There is an interesting situation playing out on the world stage that has a great deal of impact on the Internet and domain names.
We have new problems going on in Iran. This is on top of everything else happening in the Middle-East/Afghanistan/Iraq/Spending/Defecits. It is probable that the US dollar is going to get permanently weaker as the Iranians and other supporting actors begin to unseat the USD as the defacto settlement currency for oil. This is a serious thing. For years, Countries of the world have had to hold huge amounts of USD reserves in order to pay for things that could only bought and paid for in US Dollars. Whether you chose to know it or not, that single factor (more than any other) has served to keep interest rates down and prices at the Walmart cheap. It's not necessarily going to be like that in future. To be fair, America has abused her privilege by spending a lot of money on bread and circuses -- but, I live in a US centric world (and frame of mind). I recognize that America has helped to elevate a great many people world-wide. So from my chair, this shift has a decidedly negative and uncomfortable whiff to it.
Along-side that gloomy state-of-affairs is a positive epoch-like sea-change, where the Internet is replacing "all traditional media" to some degree. We know it is happening. It's just hard to quantify how far things will go and to who's ultimate benefit the changes will inure.
Embodied within that "Internet" sea-change are domain names. For those who do not already know this, domain names are the foundation of the World Wide Web. Every website, every email address needs a domain name to function. Every page that Google indexes has a domain-name address. If it were possible to own every domain name that exists, you would control the Internet. All of it. You might laugh that off as implausible, but as it is, most of the good, meaningful domain names on the Internet are owned by the person reading this and a handful of other large groups such as Marchex, Name Media, iReit, Fabulous, etc etc etc. The world's top 20 domain name holders in 2007 control a decided majority of all domain names that represent anything meaningful at all. The rest of names are largely useless phrases that do not make sense, in TLD extensions without gravity or resonance.
So against those realities, in March 2007, I noticed that the prices for domain names (sales public and private) are increasing and solidifying. There are not wild swings like there used to be where a great three-letter .com sells for $300 privately while it sells for $5,000-10,000 via Snapnames auction. Today, the price for a generic 3 letter is $5,000-10,000 nearly everywhere. An awareness of the value of domain names has filtered through to the masses -- it was even on the discussion table at the ICANN meetings in Lisbon. There are few secrets anymore. Yet public companies like Marchex (MCHX) and large portfolio sales are still tracking at an average of less than $2,000 a domain name. These portfolios don't contain random domains which can be taken from the available pool (or via tasting) at registration price today. I am talking about portfolios of hard-won, generic .com words and phrases that were cobbled together before 99.9999% of people recognized any value in domain names at all.
The disconnect I have built to is that large groups of names are actually worth less together than their individual break-up value apart (and by a considerable margin). In a perverse way, it would almost be better for a company like Marchex to unwind the foresight of that name-portfolio's founder [Yun Ye], by selling their names onesey twosey. I previously estimated a conservative breakup value of Marchex' domain names alone at north of a billion. Problem is, even the best name-sellers can only liquidate about 2% of a large portfolio like Marchex's in any given year (and that's pushing it), so in exchange for "cash now", a name-seller has to give up the upside. To be fair, a seller may be giving up the unknowns of the uncertain world illustrated in the opening paragraph as well.
In the final analysis, any large name seller needs to ask themselves, "What will I do with the money?" Come back full circle to that world where oil is going to get much more expensive. Not necessarily because there is going to be less of it in 30 years but rather because the paper money we use to pay for it is going to become worth alot less in the next 5-7 years. Fedex 3-4 day service may become the norm. We may need to get used to paying more for a Fedex, and we'll be picking up our packages a 10-20 minute bike-ride away. That may be the future with much more expensive oil. Time will tell I guess.
If that reality comes to be: Would you rather own a media enterprise run with trucks, printing presses, ink and lots of people in offices, or would you rather own a pile of generic domain names getting millions of monthly visits in an organic and benign manner?
If there are to be difficult times ahead I feel comfortable owning domain names. If the times are to be good then I feel even better holding them. Based on the prices of individual name sales this past March, it would appear I'm not alone -- Even if other purchasers motivations run slightly less cautious than my own.
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