« Sahar's Blog: Conceptualist.com | Main | More Browser Intent Hijack Schemes »

March 28, 2007

Comments

Snoopy

"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 2% of a large portfolio like Marchex's each year (pushing it)"

Surely the breakup value is the amount they would expect to receive if they sold every single name off for whatever they could get in a fairly short space of time?

If a portfolio owner can only sell 2% of inventory in a year then I would think the prices achieved do not reflect market values?

***FS*** conceded.. lets call it the conservative break-up value. 2% per year is a gerneral rule of thumb that I have heard several times related to passive portfolio selling.

RobB

Very interesting post there, which brings to mind a few things.

I've been meaning to ask you the question about what you think of Marchex's market cap, given they have all those great names and they are a publicly traded company. Their market cap is about 651 million I think, and you say their domains alone could be worth a billion (not including the ongoing revenue those domains are making). So I guess Marchex is a 'buy'.

About the US economy and US dollar, there have been people over the past few years, like Jim Rogers, who have predicted the dollar will fall against world currencies for many reasons (huge government debt the big one). They recommend things like investing outside the US, in gold, commodities, foreign currencies, anything but the US dollar. So far it hasn't happened but they say it's a matter of when not if. It could be a painful recession for many until it cleans itself up and growth starts again. Just looking at domains, I wonder what would happen. You would think people would have less money and companies would be hurting, so less shopping, less sales, less advertising $$$, which hurts domains to some degree. Things would recover eventually, economies go up and down, but it would be a shock because most of the 'internet generation' has never been through a tough recession (I'm talking much worse than the 2000 .com crash) and probably think it could never happen. If you read up on the 30's and to a lesser degree the 70's it's hard to picture what the conditions were in America during those times, and picturing what it would be like if it happened today.

I think domainers could still get hurt in a recession because the people surfing the net and the companies doing the advertising will be hurting. What if it gets so bad the internet connection is one of the things the household has to let go? But on the flip side, you don't have to feed a domain, or fill it with gas, or heat it, so I think even though domainers would be affected, it would be too a lesser degree than most. And you'd could out at the other end still holding all those good names when things turn up again.

If you are pulling in big money in domains, you should probably be investing a portion of it in hard assets like gold, commodities, or companies that have some of their revenue from outside the US, or more stable foreign currencies. Maybe even in foreign domains (.de, .uk, .cn) so that a setback in any one country doesn't cause a huge setback to your earnings.

As for oil, there could be a decade or two of real pain if oil reserves start depleting and not meeting demand. Already many say it could turn at any time. Emerging countries like China are buying vast amounts of oil, metals, and commodities. Demand is increasing and supplies are becoming uncertain. There hasn't been a huge new oil deposit discovery for a long time. Some experts say the Middle East oilfields could start producing less at any time. Luckily new energy sources are being developped (solar, wind, geothermal) but these are many years away from widespread use.

I'd recommend reading Jim Rogers book 'Hot Commodities' for his take on where this is all going. "Investment Biker" and "Adventure Capitalist" are two other books of his, where he travelled around the world by motorcycle and souped up car to visit different countries and give his take on their economies, what's working and not working.

On a final note, in 2000 and 2001, when I bought my first few domains, I started getting interested in mlm and network marketing. I thought I could slowly build a downline in an mlm company over time, so that in 10 or 20 years I'd be set, having a large growing organization of people helping me earn monthly residual income through product sales. I didn't buy many domains from 2002 to 2004, but I was still focusing on network marketing. Little did I realize then that having a bunch of generic .com domains was like an mlm business, you 'recruit' the right domains and they help you earn monthly residual income. You don't have to talk to them, you don't have to convince them, they don't quit, you just set them up and they keep working for you even while you sleep. It is the network marketers dream. I still keep a hand in mlm (plus I learned that the keywords pay good PPC, there is a lot of money flowing around in mlm so it helped me buy some good mlm-related domains) but I wish it had clicked with me sooner that the answer to residual income was in the domains. Sorry for the rambling post!

***FS*** Great comment! Thanks for the book tip and you're right .. domains are like an mlm machine you don't need to keep motivated. Quite a downline you've built Rob :) I think .cc tld's of the country you are in will always be good.. but people won't turn off their internet or stop typing .com because times get hard. Ad rates may lower but they will be stable. The people who will get hurt most are the pie in the sky domainers selling speculative (no type in) names to the greater fool.. That will all blow away and the industry may get smaller for a while.

Omar

Frank,

Right now the market seems to be very rational as buyers are basing their prices on cash flows. In addition, most buyers are quite knowledgeable of the industry.

However, I think psychology plays a big role in markets. Just imagine what happens when there is a flood of positive publicity. We could experience "domain mania" in which prices get out of whack with reality. I really think it will happen – I just don’t know when :)

julien

hey frank, just saw a video interview of you that led me to here. this is a great post that has some well thought out ideas behind it. cheers.

michael zielinski

"I previously estimated a conservative breakup value of Marchex' domain names alone at north of a billion"

There are huge amounts of value for publicly traded companies with domain portfolios that is simply not being recognized by the stock market. Marchex is one example, but there are others.

In early 2003, publicly traded Communicate.com (CMNN.OB) had a market cap of less than 1 million. They have individual names in their portfolio that are worth more than that. The stock price has risen significantly since then, but what about Tucows (TCX) which now owns the NetIdentity portfolio? There's value here that's not being recognized by the stock market. Other companies?

Will this eventually give rise to corporate domain raiders? Buy out the entire company with borrowed funds and sell off the domain names to unlock the value?

***FS*** Excellent points.. There will be corporate domain raiders IMO.. and Tucows has a nice portfolio too. MCHX was just the most obvious to me TCOWS too

Leon

"large groups of names are actually worth less together than their individual break-up value"

But what if the group of names are related; geographically, by profession, theme, program, product etc, etc?

Patrick McDermott

"most of the good, meaningful domain names on the Internet are owned by the person reading this and a handful of other large groups..."

Did you really mean "by the person WRITING this"?

Patrick

***FS*** HA! .. no.. people like you Patrick.. Of course there are people around the world that own individual great names. But there are alot less folks like that than there used to be. Today the majority of the good stuff is held by the few.. I include guys like AOL/CNET in the top holders list.. they have nice portfolios of individual names..

The comments to this entry are closed.