Domain work part 1 – Acquisition by Mr. Sten Lillieström

Domain work part 1 – Acquisition

by Mr. Sten Lillieström (LinkedIn) 

The domains which domain name investors select for acquisition can vary wildly as noted in the previous articles in this series. But regardless of successfully identifying a domain name with perceived value, nothing is accomplished without hard work by domain name investors.

As a consequence, when the initial selection screening is completed, based on whichever principles you choose, not much has really been achieved.

A domain name with satisfying explicit or implicit traits along legacy as well as brandable lines is likely not going to be available to register. It will be in active use, or registered and not in active use, “passively” held by a competing entity such as a corporation, a fellow investor, or just some random Jane or John Doe somewhere on planet Earth.

Sometimes the domain name really is for sale. Perhaps the previous owner had some domain aftermarket experience or perhaps an investor saw a resale opportunity. But in the big picture, that is rare.

In many cases the domain investor – or whoever may be interested – must find the current registrant, and moreover, achieve a discussion about a prospective transaction.

The hurdles along that path are numerous.

With the advent of the GDPR and the attention around privacy issues, registration data has been removed from public view. This requires research efforts that can be significant and often impossible.

There are domain investors whose strategy is not to market their assets and only ever sell anything when stars align and the purchase sum is astronomical. They avoid the “tire kickers” and assume that being hard to reach will work as a catalyst for true and serious interest. They may also have negative experiences of frivolous claims to ownership.

But not only domain investors “sit” on domains. There are veritable graveyards of valuable domain names that for decades have been accumulated by corporations who don’t intend to use them and contrary to the investor idea don’t even entertain the idea of ever selling them.

The most daunting obstacle however may be a domain name in full-fledged use. Try buying Apple.com for example.

Working on a Sale Price

But let’s assume that there is a sliver of hope. You have managed to reach the current owner. You have managed to spark some interest in the prospect of selling the domain name. Now you need to agree on a price. This is rarely straightforward. Most of the time, expectations tend to be on the higher end on the Seller side and on the lower end on the Buyer side.

Perhaps the Buyer thinks that “it is our name, we invented it” and does not wish to pay for it. Perhaps after receiving the inquiry the registrant Googled “top domain sales” and found exhilarating reports of the top domain sales recorded in history. Good luck!

In the unlikely event that there is a deal to be had at the end of this rainbow, now you need to convince the Seller that you are not trying to scam them and that there are secure procedures that guarantee the completion of the transaction. If none of the above sabotaged your chances, you are now granted a final shot at complete failure.

But it is not always the case that you need to “Sherlock Holmes” your way to a registrant in Ulaanbaator and negotiate for a sale like it was a hostage situation on live TV.

The domain name aftermarket has a technical infrastructure as well as marketplace services, and domain names are abandoned and expire or are actively listed for sale. Of course, in case the domain name you want is in that kind of status, it’s still not a walk in the park. The tip of the iceberg part of the aftermarket that is more accessible is more like a jungle.

Registrars and Aftermarkets.

All domains are registered with a particular registrar, and the registrar in turn has different features and partner programs that allow for different types of access and services in different forms and shapes.

There is one big player, and that is the industry leading domain registrar Godaddy, with its aftermarket sister company Afternic. If a domain name is listed for sale, odds are it’s on Afternic, for good and for bad.

If the domain name is in expiring status, Godaddy and other registrars have devised systems where it is possible to bid on a domain name before it expires. This is called ”expiring auctions” and attracts massive attention from domain investors. If no bids are logged the domain name will enter a so called ”close out” phase where the price drops in intervals until it is either purchased for a set price, or proceeds to a non-redeemable status and is irrevocably slated for deletion from the registry records.

That is when the final onslaught begins. Backorder services such as Dropcatch and NameJet take up orders for access to their domain registration services that through technology and firepower are able to register the dropped domain the instant it is released. When two or more customers backorder a domain that is successfully caught, you guessed it, an auction ensues.

Without extensive knowledge about the ins and outs of these aftermarket systems, and the time and effort required to successfully use them, the chances of success are slim and grim.

Holding and Sell Rates

All of the above of course costs significant money, time and effort, but it is still not a complete account of the commitments involved in a domain investing venture.

The nature of domains also requires holding costs in the form of the yearly registration fee. One way to visualize at them, from a domainer perspective, is in the form of a watchdog. When renewals consume the profit margin, it’s game over.

The “industry” standard for a viable sales rate is around 1%. In financial jargon, the “attrition rate” or “turnover ratio” is miniscule. For every sale a domain investor manages to find, 99 portfolio domains require a renewal fee.

It is also the case that market conditions change, and every decision to renew a domain therefore requires extensive decision making processes based on extensive knowledge. Merely adding any old domain and keeping it indefinitely will likely result in bankruptcy.

This part of the series (“What do you mean, domain investing?”) was about acquisition. But domain investors not only acquire domains, they hopefully also sell them. More on that part of “domain work” next week.

Previous Articles in this series: The Legacy Idea | The Brandable Idea

Next Week: Selling Domain Names

 

 About the Author: As the founder and CEO of Next Venture, a domain acquisition brokerage and naming firm, I help entrepreneurs and businesses find and secure their desired brand names on the internet. As a consequence I also operate a portfolio of domain names that serve as viable naming options in different niches and industries.