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

afnic Afnic just published the latest edition of its report on the Secondary Market for Domain Names focusing on current issues and trends. Sedo helped preparing this white paper.

The 2010 report analyzed the trends but also the valuation mechanisms for domain names. It concluded with a simple observation that seems just as relevant: “Everyone knows today what domain names cost, but few know what they are worth.”

This new edition therefore focuses on the market forces now present, with hundreds of new gTLDs having been created since 2013.

Have these TLDs weighed on the Secondary Market by offering a wide choice, thus making purchases of tradenames unnecessary? Or on the contrary have they helped strengthen the legacy TLDs by giving them a “safe-haven” status, amid a plethora of competitors still unknown to the public, and therefore inspiring a certain degree of suspicion?

newgtldsThe issues involved in introducing new TLDs on the Secondary Market

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

Study of the average prices recorded by SEDO and published in its reports up until the first half of 2014 gives us first-hand insight into the way domainers have lived through this transition period, and responded to its new challenges and constraints.
The first indicator that interests us is of course the level of the prices. Sedo have provided us with two prices: average prices and median prices. From our perspective, median prices (which locate the line where there are equal numbers of transactions above it and below it) seem a more reliable means of visualizing market trends. Average prices are liable to be artificially “inflated” by a few transactions for very high amounts, as was the case for the .fr TLD in 2010 with the sale of “credit.fr” for 600,000 euros.
Fig. 5 shows that the overall median price slightly rose between 2011 and 2015, “stalling” at around 500 euros. Even if we forget the average price which literally took off in 2014 and 2015, we have good reason to think that the arrival of nTLDs has not had the “dilution” effect feared by some, and that there was no loss of value, at least at the global level. On the contrary, the continuously upward trend even shows that the perceived value of domain names has increased, despite, or thanks to nTLDs. The constant share of .com TLDs in the transactions, located for years at around 55%, might even suggest that the Secondary Market continues to operate, all other things being equal, as if the nTLDs did not exist.

The largest transactions

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.
In 2014, the 10 largest transactions were:
80% of the “Top 10” sales worldwide were under the .com in 2014, and only one under the .de TLD and one under the .fr TLD. The Top 10 sales under the .fr TLD remain concentrated between EUR 5,000 and 20,000, with the exception of “chat.fr”.
In H1 2015, the 10 largest transactions were:
Tariff levels declined significantly in early 2015, both for sales worldwide and for sales of domain names under the .fr TLD. Sedo, who have studied the subsequent use of the names mentioned above, have noted that domain names concerned under the .fr TLD are genuinely used by their buyers, which reinforces the idea that the Secondary Market has (finally) opened to stakeholders that are not professional domainers. Again according to Sedo, the situation is very different for domain names under the .com or .de TLDs, a large number of which remain unused. Sedo concluded by indicating this could mean that domain names under the .fr TLD are favored by companies that want to access the French market and market goods online for French consumers.

Conclusion

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.
If the Secondary Market is seen as a “barometer” of the value attached to a given TLD, it is clear that the time is not yet right for nTLDs. But it is not because they are in the start-up stage that they will fail to achieve success. One certainty, however, is that they will not all make it. Reflected by the Secondary Market, the views of domainers, as specialists in the value of domain names, are a crucial factor in studying the performance of nTLDs and in making forecasts in the future about their chances of survival.
Nor do domainers form a homogeneous community, having specific features depending on the country and “generation” to which they belong. In addition to those who have “worked” the Legacy TLDs and ccTLDs for the last twenty years, there are growing numbers of newcomers attracted by the business opportunities offered by nTLDs in terms of names still available. Is what differentiates them from their elders a question of dates? Is it more or less risky to invest today in an nTLD than in an .info in the past? As time passes by and those that are successful emerge, the two “generations” will no doubt start to merge – and perhaps, who knows, exchange Legacy TLDs and ccTLDs for nTLDs. When that happens, the new TLDs will really have won their spurs.

Read the complete report here.

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About Konstantinos Zournas

Konstantinos studied Computer Engineering and Computer Science in London and lives in Athens, Greece. He works on domain names, websites and software development. Has been online since 1995 & domaining since 2002.

One comment

  1. The introduction of premium pricing (with renewals at that price) plus the large amount of keywords that the nTLDs are holding back have also hurt the aftermarket for these new domain extensions. It’s very similar to sports leagues who decide they want the $$ and begin selling their event tickets themselves rather than allow more efficient aftermarkets (like Stubhub) to function.

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