Domaining MBA Monday: Not All Domains Are Investments

Hello and welcome to another edition of Domaining MBA Monday! Today I wanted to talk about a concept that might disappoint you a bit, but better to be disappointed now, rather than broke and disappointed later. The concept may sound simple but it’s not, and many new Domainers will take a year or more for this point to really hit home. The point here can be summed up as, “Not All Domains Are Investments.”

I’d like to start this article with one of my favorite quotes, from one of my favorite movies, Star Wars. In Return of the Jedi Han Solo says,

“A Jedi Knight? Jeez, I’m out of it for a little while, everyone gets delusions of grandeur!”

This is where most Domainers start. They have delusions of grandeur, typically spurred by domain sales lists. You know the feeling, you see a huge list of domains that sold and think, “I can buy domains like that! Heck, that domain stinks, I already have better names!” You then start coming-up with the value of your names based on “similar” sales and quickly value your portfolio and a few hundred thousand dollars.

Here’s the thing, until you make your first hundred thousand selling your names, you don’t really know if you have domains with the value you’ve assigned to them. Still, even without making any sales it can be all too easy to just keep on buying.

While you may see Sedo’s weekly sales week and think that so many of your names are similar to those that sold so you can just list them on Sedo and watch the money coming in. This is rarely the case. So what happens next? Domainers conclude that they just didn’t buy the right names, and keep buying and listing for sale, the entire time feeling safe with their purchase because, as I’ve heard far too many times, “they’re all investments.”

And therein lies the problem. They are not all investments, in fact, if they aren’t making over $8/year they are a liability until you sell them. Remember, an investment is something that pays you. If you buy a domain and sell it for 10x what you paid, then it was a good investment, however until that event takes place, if the domain isn’t generating revenue, it is actually just costing you money.

The critical task that all investors should be focused on is not just acquiring as many one or two word .COMs that they can, but acquiring the right ones. You’ll only know you’re getting the right ones when you start making sales and finding a repeatable model. It is this repeatable model that many investors never find because they become stuck in their ways.

Here’s an example. You assume that buying domains with the word “hair salon” in it will mean you have easy flips ahead since you can sell them to hair salons. So you buy 100 domains with these keywords in it and list them everywhere, no money comes in. So you call a hair salon, they don’t want it, and another, they don’t want it either, what gives?

The thing is you never took the time to validate your assumptions, which means all those “investments” were really just liabilities, and the more years you renew them, the bigger the liability they become. What you should do is start with one or two (and the best one or two in your niche) and make sure you can sell those first. If you can, then keep going, if not, then pivot and find a different strategy.

The great things about Domaining is that there are so many different markets to explore and different avenues to take. However, as you’re off exploring just make sure to remember that not all Domains are investments. Take the time to validate your market and see if there’s a good fit before diving in and buying a portfolio full of liabilities.

{ 9 comments… add one }

  • owen frager June 25, 2012, 10:11 pm

    Having just gone through my first real loss and bereavement I noticed that instead of 1-800 -flowers most people were sending “edible arrangements. It’s that kind of innovation that really matters at the end of the day. Seeing a problem you can dove, an unmet need or a new and better and more compelling way of doing something. Most domainers need 12-step type help.

    Reply
  • owen frager June 25, 2012, 10:12 pm

    a problem you can solve…

    Reply
  • Aaron June 25, 2012, 11:27 pm

    A big problem for me is the sales lists are all over the place in terms of names being sold. There is simply no pattern! Keyword domains sold. Brandables sold. 3 letter or number domains sold. As a beginner, this is really confusing, which is why I am starting slow and buying only a couple.

    At the end of the day, I see domains as lottery tickets. Yes, we can pick the best tickets that we can afford but the sale is really another matter.

    The important thing is whether you have a cash flow coming in to fund these investments and their renewal cost.

    Please corret me if I am wrong.

    Reply
  • Joe June 26, 2012, 5:23 am

    Great article Morgan. I have been trying to explain this to a friend of mine for weeks. I’m going share this article with him…hopefully it will give him the reality check he needs.

    Reply
    • Morgan June 26, 2012, 10:18 am

      Awesome, glad you liked it @Joe!

      Reply
  • Leonard Britt June 26, 2012, 5:53 am

    Perhaps the proper classification of many domains would be neither an asset (with a future economic benefit) nor a liability (not really a future obligation because the registration can be dropped) but a recurring expense. Many businesses are focused on controlling operating expenses. If you manage a domain portfolio you do need to reassess the potential likelihood of a domain generating a sale. Yes, reported domain sales can seem random. Three recent unsolicited sales of mine in Spanish (each $XXX) include a .TV, a three-word .Net and two-word .COM with zero keyword search volume.

    Reply
  • Mike June 26, 2012, 8:42 am

    If you buy domains the right way they will make parking PPC for you, and again, if you buy right they will sell, if you choose to sell.

    If you have the PPC income then you don’t need to sell your domains at all, and they are not liabilities until they are sold. I sold no domains for nine years because they made money for me this way. Just recently have I started selling again.

    If you want to take the safest route this is it, but you have to learn how to spot PPC domains, which is a art itself.

    If you buy 2000 domains making a measly .14 a day you have 100K (less about 17K in renewals) without having to sell any domain, and if you do sell a domain it is just gravy. It can be done, and it is not that hard once you know how to spot the domains.

    Imagine if you 2,000 domains did $1 a day or more. You should be getting the picture. 🙂

    Reply
  • DomNics June 26, 2012, 1:52 pm

    Morgan, how many staff members do you have setting up all these affiliate websites for you? Do they get a cut?

    Reply
  • jerichofortman|edbutowsky July 13, 2012, 5:55 am

    Good article.Not all Domains are investments,they’re some that consume and eventually fail,People should be more picky and have consultations from Investment Advisers like Ed Butowsky before investing.

    Reply

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