell domain names in the first place.  Domain owners sell domain names for a full range of reasons and at differing levels of sale aggressiveness.  At one extreme end some domain owners almost never sell a domain.  The only domains they sell are when a buyer aggressively pursues them and offers what the domain owner feels is far above market price for the domain.  The other extreme is when domain owners sell their entire domain portfolio to wholesale buyers at one time – leaving them with no remaining domain assets. 

The most common method is that of selling domains at a moderate rate creating incremental revenue.  Domains sold using this method realize a substantial amount of income compared to the traffic revenue the domain name would normally produce.  These opportunistic sales unusually command prices that are 50 - 500 years of the current traffic revenue.  This asset liquidation revenue is added to the traffic revenue generated by the owner’s other domains allowing them to take money off the table or reinvest in other domain assets.

Selling domains is often viewed by domain owners as liquidation and not true revenue.  This in its most simplistic form is true.  The associated argument is that when you sell a domain asset you loose the traffic revenue from that asset.  Although it is true that domain owners loose a marginal amount of revenue the asset realization is typically of such a high revenue multiples that the benefit is substantial. “Rate of Sale” also diminishes the importance of these incremental sales.  The rate of sale for most portfolios that are actively sold is only 0.5%-2.0% per annum.  At this rate the volume of traffic revenue lost is inconsequential and sustainable. 

Editor's Note: The brief excerpts above should whet your appetite for the full domain aftermarket banquet that Warner has laid out in his article. The complete piece can be read here (this is a .pdf document): 


Editor's Note: Dan Warner's previous articles for DN Journal are available through the links below: 
Traffic Targeting and Wastage
Branded Domains Vs. Generic Domains

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