When The End User Price is Less Than a Resellers Price

Jul 16 2012

I see it more an more every day. Instances where a domain name is worth more because of speculation than the actual value of the domain to a person in that particular business or niche. Not because of the end user is unwilling to pay the high price. Because the value or competitive advantage it would give the buyer is less than the price of the domain. The value of a domain name as we know is based on many different things from search volume, cpc, or income from parking but most of all, the name is valued because there is only one of its kind and the speculation of what someone MAY be willing to pay.

Many domain investors wait around years trying to find that person willing to pay the price they think it’s worth. It’s becomes easier to give a value if there have been sales of names that are similar. You can also put a minimum price on a name if it earns income from type in or ad revenue from a developed site. Even previous offers can help decide what others may be willing to pay. But what if there aren’t those metrics? There are plenty of domains that don’t get offers of any substantial amount, receive little type in traffic, and while the CPC is high, because there is no traffic, it doesn’t earn. Why would this domain be worth money? Yet the owners are looking for tens of thousands of dollars. Many are waiting for that national company to come in that spends millions of dollars on advertising that feels $25K a drop in the bucket to spend on a domain. Is your domain more likely to receive that offer than the millions of others?

I received an email regarding a domain that would seem to be a very good keyword in my industry and the price was $3X,XXX. I know my business as well as anyone and probably know the plant domain business better than anyone. When it comes to making money, this domain holds little to no advantage over a name for $1000 that is a two word or maybe even a memorable original name. It actually may be too generic because most likely nobody would name a business with this domain. In my opinion, it has more value to a reseller who can sell it to the next person that will sell it to another person that thinks they can find the end user. End users probably aren’t going to want to spend the anywhere near the money the owner wants. They feel they would be better off using the $30 plus thousand to brand and advertise at a trade show or conference.

While I’m not saying that the speculative nature of our business is wrong or unhealthy. The contrary. It gives us all liquidity. If we relied on final users we would all be sitting on many names for eternity. I sell most of my names to people that think they can sell it for more than I sold it to them for. I need those buyers. There are some that have become apps or sites that are now no longer for sale and will be used for the purpose domain names were intended. The reason they are not all that latter category is because speculators are willing to pay higher prices that the people that actually want to use them. We are all searching for people that are willing to pay more than the speculators. Unfortunately this may never happen and the last owner holding the bag will realize this and be forced to either sell at a loss or become the end user through development.

There are some people that will tell you that if you wait long enough you will eventually sell that domain. I am here to tell you that may well be true but for many it will not. I am also not telling you to sell your domain assets cheaply. You have to know your domains and their value in relation to the final users. In general, the further it gets away from dot com the less value it has. In my opinion, if you own domains outside of com,net,org and a few premium dot me and tv you are only going to be able to sell to other speculators and are one yourself. There is nothing wrong with this. It’s like buying options instead of stock. Both risky, but the options are much riskier yet have a high return in relation to investment cost. In these cases the reseller price is much higher than end user price. As long as the resellers don’t dry up you’ll be fine. Only one problem, for most of the newer tlds they WILL dry up and your liquidity will become nil. Ask the dot co guys how easy it is to sell their names. No end users, and very few speculators.

So my point is this. Try and stick to names that have more value to end users rather than speculators. I can’t tell you exactly what those names are because I don’t know the business and industries behind the domains. I don’t go to cookie and cupcake shows so I don’t know how strong the online cookie sale business and the value of many of their keyword domains. But if you do know an industry, you should be able to pick out the names that if you found the right person, that particular name would give them a competitive advantage over their competitors. Those are the names that will hold value for a much longer period of time. Unless that industries fades, that domain will always have value, even if the speculators have moved on to hotter categories.

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Outsmarting the Dumb, Outworking the Smart

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  1. Samit

    On the other hand you only need one buyer for each domain who’s willing to pay the price.

    I agree though, extremely high prices hurt your chances of ever selling the domain.

    Just keep in mind the sweet spot for domain sales is $500-$2500 from what the data indicates.

  2. L

    When you combine low barriers to entry with big dreams, this is what you get. Also add in the fact that most of these people have zero professional credibility in anything other than owning domain names and usually posses the negotiation skills of a some kind of retard, it doesn’t make for a pretty picture.

    Pricing stuff in the real world is a pretty damn exact science. It’s usually contingent on a return of some kind, which itself is contingent on a cost basis.

    Early-adopting domainers enjoyed supernatural returns because their cost basis was so low on a device that turned out have massive business relevance, who in turn was willing to pay for it. The problem is, people don’t realize how sharply that curve breaks. They make the idiotic correlation between Domain.com selling for (X) and whatever they have being somehow contingent on that(If Business.com sold for millions, surely my eBusinessZone.net is worth $20,000!)

    There’s no shaking the fact that the domain game has always been a simple formula of I got what you want, now pay me. Nothing wrong with that, but it seems that the majority value dreams over actually getting paid.

    Time keeps on ticking, though.
    We’re all getting older, our elders are dying off and we’re taking our spots in line as ‘next to go’. The prospect of a meaningful exit is getting further and further away to a lot of guys who thought the 2005 party would last forever.

  3. I'll give you $100 for that domain!!!

    Truth is, there is still really good money in parking if you know what you are doing.

    I’m afraid you either have to be a pro by now or have a whole lot of money to burn to learn the game. The only other way is if you are some kind super-natural prodigy….good luck with that…LOL.

    Yeah Shane, I’ve been at this so many years now and I can tell you for sure they are overbidding right now. The markets get heady sometimes and money flows and it builds, and builds, and builds for months. Right now prices are over the top and it will pop again. Save your nickles and come in as clean-up batter when the economy crashes or softens again, which it looks like it is starting to do in a big way right this second.

  4. Sam

    Seems pretty common nowadays.

    There is this fallacy that ‘End Users’ want the domain. Domainers often use this excuse to inflate the prices of domains if you ask me.

    Companies would be much better off being original and working on a decent SEO/content/marketing strategy than spending $200,000 on a domain.

    Just the way I see it! [Don’t shoot me please domainers]

  5. Chris

    Branding is more important hands down. A domain is only that much more powerful if you can brand it as well. We’ve all approached people about keyword domains with unreasonable expectations. @DomainShane, I agree with you that it only makes sense if you can name a business after it and that name successfully communicates to your audience what it is you do. Even better and more valuable if it appeals to a broad audience.

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