The Problem With Premium Domain Name Auctions…

While domain name auctions seem to be working fine for many years now with various auction houses auctioning daily expired and dropped domains, I think there is a problem with premium domain name auctions such as the Heritage Auctions (HA) domain name auctions.

Domainers like to buy cheap and sell high but they don’t want to buy at end-users prices and they don’t like to tie up large sums of money on domains that have very small profit margin.

Heritage Auctions concluded on the 9th of April their 2nd domain name auction. They are now looking for premium domain names for their 3rd auction. The 2nd auction featured some extraordinary domain names, such as digital.com and LK.com, as well as some I would call below average domain names.

The point is that even if you have an domain auction with 100 2 character .com domains you will not ever be able to sell all the domains at a high end price. If you want to sell all of them at end user prices then you need to know in advance that an end user is interested for each and every one of the domains in the auction.

But the main reason you put items or domains at auction is because you hope to have at least 2 bidders that want (or have to) to buy the item or the domain in the auction. But domains are not collectibles. There are no domain name collectors. And even if there are a couple, they are not prepared to pay end-user prices.

Christie’s, Sotheby’s and Heritage Auctions, the 3 largest auction houses in the world, sell art, jewelery, furniture, photographs, posters etc. All tangible items that you can display or touch. People with money don’t collect digital merchandise or domains. They collect Picasso and Andy Warhol.

If you have 5 people going after a domain name then the 4 that lose will not move to the next domain name in the auction. But if you have

100 Andy Warhol originals and 200 bidders then all 200 of them could be interested in all the Andy Warhols. So if they lose the first then they will move to the next one. And a single collector can end up bidding in all 100 items. This just does not happen with premium domain names.It may happen with expired or low value domain names.

Domain names help you with your business and people are only prepared to pay a premium for the domain name that they know will help them expand their business. If the one they are after is gone then their interest is gone too. They are not interested in some novelty domain name. And even if the 100 Picasso paintings could seem similar (I know their are not!), in domain names a single letter can determine the fate of your business.

Actually even big auction houses prefer not to have 100 similar items because this might devalue the items. So maybe the Heritage Auctions approach I mentioned at the beginning with the 10-20 premium domains and the 80-90 supporting ones is the best approach. But even for that 10-20 premium domains you have to get at least 2-3 good leads to have a successful auction. So the auction house has to work close with the seller and collect any leads he/she may have over the years he/she owns the domain.

Christie’s, Sotheby’s and Heritage Auctions have their own leads but 99% of the time premium domain name buyers are only one time buyers.

But in a domain name auction with 100 premium domains, you probably have very few interested leads. A lot of the old leads are not really interested any more. You either need end users that are in the market for a domain name and/or end users that have a budget for marketing. You need companies that have to have the domain at the time of the auction or the domain must be an exact match for their needs. e.g. An acronym domain name or a domain that will shorten their longer domain name. Anything else and people are not interested.

Of course, like I said earlier, I am only talking for premium 6+ figure domain names. I am not talking about low end domain names.

Digital.com is a great domain but you need a digitalxxxxxx.com company that has the funds available and ready (and does not have to get an approval by a board). Either that or you are looking for the lottery: a start up with lots of money that wants this domain in this limited time period around the auction.

Small companies (and most of the startups) don’t have 1 million dollars sitting around just in case a domain is auctioned off. No matter how good the domain name is.

I believe that high end domain names are sold at better prices outside of auctions, unless you are certain you have 2 bidders that want the same domain. Outside an auction you can negotiate better because once the domain hits the reserve, it’s gone. And even if you have selected a reserve that seems close (but not quite) to the domain’s value, you need to be sure that you won’t regret it if the domain is sold at that reserve price.

The final thing that needs to be addressed is that once a domain name ends up unsold in an auction many people think that it was not worth the reserve so next time it will be on auction they will expect the reserve to be lower. Either that or they will start private negotiations well below the reserve. Do you want your premium domains ending up unsold at various auctions?

So for a premium domain name auction to be successful you need at least 2, preferably more, interested parties (that have the necessary funds) for every each one of the domain names you are offering in the auction. If you don’t then maybe you should think leaving the domains that don’t have leads out of the auction. There is always a new auction coming up. Timing is everything…