Report: Domain Secondary Market Prices Far From Collapsing, Transactions Still Dominated By .com

Prior to the launch of the new TLDs, the world of domainers – specialists in investing in domain names – was bustling with conflicting opinions.

The first school of thought considered the new TLDs would provide a wide range of opportunities to file exceptional names, which had been registered for years under traditional gTLDs such as .com, .net or .org. If “business.com” had been sold for $ 7.5 million, then the same term in most of the new TLDs would certainly be worth hundreds or thousands (or tens of thousands!) of dollars, for an investment of only a few. This calculation was so convincing that the registries themselves rapidly created “Premium” lists of domain names or names reserved for sale by auction, allowing them to capture a larger share of the value of their TLDs than if they had sold the names at the conventional nominal price. It is therefore certain that if domainers potentially did some good deals on a few TLDs, they were also “dispossessed” of part of their potential gains by registries wishing to make their TLDs profitable as quickly as possible.

Some experienced domainers however point out that the “gold rush” is a recurring myth of the Secondary Market, orchestrated by the media based on actual amounts but which only corresponded to a tiny fraction of the transactions. According to them, few of the best experts took up positions on the nTLDs, most of the applicants being represented by newcomers attracted – blinded? – by the prospect of fabulous returns on their investments. The fact is that these “get rich quick” strategies have already worked with often disappointing results since 2001 with the openings of the .biz, .info, .asia and other .co type TLDs.

The second was more skeptical. On the one hand, these domainers had occasionally invested substantial amounts in “Legacy TLDs” and the prospect of their domain names being diluted in an abundance of variants was unlikely to make them happy. On the other, they believed not without reason that the multiplication of alternatives to the .com and other national ccTLDs would only maintain the state of confusion existing in the minds of users. Being lost, the latter would cling to the well-known “safe bets” and not take a fling on nTLDs, in the short term at least.

From a purely investor point of view, the nTLDs also posed risks related to the hoped-for gains. Besides the fact that their adoption by users was far from being certain, they all had the symptoms of start-ups, with guaranteed costs and promises of revenues sometimes embellished by the backers of the projects.

The issues at stake therefore focused on two main questions:

• On the one hand, would the disappearance of the “scarcity effect” result in a loss in value of the Legacy TLDs and especially of the .com?
• On the other, would users adopt the new TLDs to the point of making them successful in the long run and therefore a source and means of creating value in the same way as their competitors were doing for the convtional TLDs?

In other words, was there really a demand for new TLDs – hundreds of new TLDs – to the point where they would threaten the TLDs already in place?

Prices on the upside

Many domainers are drawn to the Secondary Market by the figures circulating in the press. And if there are many called, there are few chosen that can boast of having achieved sales that are genuinely “astronomical.” Here, we compare the most important public transactions on the Sedo platform.

This study of the Secondary Market is highly instructive in this period of introduction of the new TLDs. Indeed, if we take the two “schools of thought” present on the eve of their launch, with hindsight it is clear the one that opted for the traditional TLDs (gTLDs and ccTLDs) as safe bets was right because:

• Secondary Market prices, far from collapsing as would have happened if their value had been “diluted”, have not only been maintained but even increased;

• Transactions remain dominated by the .com which has neither lost nor gained ground.

Hence the impression that for the time being, although the nTLDs have clearly affected the Primary Market, they have not really affected the Secondary one, no doubt due to the fact that the Legacy TLDs most affected already only represented a marginal proportion of the transactions. The volume of transactions on nTLDs also remains very low, demonstrating the caution with which they are handled by the vast majority of domainers. Once the magical period of “get rich quick” enthusiasm is over, these stakeholders – at least those who have survived the collapse of the business related to “Made For Adsense” since 2012 – have naturally tended to become more conservative, placing their money on safe bets in order to optimize their chances of having a healthy balance sheet.

However, it can be seen that the average price of the largest transactions, but also their number in relation to the .fr TLD, are more on the downside in 2015: -50% worldwide and 75% for the .fr TLD in terms of tariffs, 23% for the number of transactions involving the .fr TLD trend line at the end of 2015. This simultaneous contraction of volumes and amounts (remembering that only the figures for public transactions are available, the most important often being kept confidential) clearly shows that “something” is happening on the Secondary Market, which seems to attract relatively less capital in 2015. An “obvious” but perhaps over-simplistic interpretation is that at the global level, the domainers – most of whom are newcomers? – have focused their efforts on the nTLDs (the Primary Market) where the best opportunities for creating value seemed to lie. As a result, “unconventional” transactions have scaled back, but without markedly affecting the Secondary Market, which is essentially based on trading at moderate price levels, of around a few hundred euros.

It is interesting to note that many of the registries selling nTLDs courted domainers during the launch period, but now have to “convert” them into sales over time. A comprehensive approach would be to encourage registries to stimulate transactions on their TLDs in order to entrench the belief that they have value. The backlash of the approach focusing on launches is the low liquidity of names registered under the nTLDs, which increases the risks for investors and could eventually harm the nTLDs in that many domainers will want to wipe their slates clean, even of domain names with high intrinsic value.

A logical development of the situation would be to see the nTLDs gradually gaining ground on the Secondary Market, when the opportunities on the Primary Market dry up. But the constant influx of new TLDs suggests that this underlying trend will take time to materialize. This is because it will also depend on the attractiveness of nTLDs for users and the ways in which they adopt them. In the race for value, volumes are an interesting but sometimes insufficient indicator to judge the sustainability of a TLD. The “scarcity” effect that was supposed to create opportunities for the .biz and .info nTLDs faced with a “saturated” .com in 2001 has failed to materialize. Users and holders react in relation TLDs by giving them value based on emotion, or a sense of belonging, or confidence, and in this respect the nTLDs still have their work cut out.