What Happens When The Well Runs Dry?
Posted by My recent post on the Traffic Show delivered a variety of interesting perspectives from readers. Owen Frager hit a very important issue that I wanted to caveat off of and have preached to many people privately and openly on Sahar’s blog in the past. Everyone knows that the major players and investors in the domain industry have kept the after market sales in the spotlight over the years with the prices they have paid to acquire these generic domains. They are the reason conferences like Traffic have become successful and in the spotlight with record breaking auctions. Without them, the market would not have evolved as fast as it has in mainstream media.
End-users have been very minimal in domain acquisitions when you look at statistics from all the major auction events in the industry over the years. While end-users have increased in acquisitions over the years, they do not make up the domain after market for top dollar domains. They are mainly on the low end of the spectrum.
My question to readers is, What happens when you take many of the major players/investors out of the buying cycle of generic domains on auctions and the after market? All of the domain conferences depend on them for the marquee domain auctions that draw large crowds. All of the news channels in the industry rely on them to publish articles on key sales. Can you imagine how interesting reading DNJournal.com domain sales would be if there were no huge sales weekly? What happens when the well runs dry and these people have filled their portfolios to the max. It happens in every industry, and it will happen in the domain industry as well, and has already started to occur.
Many of these major players have already started to tighten their acquisition budgets because of the economy, but more importantly because of lower PPC payouts from Google and Yahoo!. The future of PPC is uncertain and there is major concern. The recent Traffic show validated this, and more importantly these same players are not interested in paying end-user prices for domains on auctions. Everyone wants a deal, even though domains continue to go up in value every year. It amuses me to see major players complain about reserves being set to high by sellers, but when they sell to an end-user, they charge the max amount. (That is for another post, as I am sure people will comment on this statement.)
PPC is getting to a point where it is no longer feasible to spend 6 figures on a domain name, where historically, PPC offset the purchase price immensely. If PPC payouts continue to decrease, we are going to see a flood of domain deletions in the industry. Additionally, the auction market will become over saturated with domains for sale with these major players trying to recoup any losses. This will decrease the value of domains when this occurs, when there is 50 times more supply than demand.
Some will say that the after market is already over saturated with domains for sale. IMO, I believe this is only the tip of the iceberg. A market meltdown will occur if PPC payouts continue to decrease. There are many who do not want to discuss this openly, and prefer to talk privately about it in close circles. However, the truth is that this industry is at risk if many of the major players stop buying names at auctions, and start to flood the market with their low quality domains.
If PPC payouts rebound, all will return to normal and the talks about development will cease for the most part. However, if they do not and continue to decrease, development will become the number one area of focus. Additionally, the domain market will bottom out and evolution will occur at a fast rate for the domain industry. Those who have developed properties smartly will continue to stay afloat until the market rebounds, if it does. Interesting times ahead, if PPC payouts do not rebound.
I am interested in hearing your thoughts.
