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Many smart, financially-savvy people are not  informed about domain names as assets.  So, if your banker or financial advisor still does not get domains, here are the main points, in language that finance-types understand.

Simply described, Domain names are the raw land of the Internet. And while the offline economy is shrinking, the Internet economy is not.  And in these uncertain times, there is even more compelling economic case for why one would want to own domain names:

  • Domains can be priced and traded in any currency.
  • Domains can be operated from anywhere.
  • Domains can be owned by anyone, and even via anonymous proxy.
  • Domains have essentially no counter-party risk.
  • Domains produce recurring, passive income, particularly when developed.
  • There is a rapidly maturing secondary market for domain names.
  • Unlike Physical Precious Metals (PMs), domains are weightless.
  • And unlike PMs, if a domain name “disappears”, you can find it!

A balanced investment portfolio could easily justify having 10% of holdings in income-producing domain names. A portfolio of names including Tshirts.com sold for $1.25 million in New York on Wednesday.  Slots.com sold for $5.5 million earlier this year.  Yet, every day, about 80,000 domains are abandoned by their prior owners.

Opportunities abound for speculative gain and capital preservation.  Educate yourself:  http://www.youtube.com/watch?v=Z2HwPgmcvEM


Comments (16)

  • Leonard Britt
    Twitter: l

    August 21, 2010, 12:56 am

    Domains offer a high-potential return at a generally low cost relative to other investments. However, when it comes to development it is often overlooked how the most attractive one-word domains from a branding vantage point can be more difficult to rank as one-word exact search terms are intensely more competitive. I’m not sure if EPIK has its own study or not but I have seen a couple of studies which indicate close to 90% of search traffic goes to websites ranked on the first page and very little beyond the second page. Thus, investment in development needs to include a SEO component so that the development effort will produce more than merely a website with no traffic.

    Reply
  • optimised Onion

    August 21, 2010, 7:18 am

    Fantastic article. Simple. I have to agree with Leonard to a degree though. A well-developed domain with a good SEO campaign to back it is worth gold.

    Reply
  • Rob Monster

    August 21, 2010, 7:58 am

    @Leonard – Totally agree on SEO. We have blogged about similar findings here at Epik. Also, this weekend, I will post a guest blog from our SEO partner, Pyramid SEO. The CEO, Chad Fisher will be speaking at Epik DevCon on the morning of September 16. SEO is a key pillar of the launch process and continuing operations.

    Reply
  • Louise

    August 21, 2010, 10:03 am

    The time is ripe. Investors looking for opportunities in a down economy! Yesterday’s LA Times cover article points out one of the arternative markets investors are descending on:

    Professional Investors Moving Into Flipping Foreclosed Homes

    There are some parallels: (1) Research, though legal impediments prevent buyers from entering foreclosed homes prior to the auction (2) attend the auction on the front steps of the courthouse (3) purchase; (4) develop; (5) flip.

    Here as in the domain world, amateurs are being squeezed out by investment firms.

    Research may come more to the fore with Epik’s business model – hope that is covered in its own session at Epik Conference! Because PRODUCING sites look like the future. If the site is generating $30.00 – $50.00/month within a short time of launch, it is a PRODUCING site, nevermind the extension of if hyphens. If there’s a market where women like the clean interface and linear inventory to shop a certain item, it is a PRODUCING site than a dot com which caters to a field that is already saturated, such as exercise equipment. We all have one stuck away in the garage!

    Reply
  • Michael Marcovici

    August 21, 2010, 12:11 pm

    I 100% agree, as a the founder and manager of the first open investment fund for domains, the domain developers fund, I had lots of talks with actual investors that I had to convince to invest into our fund. There are some differences between usual assets and domains which are not easy to overcome:

    -Evaluation
    There is no way arround evaluating domains if you want professional investors, if evaluate based on income this is becoming very volatile and dangerous, if you use other methods,it becomes academic, this is something investors dont like.

    -Dillution
    As a domainer, I dont see a problem with this, but most investors are worried about dlilution, when new investors invest into a portfolio, because they dont believe its possible to buy more great domains.

    -Benchmarking
    This is a project I am working on right now, but because there is no index to track the prices of domains, its hard to convince a professional investor that his is a great market. We need an index and stats on this, otherwise how can prove prices are moving upwards?

    -Liquidity
    unlike stocks or bonds, domains are not liquid, there are ways to improve a portfolio to make it more liquid, but it will never be like traded securities unless someone creates a tradeable index to hedge the portfolio.

    Reply
    • Rob Monster

      August 21, 2010, 1:09 pm

      @Michael — Good stuff.

      Securitizing domains is exactly where I think this needs to go. The pure-play was Marchex but they missed the boat as a domain holding company. What I see emerging is a family of ETF-like investment vehicles for folks who want exposure to the domain name asset class, possibly arranged in themes, e.g. “online retail’. We could easily package all of Epik’s online store portals into an exchange-traded entity. The packaging of developed sites into an entity is straight forward enough. What is a larger project is the retail investment fund management, which is more than Epik will be taking on in the near term. It could be an interesting partnership with the right partner.

      As for an index, I would let the market price the index. A theoretical index could be derived by looking at revenue and cash flow, and adjusting to market comparables. This is similar to how a 409A valuation is done. However, most 409A valuations I have seen are a bit of “black box” which is why I probably favor market pricing.

      We are working closely with Estibot as a partner. I believe the opportunity is still open for someone to produce the Zillow of domain names. Appraise.Epik.com is an earlier effort in this direction, but it could easily be a dedicated company that works only on this one critical market issue.

      Reply
  • [...] Sell, Develop, Invest.Domains Source: EPIK Posted by .COntent Editor On August – 22 – 2010 0 [...]

    Reply
  • Ken Stack

    August 22, 2010, 10:25 am

    The articles that convinced me that Epik understood SLD.TLD value were the two posts titled: Why domains are better than dollars (parts 1 and 2). This adds to the valuation model.

    Domainers (with virtual properties) and business owners (that do little online business) view domain names from opposing perspectives. Most domainers seek income from their investments. Even if most of a domainer’s assets are parked, they usually understand the process of development and monetization. They purchase domain names to provide means by which to generate future income. To a domainer, web sites are their only business. A domainer needs cash flow from sales and monetization of domain name assets, so that is their focus.

    To a business owner, a web site is provided to assist customers and support their business. A business owner realizes cash flow from their sales efforts. Sales generate income and the sales efforts on the different side of the ledger. To the majority of business owners, a web site is an expensive sales tool, the development of which few understand. I could walk into a dozen wedding stores here in my city, and none would be interested in owning weddingdress.com because it would be viewed as an expense. In the domaining world, the value is understood. This is an education problem, and the learning curve is steep.

    Until or unless domain name appraisals can be done by a dozen different expert services, and be within five percent of each other, conveying name value as an asset will not be possible. Domainers and name brokers who have never owned a brick and mortar business often value SLD.TLD assets in terms not important to (and often not understood by) most business owners.

    Securitizing web assets in a domain name REIT structure will require establishment of a solid foundation which can exist, but does not at this point. With the people I see working on this, we are (hopefully) not too far away from realization of this objective.

    Reply
    • Rob Monster

      August 22, 2010, 10:47 am

      @Ken Stack – Thanks for the thoughtful comment.

      I absolutely believe that we are approaching a tipping point where domains will become viewed as an asset class. I believe that tipping point may accelerate from a moment in history when fiat currency regimes are suddenly not viewed as a sustainable store of value. However, independent of such a cataclysm, the thesis of “domains as raw land of the internet” is fully intact.

      In the meantime, we are building income-generating businesses. These businesses can be valued in two ways to prospective acquirers: (1) they can be valued entirely on the basis of traffic that they derive from repeatable, organic sources, and/or (2) they can be valued on the basis of actual cashflows from present monetization, e.g. 4-6X annual ebitda is entirely normal for sale of a private business.

      As for securitizing web assets, Epik is not focused there. We think it is more interesting in the short-term to work with individual investors to provide domains that the investor owns outright, and which Epik manages on their behalf. This also completely eliminates the counter-party risk of using a fund as a proxy.

      As for appraisals, there are ample conventions on how to value a business. However, for business valuations, you are not seeing +/- 5%. I know this first-hand having bought and sold companies over the years and working with business brokers. We’ll even have a talented business broker, Dave Fairley, on hand at the Epik DevCon, as he will be speaking on September 16.

      Ultimately, I think we will see the following pattern. Domain investors will own portfolios of income-producing web properties. Business owners will periodically buy ONE domain from the domain investor.

      There are exceptions to this pattern. For example, Bobby Fitzgerald is an Epik Developer. He runs a successful chain of restaurants. He now also owns a portfolio of domains, including several in the restaurant vertical that we are developing for Bobby. Another exception is Braden Pollock, who is an attorney, and also owns about 4,000 legal domains powered by Epik’s DevRich platform.

      Bottom line — domain investing is coming to Main Street. Of this I am 100% convinced. It just makes sense.

      Reply
  • Leonard Britt
    Twitter: l

    August 22, 2010, 12:58 pm

    While domain sales are still a small percentage of total holdings, looking at sales stats over the last several years, in nearly eight months of 2010 we have sold more domains for over $100 in 2010 than in 2006, 2007, 2008 and 2009 combined. In 2008 and 2009 most domain sales occurred in the final four months of the year so if 2010 is consistent with the prior two years, Sept through yearend could be interesting.

    Reply
  • Louise

    August 23, 2010, 6:52 pm

    @ Leonard, average price over $100.00 – that’s good news, except I wonder what % that is of Registrars hanging on to names, instead of releasing them as they become available . . . I don’t like the Registrars getting their finger in the pie.

    If the S & P stays over 1000, I have a nebulous idea everything is on the up with the economy.

    Reply
  • [...] read with interest three articles from Epik’s Rob Monster: The Quest for Recurring Income, Explaining Domains as an Asset Class to Finance types and Called it: Sell stocks and bonds. Buy domains and [...]

    Reply
  • [...] Domains as an Asset Class to Finance types « Epik Blog http://www.epik.com/blog/explaining-domains-as-an-asset-class-to-finance-types.html A balanced investment portfolio could easily justify having 10% of holdings in income-producing [...]

    Reply
  • [...] point”, i.e. when suddenly, a generation of institutional investors wake up to the unbeatable combination of attributes that make the Domain Name Asset Class so darned interesting to [...]

    Reply
  • [...] perfect hedge for the risks associated with US policy-makers executing QE2, I remain convinced that development-grade domain names are a logical store of wealth comparable to physical precious metals and other commodities that are sufficiently rare and finite, [...]

    Reply
  • The “Give a Shit Factor” « Epik Blog

    December 4, 2011, 1:46 am

    [...] and all of the investment categories to master, I focus on Domain names because I believe that the case for domain name investing has never made more sense to me than it does today.   Epik is in the right place at the right [...]

    Reply

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